It quickly becomes illegal to incorporate in the Cayman Islands if you're really a US company incorporated in the Cayman Islands to not pay US taxes.
Cayman Islands also screams shady. Google and Microsoft both have Irish subsidiaries to save on taxes. I'm sure doing that legally is incredibly complicated and expensive. When you get that big, it will be worth it to hire someone to help you save on taxes. For now, a Delaware C-Corp or LLC is good enough. Nevada if you really want to save 1%.
Nevada also screams shady, and all of the supposed benefits of Nevada (no data share with IRS, etc.) are BS anyway. US startups should always form their business structures in either their home state or Delaware.
thanks ... i used cayman island just as an example but there are many others - i think it won't be that profitable else all YC companies would have been taking advantage of this. Do you know where all YC companies are incorporated????
If you're a Delaware corp, but you live and operate in, say, California, don't you also have to be incorporated to do business in California and pay taxes on whatever income is received there?
Or is the whole point that we're doing business "on the internet" so that doesn't apply?
SGI was originally incorporated as a California corporation in November 1981, and reincorporated as a Delaware corporation in January 1990. -- http://en.wikipedia.org/wiki/Silicon_Graphics
I presume that you pay lawyers in Delaware to use their office address as your official headquarters and then your California office becomes a satellite office. The fee for this service could be expensive but it would be tax effective.
This could be worthwhile even for the UK startups that YCombinator has funded. This is due to tax regulations that affect IT contractors and IT startups.
UK IT contractors are encouraged to incorporate for the purposes of professional liability. However, many solo contractors kept large proportions of fees in the shell company to cover lean periods while minimising tax. Tax officials took a dim view of this practice and changed the regulations. Although the regulations are intended to cover contractors, it could also affect a startup. Incorporation in Delaware would remove this limitation.
Cayman Islands also screams shady. Google and Microsoft both have Irish subsidiaries to save on taxes. I'm sure doing that legally is incredibly complicated and expensive. When you get that big, it will be worth it to hire someone to help you save on taxes. For now, a Delaware C-Corp or LLC is good enough. Nevada if you really want to save 1%.