Will a massive expatriation be the main result of digital economy and which countries are likely to benefit?

Will a massive expatriation be the main result of digital economy and which countries are likely to benefit?

Today decision takers are in their forties and plus, they are investing in the digital economy although they often started their careers at a time when FAX was still existing. Obviously, you don’t need to be a young geek to understand, accept and accompany the digitalization of the economy.

The issue of an investor in the digital economy is basically his/her own environment, too often the possible Internationalization of the sales is well understood but applying fully a “cloud” environment by not renting office and having local employees is not yet in the DNA of an investor.

A digital business could be destined to the local market, but this shouldn’t justify an abandon of certain principles, the main one is to honestly questioning the need to locally hire and to rent office space.

Till COVID times it was easy to lie to ourselves, to mention COMMUNICATION issues, motivation, creativity meetings, local situation awareness etc.… to justify the need to rent an office and to hire local personalities.

The truth was certainly a mix of good reasons and some more unmentionable ones, we like to physically see our investments, we like to share a coffee with the team, we simply do it because we are not willing to work differently, as example to expatriate ourselves.

But what did we do for the last 18 months? We conducted business by renouncing to our comfort, we were forced to adapt and to accept to drastically change our way of working. This was possible but wasn’t FUN, this was even unbearable for some.

Expatriation

COVID 19 constraints are eyes openers for a generation of entrepreneurs and investors.

  1. A physical office is not an absolute necessity, at minima the office space could be reduced and social interaction could be maintained by having the team being present only few days a week.
  2. Most of the back-office tasks could be outsourced few thousand kilometers away, the staff wasn’t at office for the last few months and this basically changed nothing.
  3. A lot of talented individuals did seize the opportunity to change of location and a large number of important contributors are willing to work, at least partially, from home.
  4. Apart companies directly impacted by confinement (restaurants, hotels etc..) the companies suffered eventually from a decrease of demands but not from an absence of physical sales meetings.
  5. The importance of local teams in countries of exportation and importation is increasing, some traders which were under enormous commercial pressure to survive despite the Alibaba efficiency in China are now seeing large turnover increase because of their quality controls and leverage with factories.
  6. Quality of services and products is finally regaining some importance, with an absence of filters between a mistake made and its discovery by the senior management.
  7. Low efficiency team members are being caught by time and tasks trackers.

The digital economy will create waves of expatriations.

  1. When considering business opportunities and the scale-up of business it’s nearly impossible to avoid commercialization or purchasing in English speaking/working countries. Having employees or freelancers in multiples countries is becoming an obligation.
  2. A generation of talented employees has already left their poor sun and high tax countries, pushed away by insecurity and social issues. These freelancers or potential employees possess skills and expertise applied to specific countries; they just do not live IN the country.
  3. Business partners and investors are easier to meet outside of Europe, easier to approach and to convince.
  4. Most of the countries supported the economy by injecting billions of dollars, now they will tax more companies and successful individuals.
  5. By investing in marketing and organization instead of paying high taxes, by escaping administrative burden, the companies are using their resources to increase the business.  

Which countries are likely destined to host waves of entrepreneurs in the digital economy?

The process to select a country is reflecting the concerns of European candidates for expatriation: security and low pollution, ease to find private school, health system and insurances costs, visa system.

The tax environment is crucial, it’s really easy to find countries with lower taxes than Europe but every aspects of the tax regime should be analyzed carefully.

Hong Kong

  • Preferred location of many digital entrepreneurs for the setup of a Hong Kong company which will claim offshore profits (if the profits doesn’t derive from activities in Hong Kong) this could mean a ZERO tax bill
  • With activities in Hong Kong very low tax environment (8.25 till USD 250,000 of profits then 16.5 %) with no VAT and no capital gain.
  • Entrepreneur visa is difficult to obtain, life is expensive and the city is suffering from the aftermath of social unrest.
  • IDEAL solution for single operators in the digital marketing, with a company in Hong Kong they do benefit from credibility and stable environment while living in neighbour countries.

UAE

  • Very trendy as welcoming influencers in need of showing success and participating in parties, the Instagram city…
  • Very favourable tax environment if structured properly with local office and local employees, fake residents will get caught easily by their country of tax residence.
  • Poor commercial logic as definitive local absence of clients and suppliers, no business support.

Singapore

  • Same advantages as Hong Kong but with a reduced access to China when Covid constraints will be “over”.
  • Difficulties to bank outside of Singapore with a Singapore Company (when the company has the turnover of a SME) this situation creates tax risks for many entrepreneurs attracted by an offshore situation.
  • Beautiful city with less pollution and nicer standard of life than Hong Kong, still an expensive location.

Thailand

  • Not a good country to setup a company but a very nice one to live-in while having a Hong Kong offshore company.
  • Ever changing Visa and Tax environment, a local company should have at minimum four local employees for each expatriate under working contract.
  • Many solutions with nominee services to effectively own a company or a land but with high-risk exposure on the long term.

Philippines

  • THE location of the best freelancers available to support digital economy, from developers to graphic designers and content specialists. Very nice professionals with pleasant personalities.
  • Total burden to create a company, if not discouraged by the process you will abandon later when confronted to a complicated and expensive maintenance.
  • Insecurity in the main cities, outside of the cities great social & internet issues.

Mauritius

  • Low tax environment very attractive to French speaking entrepreneurs.
  • Easy banking but with regular issues with their correspondent banking, so clients should be prepared with T/T blocked/delayed and heavy compliance.
  • Fantastic Island for mature entrepreneurs, not really for start-ups
  • Ease to create and to maintain tax substance.

Indonesia

  • Few solutions with nominee services which are difficult to maintain without issues on the long term.
  • A nice alternative to Thailand with similar advantages but in an Islamic environment, so a different way of life.
  • Enormous local market with 270 million inhabitants.

A lot of countries, with low tax environment, pro-business governments and lower operational costs are welcoming the digital economy. The only whom to seems to realize the attractivity of such offers are the European governments.

Raphael

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