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Comparison
Hong Kong, Cyprus or the USA: where to set up a company in 2026
Tax rates, the FSIE regime, the Cyprus reform and the new 15%, LLC against C-Corp. Banking routes, cost of ownership and how to choose for your task
The short answer: which jurisdiction suits whom
Three jurisdictions answer three different questions, and choosing between them on the tax rate is pointless. Here is the conclusion if you have no time to read.
Hong Kong is for businesses genuinely connected to Asia: suppliers in China, trade through Asian marketplaces, settlement in renminbi and dollars. The rate is two-tiered at 8.25% on the first HK$2 million and 16.5% above that. There is no VAT at all. Profit sourced outside Hong Kong may fall outside the charge where the documentation supports it, but a zero rate does not arise on its own. An annual audit is mandatory regardless of turnover. Setup from $750, five days.
Cyprus is for businesses whose clients are in the EU and whose value sits in software or intellectual property. From 1 January 2026 the corporate rate rose from 12.5% to 15%. The IP Box regime produces an effective rate of around 3% on qualifying income. VAT is 19% and an audit is mandatory for every company. Setup from €1,650, seven days.
The USA is for businesses that need access to the American market, its payment infrastructure or its venture capital. Tax here is not an advantage but the price of that access. The federal rate for a corporation is 21% plus state tax. An LLC with a single non-resident owner and no US-source income pays no federal tax at the entity level, but files returns regardless. Setup from $1,200, five days.
And the principle that matters more than all three paragraphs above. The jurisdiction is chosen on three parameters: where your clients are, which banking route is open to you, and how ownership is structured. A mistake at this stage costs more than a consultation beforehand, and the only fix is a second legal entity.
Hong Kong is for businesses genuinely connected to Asia: suppliers in China, trade through Asian marketplaces, settlement in renminbi and dollars. The rate is two-tiered at 8.25% on the first HK$2 million and 16.5% above that. There is no VAT at all. Profit sourced outside Hong Kong may fall outside the charge where the documentation supports it, but a zero rate does not arise on its own. An annual audit is mandatory regardless of turnover. Setup from $750, five days.
Cyprus is for businesses whose clients are in the EU and whose value sits in software or intellectual property. From 1 January 2026 the corporate rate rose from 12.5% to 15%. The IP Box regime produces an effective rate of around 3% on qualifying income. VAT is 19% and an audit is mandatory for every company. Setup from €1,650, seven days.
The USA is for businesses that need access to the American market, its payment infrastructure or its venture capital. Tax here is not an advantage but the price of that access. The federal rate for a corporation is 21% plus state tax. An LLC with a single non-resident owner and no US-source income pays no federal tax at the entity level, but files returns regardless. Setup from $1,200, five days.
And the principle that matters more than all three paragraphs above. The jurisdiction is chosen on three parameters: where your clients are, which banking route is open to you, and how ownership is structured. A mistake at this stage costs more than a consultation beforehand, and the only fix is a second legal entity.
Why comparing tax rates does not work
Hong Kong 16.5%, Cyprus 15%, the USA 21%. Not one useful conclusion can be drawn from those three numbers, and it is worth setting out why.
First, the rate applies to a different base in each case. Hong Kong taxes only profit sourced in Hong Kong. Cyprus taxes the worldwide income of a resident company. The USA taxes a corporation on worldwide income but does not tax an LLC at the entity level at all, passing the charge to the owner. Three numbers describing three different constructions.
Second, within each rate there are regimes that change the outcome several times over. The Cypriot IP Box reduces the effective burden on qualifying income to roughly 3%. In Hong Kong the first HK$2 million is charged at half the rate. In the USA the choice between two company forms inverts the tax logic entirely.
Third, profits tax is not the only tax and often not the largest cost. Cyprus has VAT at 19% and a special defence contribution on dividend payments. Hong Kong has no VAT but requires a mandatory annual audit, which for an active trading company costs several thousand dollars a year. The USA levies sales tax at state level with its own rates and rules for every category of goods, and applies 30% withholding on payments to non-residents where no treaty applies.
And fourth, the most practical point. Tax arises where profit arises. A company with no profit pays nothing at any rate, while still carrying the cost of upkeep. In the first two years the difference between jurisdictions is determined not by tax but by maintenance costs and by whether the account opened at all.
Hence the working sequence: market first, then banking route, then company form, and the tax calculation last. The reverse order is the most common and most expensive mistake in this area.
First, the rate applies to a different base in each case. Hong Kong taxes only profit sourced in Hong Kong. Cyprus taxes the worldwide income of a resident company. The USA taxes a corporation on worldwide income but does not tax an LLC at the entity level at all, passing the charge to the owner. Three numbers describing three different constructions.
Second, within each rate there are regimes that change the outcome several times over. The Cypriot IP Box reduces the effective burden on qualifying income to roughly 3%. In Hong Kong the first HK$2 million is charged at half the rate. In the USA the choice between two company forms inverts the tax logic entirely.
Third, profits tax is not the only tax and often not the largest cost. Cyprus has VAT at 19% and a special defence contribution on dividend payments. Hong Kong has no VAT but requires a mandatory annual audit, which for an active trading company costs several thousand dollars a year. The USA levies sales tax at state level with its own rates and rules for every category of goods, and applies 30% withholding on payments to non-residents where no treaty applies.
And fourth, the most practical point. Tax arises where profit arises. A company with no profit pays nothing at any rate, while still carrying the cost of upkeep. In the first two years the difference between jurisdictions is determined not by tax but by maintenance costs and by whether the account opened at all.
Hence the working sequence: market first, then banking route, then company form, and the tax calculation last. The reverse order is the most common and most expensive mistake in this area.
Hong Kong: where it beats the other two
Hong Kong is not a universal answer. In its own scenarios it wins clearly; outside them it adds cost without benefit.
Trade with China and Asian suppliers. Hong Kong remains the financial gateway between mainland China and the rest of the world, and the political changes of recent years have not altered that role. A Hong Kong company gives you direct settlement with Chinese suppliers in renminbi, Hong Kong dollars and US dollars, simplifies import and export through the mainland, and reads to factories and trading houses as a familiar structure. For a seller on international marketplaces buying from China it is standard operating practice rather than anything exotic.
The arrangement with mainland China. It offers better terms than most alternatives: withholding tax on dividends drops to 5% against the standard 10% where the conditions are met. For a group with a manufacturing or procurement company on the mainland that is a direct saving on intra-group payments, and it is measured against turnover rather than profit.
Asian payment infrastructure. Financial services built around Asian trade open accounts for Hong Kong companies faster and more readily than for structures from classic offshore jurisdictions. The difference here is not a couple of days but whether the application passes at all.
A low burden at mid-range profit. The two-tier rate means the first HK$2 million of profit, roughly $255,000, is charged at 8.25%. For a company earning within that band, a Hong Kong structure delivers a tangible advantage without any special regime.
The other side is simple, and worth stating plainly. With no Asian connection, a Hong Kong company delivers neither a tax nor an operational gain, while adding a mandatory audit, demanding banking compliance and the need to substantiate the source of profit. In our experience, clients who choose Hong Kong without a genuine Asian link get stuck at exactly one point: opening the account.
Terms and process are on the Hong Kong company registration page.
Trade with China and Asian suppliers. Hong Kong remains the financial gateway between mainland China and the rest of the world, and the political changes of recent years have not altered that role. A Hong Kong company gives you direct settlement with Chinese suppliers in renminbi, Hong Kong dollars and US dollars, simplifies import and export through the mainland, and reads to factories and trading houses as a familiar structure. For a seller on international marketplaces buying from China it is standard operating practice rather than anything exotic.
The arrangement with mainland China. It offers better terms than most alternatives: withholding tax on dividends drops to 5% against the standard 10% where the conditions are met. For a group with a manufacturing or procurement company on the mainland that is a direct saving on intra-group payments, and it is measured against turnover rather than profit.
Asian payment infrastructure. Financial services built around Asian trade open accounts for Hong Kong companies faster and more readily than for structures from classic offshore jurisdictions. The difference here is not a couple of days but whether the application passes at all.
A low burden at mid-range profit. The two-tier rate means the first HK$2 million of profit, roughly $255,000, is charged at 8.25%. For a company earning within that band, a Hong Kong structure delivers a tangible advantage without any special regime.
The other side is simple, and worth stating plainly. With no Asian connection, a Hong Kong company delivers neither a tax nor an operational gain, while adding a mandatory audit, demanding banking compliance and the need to substantiate the source of profit. In our experience, clients who choose Hong Kong without a genuine Asian link get stuck at exactly one point: opening the account.
Terms and process are on the Hong Kong company registration page.
Hong Kong: the territorial principle, the FSIE regime and the mandatory audit
This is where the main misconception about Hong Kong lives, and it needs unpicking precisely.
Hong Kong charges profits tax only on income sourced in Hong Kong. Income arising outside the jurisdiction falls outside the charge. That construction is what produced the formula “a Hong Kong company pays nothing”, which migrates from article to article.
The formula is imprecise, and here is why. The exemption does not apply by default. The company has to demonstrate to the Inland Revenue Department that the profit genuinely arose outside the jurisdiction. The Department looks not at formal indicators but at where the activities producing the profit physically took place: where negotiations were held, where contracts were signed, from where operations were run, where commercial decisions were taken. A foreign bank account and foreign clients do not count as evidence.
In practice it works like this. The company files an offshore claim, attaching contracts, invoices, correspondence, bank statements and evidence of where the transactions took place. The Department reviews the file and issues a determination. An approved status holds for several years and is then confirmed again. A claim filed without a prepared file usually ends in an assessment at the standard rate.
A separate layer: the foreign-sourced income exemption regime. The FSIE regime has applied in Hong Kong since 1 January 2023 and was expanded in January 2024. It covers companies within multinational groups and specific categories of passive income: dividends, interest, intellectual property royalties and disposal gains. For those companies, foreign origin alone no longer secures an exemption; economic substance in Hong Kong is required, meaning staff, premises and expenditure proportionate to the scale of operations. For a standalone trading company outside a group, the classic territorial principle continues to apply.
The distinction matters. A good deal of material describes the FSIE regime as though it had abolished the territorial principle for everyone. It did not: it closed one particular construction involving passive income inside multinational groups.
The mandatory audit. Unlike most low-tax jurisdictions, Hong Kong requires audited financial statements every year regardless of turnover. Without an audit you cannot file the profits tax return or keep the company in good standing. The cost starts at several hundred dollars for a company with minimal activity and rises into the thousands with real trading volume. It is a compulsory budget line, not an option.
And on the timeframes that rarely get mentioned. Transaction records are kept for seven years, and the Department may reopen earlier periods. A company that has not kept its records carefully finds this out two or three years after incorporation, by which point there is nothing left to reconstruct.
Hong Kong charges profits tax only on income sourced in Hong Kong. Income arising outside the jurisdiction falls outside the charge. That construction is what produced the formula “a Hong Kong company pays nothing”, which migrates from article to article.
The formula is imprecise, and here is why. The exemption does not apply by default. The company has to demonstrate to the Inland Revenue Department that the profit genuinely arose outside the jurisdiction. The Department looks not at formal indicators but at where the activities producing the profit physically took place: where negotiations were held, where contracts were signed, from where operations were run, where commercial decisions were taken. A foreign bank account and foreign clients do not count as evidence.
In practice it works like this. The company files an offshore claim, attaching contracts, invoices, correspondence, bank statements and evidence of where the transactions took place. The Department reviews the file and issues a determination. An approved status holds for several years and is then confirmed again. A claim filed without a prepared file usually ends in an assessment at the standard rate.
A separate layer: the foreign-sourced income exemption regime. The FSIE regime has applied in Hong Kong since 1 January 2023 and was expanded in January 2024. It covers companies within multinational groups and specific categories of passive income: dividends, interest, intellectual property royalties and disposal gains. For those companies, foreign origin alone no longer secures an exemption; economic substance in Hong Kong is required, meaning staff, premises and expenditure proportionate to the scale of operations. For a standalone trading company outside a group, the classic territorial principle continues to apply.
The distinction matters. A good deal of material describes the FSIE regime as though it had abolished the territorial principle for everyone. It did not: it closed one particular construction involving passive income inside multinational groups.
The mandatory audit. Unlike most low-tax jurisdictions, Hong Kong requires audited financial statements every year regardless of turnover. Without an audit you cannot file the profits tax return or keep the company in good standing. The cost starts at several hundred dollars for a company with minimal activity and rises into the thousands with real trading volume. It is a compulsory budget line, not an option.
And on the timeframes that rarely get mentioned. Transaction records are kept for seven years, and the Department may reopen earlier periods. A company that has not kept its records carefully finds this out two or three years after incorporation, by which point there is nothing left to reconstruct.
Cyprus: what the 2026 reform changed
The most important section of this article, because almost every piece of material on the subject carries outdated figures here.
The corporate rate rose from 12.5% to 15% on 1 January 2026. The reform package was approved by the Cypriot parliament on 22 December 2025 and published in the official gazette on 31 December. The driver was alignment with the OECD global minimum tax: at 12.5% large international groups were topping up the difference in other countries anyway, and Cyprus decided to collect it instead. Importantly, the increase applies to every company without exception rather than only to large groups: Cyprus chose a single rate over two parallel regimes.
If you come across a 2026 article quoting 12.5% for Cyprus, it has not been updated since last year, and the rest of its figures do not deserve much trust either.
The rate increase was not the only change, and the others work in business’s favour.
The special defence contribution on actual dividend payments was cut from 17% to 5% for profits earned from 1 January 2026. The deemed dividend distribution rule, under which undistributed profit was treated as paid out and charged accordingly, has been abolished for profits from 2026 onwards, which allows profit to be accumulated in the company properly. The loss carry-forward period rose from five years to seven, and to ten in certain circumstances, which matters for projects with a long loss-making stage. The 120% super-deduction on qualifying research and development expenditure has been extended to 2030. Stamp duty has been abolished entirely.
Read it this way: the headline rate went up, while the total burden across the full cycle from profit earned to dividends received by the shareholder is unchanged or lower for many structures.
And an important change almost nobody writes about. From 2026 the definition of a tax resident company has been widened: a company incorporated under Cypriot company law is automatically treated as a Cypriot tax resident unless a double tax treaty provides otherwise. Previously an additional condition applied, namely that the company was not resident anywhere else. The change removes some uncertainty and simultaneously creates a dual residence risk for anyone who has incorporated in Cyprus but manages the company from a third country.
The corporate rate rose from 12.5% to 15% on 1 January 2026. The reform package was approved by the Cypriot parliament on 22 December 2025 and published in the official gazette on 31 December. The driver was alignment with the OECD global minimum tax: at 12.5% large international groups were topping up the difference in other countries anyway, and Cyprus decided to collect it instead. Importantly, the increase applies to every company without exception rather than only to large groups: Cyprus chose a single rate over two parallel regimes.
If you come across a 2026 article quoting 12.5% for Cyprus, it has not been updated since last year, and the rest of its figures do not deserve much trust either.
The rate increase was not the only change, and the others work in business’s favour.
The special defence contribution on actual dividend payments was cut from 17% to 5% for profits earned from 1 January 2026. The deemed dividend distribution rule, under which undistributed profit was treated as paid out and charged accordingly, has been abolished for profits from 2026 onwards, which allows profit to be accumulated in the company properly. The loss carry-forward period rose from five years to seven, and to ten in certain circumstances, which matters for projects with a long loss-making stage. The 120% super-deduction on qualifying research and development expenditure has been extended to 2030. Stamp duty has been abolished entirely.
Read it this way: the headline rate went up, while the total burden across the full cycle from profit earned to dividends received by the shareholder is unchanged or lower for many structures.
And an important change almost nobody writes about. From 2026 the definition of a tax resident company has been widened: a company incorporated under Cypriot company law is automatically treated as a Cypriot tax resident unless a double tax treaty provides otherwise. Previously an additional condition applied, namely that the company was not resident anywhere else. The change removes some uncertainty and simultaneously creates a dual residence risk for anyone who has incorporated in Cyprus but manages the company from a third country.
Cyprus: IP Box, holding structures and substance requirements
The IP Box regime is the main argument for Cyprus in a technology business. The mechanics are simple: 80% of qualifying profit from qualifying intangible assets is deducted from the tax base, leaving only the remaining 20% chargeable.
Note the figure carefully. Before 2026, at a rate of 12.5%, that produced an effective rate of around 2.5%. Following the increase to 15%, the effective rate is around 3%. The difference is small, but material still quoting 2.5% is thereby revealing that it has not been updated.
What falls within the regime: patents, copyright-protected software and functionally equivalent assets. What does not: trademarks and marketing intangibles. For a company whose principal asset is its own code, the regime works. For a company whose value sits in its brand, it does not.
The key constraint is called the modified nexus approach. The relief is proportionate to the share of your own development spend in total expenditure on the asset. Intellectual property acquired from a related company reduces the relief close to nothing. Hence the practical conclusion: expenditure records for each asset need keeping from day one, not assembling before the return is filed.
The holding function. Cyprus remains one of the most convenient holding jurisdictions in the EU. Dividends received by a Cypriot company from subsidiaries are exempt where the conditions are met. Gains on the sale of shares are not taxed, save where Cypriot real estate is involved. Cyprus levies no withholding tax on dividends paid to non-resident shareholders, and that is set by statute rather than depending on a treaty.
Substance requirements. Cyprus does not suit anyone looking for a structure with no real activity at minimal cost. The company must genuinely be managed from Cypriot territory: a director with real authority, board meetings on the island, management decisions taken there.
Director and shareholder services, offered by many incorporation agents, solve particular problems but create neither management nor substance. A structure whose entire connection to the country amounts to a rented address and an appointed person does not create problems immediately but two or three years later: when a bank asks for evidence of activity, or when the tax authority of the country of actual management treats the company as its own resident. A reassessment of tax residence with charges for prior periods is the most expensive of the mistakes we work through with clients.
Cost of upkeep. A mandatory annual audit for every company without exception, a corporate tax return, and VAT reporting once turnover exceeds €15,600. A full support package for a small company runs to several thousand euro a year. Cyprus is the most expensive of the three jurisdictions to maintain, and that belongs in the budget before incorporation.
Terms and process are on the Cyprus company registration page.
Note the figure carefully. Before 2026, at a rate of 12.5%, that produced an effective rate of around 2.5%. Following the increase to 15%, the effective rate is around 3%. The difference is small, but material still quoting 2.5% is thereby revealing that it has not been updated.
What falls within the regime: patents, copyright-protected software and functionally equivalent assets. What does not: trademarks and marketing intangibles. For a company whose principal asset is its own code, the regime works. For a company whose value sits in its brand, it does not.
The key constraint is called the modified nexus approach. The relief is proportionate to the share of your own development spend in total expenditure on the asset. Intellectual property acquired from a related company reduces the relief close to nothing. Hence the practical conclusion: expenditure records for each asset need keeping from day one, not assembling before the return is filed.
The holding function. Cyprus remains one of the most convenient holding jurisdictions in the EU. Dividends received by a Cypriot company from subsidiaries are exempt where the conditions are met. Gains on the sale of shares are not taxed, save where Cypriot real estate is involved. Cyprus levies no withholding tax on dividends paid to non-resident shareholders, and that is set by statute rather than depending on a treaty.
Substance requirements. Cyprus does not suit anyone looking for a structure with no real activity at minimal cost. The company must genuinely be managed from Cypriot territory: a director with real authority, board meetings on the island, management decisions taken there.
Director and shareholder services, offered by many incorporation agents, solve particular problems but create neither management nor substance. A structure whose entire connection to the country amounts to a rented address and an appointed person does not create problems immediately but two or three years later: when a bank asks for evidence of activity, or when the tax authority of the country of actual management treats the company as its own resident. A reassessment of tax residence with charges for prior periods is the most expensive of the mistakes we work through with clients.
Cost of upkeep. A mandatory annual audit for every company without exception, a corporate tax return, and VAT reporting once turnover exceeds €15,600. A full support package for a small company runs to several thousand euro a year. Cyprus is the most expensive of the three jurisdictions to maintain, and that belongs in the budget before incorporation.
Terms and process are on the Cyprus company registration page.
The USA: LLC or C-Corp, and why they are different businesses
A US company for a non-resident is not about low tax. It is about access to the market, to payment infrastructure and to venture capital. If none of those three applies, the USA is probably not the right choice.
Within the USA the main question is not the state but the company form. An LLC and a C-Corp are built on fundamentally different principles, and the choice between them sets the tax model for years ahead.
The LLC: a pass-through entity. By default an LLC is not a separate taxpayer: profit passes through to the owner and is taxed at their level. For a single non-resident owner whose company carries on no activity within the USA and has no US-source income, no federal tax arises at the entity level.
Every part of that condition matters. Having no US-source income is not the same as having no US clients. Sourcing depends on where the work is performed and through whom the activity is conducted, not on the buyer’s nationality. That characterisation is precisely where people go wrong when they form an LLC themselves following an online guide.
An LLC suits consultancy, agency work, online services and small product businesses with no plans for venture funding. It forms quickly and costs little to maintain.
The C-Corp: a corporation. A separate taxpayer at 21% federally plus state tax. Profit is taxed twice: at the company level and again at shareholder level on distribution. On tax alone it is plainly worse than an LLC.
So why choose a corporation. Because the entire standard financing toolkit of the US market, meaning simple agreements for future equity, convertible notes and employee option plans, is drafted for this form. Funds and accelerators work with it and frequently make it a condition of the deal. Multiple share classes, employee options and a clean merger or sale are all workable in a corporation and problematic in an LLC.
The practical consequence: if a venture round is planned, incorporate as a corporation from the outset. Converting an LLC into a C-Corp before a deal costs tens of thousands of dollars in legal fees and pushes the closing back by months. If no round is planned, an LLC is cheaper and simpler, and there is no sense in paying for a form you do not need.
The authorised shares trap. On the Delaware corporation specifically. A standard startup charter authorises 10,000,000 shares. State franchise tax is calculated by two methods, and under the Authorized Shares Method the figure for that number runs into five digits. The founder receives the invoice and panics. It does not have to be paid: the law permits the second calculation method, and with the par value set correctly the figure comes to around $400. But this is better known before incorporation.
Terms and process are on the USA company registration page.
Within the USA the main question is not the state but the company form. An LLC and a C-Corp are built on fundamentally different principles, and the choice between them sets the tax model for years ahead.
The LLC: a pass-through entity. By default an LLC is not a separate taxpayer: profit passes through to the owner and is taxed at their level. For a single non-resident owner whose company carries on no activity within the USA and has no US-source income, no federal tax arises at the entity level.
Every part of that condition matters. Having no US-source income is not the same as having no US clients. Sourcing depends on where the work is performed and through whom the activity is conducted, not on the buyer’s nationality. That characterisation is precisely where people go wrong when they form an LLC themselves following an online guide.
An LLC suits consultancy, agency work, online services and small product businesses with no plans for venture funding. It forms quickly and costs little to maintain.
The C-Corp: a corporation. A separate taxpayer at 21% federally plus state tax. Profit is taxed twice: at the company level and again at shareholder level on distribution. On tax alone it is plainly worse than an LLC.
So why choose a corporation. Because the entire standard financing toolkit of the US market, meaning simple agreements for future equity, convertible notes and employee option plans, is drafted for this form. Funds and accelerators work with it and frequently make it a condition of the deal. Multiple share classes, employee options and a clean merger or sale are all workable in a corporation and problematic in an LLC.
The practical consequence: if a venture round is planned, incorporate as a corporation from the outset. Converting an LLC into a C-Corp before a deal costs tens of thousands of dollars in legal fees and pushes the closing back by months. If no round is planned, an LLC is cheaper and simpler, and there is no sense in paying for a form you do not need.
The authorised shares trap. On the Delaware corporation specifically. A standard startup charter authorises 10,000,000 shares. State franchise tax is calculated by two methods, and under the Authorized Shares Method the figure for that number runs into five digits. The founder receives the invoice and panics. It does not have to be paid: the law permits the second calculation method, and with the par value set correctly the figure comes to around $400. But this is better known before incorporation.
Terms and process are on the USA company registration page.
The USA: tax compliance and the cost of mistakes
The American system is the most complex of the three, and underestimating that complexity costs the most.
The layering here is fundamental. Federal tax, state tax, sales tax at state level with its own rates and rules for every type of goods and services, and 30% withholding on payments to non-residents where no applicable treaty exists. Each layer runs on its own rules and deadlines.
Returns are filed even with no activity. The point missed most often. A foreign-owned company files a specific information return alongside its federal return. The penalty for not filing is $25,000 for every year missed. That is neither a typo nor a rare occurrence: a substantial share of those who incorporate themselves and conclude that no turnover means no filing obligation receive a notice from the tax authority.
A corporation additionally files a federal return by 15 April, and the annual report and state franchise tax by 1 March. A dormant company with no revenue pays and files on exactly the same basis.
The tax number as the bottleneck. The Employer Identification Number is needed for the bank, for card acceptance and for filings. A US resident obtains one online in minutes. An applicant without a Social Security Number files the form by fax or post, and that takes four to eight weeks. It cannot be accelerated. A launch planned without allowing for it slips by six weeks on this step alone, so the application should go in immediately after incorporation, in parallel with everything else.
Annual cost of ownership. For an LLC the minimum package covers registered agent services, the annual state payment and preparation of tax returns by a US accountant. For a corporation, add franchise tax, more complex compliance and corporate maintenance with written resolutions. The gap between the two forms on upkeep is noticeable, and it accumulates every year.
The layering here is fundamental. Federal tax, state tax, sales tax at state level with its own rates and rules for every type of goods and services, and 30% withholding on payments to non-residents where no applicable treaty exists. Each layer runs on its own rules and deadlines.
Returns are filed even with no activity. The point missed most often. A foreign-owned company files a specific information return alongside its federal return. The penalty for not filing is $25,000 for every year missed. That is neither a typo nor a rare occurrence: a substantial share of those who incorporate themselves and conclude that no turnover means no filing obligation receive a notice from the tax authority.
A corporation additionally files a federal return by 15 April, and the annual report and state franchise tax by 1 March. A dormant company with no revenue pays and files on exactly the same basis.
The tax number as the bottleneck. The Employer Identification Number is needed for the bank, for card acceptance and for filings. A US resident obtains one online in minutes. An applicant without a Social Security Number files the form by fax or post, and that takes four to eight weeks. It cannot be accelerated. A launch planned without allowing for it slips by six weeks on this step alone, so the application should go in immediately after incorporation, in parallel with everything else.
Annual cost of ownership. For an LLC the minimum package covers registered agent services, the annual state payment and preparation of tax returns by a US accountant. For a corporation, add franchise tax, more complex compliance and corporate maintenance with written resolutions. The gap between the two forms on upkeep is noticeable, and it accumulates every year.
Bank accounts: where it is genuinely harder
The certificate of incorporation is the beginning, not the result. The real question after incorporation is where the company will receive and send money. And it needs answering before incorporation documents are filed, not after.
Incorporation is handled by a state registry on formal grounds, and refusal is rare. An account is opened by a commercial bank on its own assessment of risk, and refusal is routine. The timelines are not comparable either: incorporation takes days, opening an account takes weeks or months.
Hong Kong. Local banks run a full review: business plan, counterparty agreements, invoices, ownership structure through to the ultimate beneficial owner, source of funds. A visit in person is not compulsory but improves the odds noticeably. The decisive factor is a clear and evidenced connection between the business and Asia. Payment institutions built around Asian trade open faster and cover most of a trading company’s operational needs, but carry transaction volume limits that become apparent as you grow.
Cyprus. Banking compliance here tightened after the 2013 banking crisis and has only intensified since. Banks ask for a justification of the business model, evidence of real activity, contracts, source of funds and an explanation of why Cyprus specifically. For a company with no obvious connection to the island or to the EU, the process stretches over months. European payment institutions open faster and support euro payments across the single payments area, which is sufficient for most technology companies with European clients.
The USA. Traditional American banks require a visit to a branch in person and documents evidencing a connection to the US market. Without a Social Security Number and a US address the process is long. Financial services working with non-residents open accounts remotely in one to two weeks, but each maintains its own list of countries whose beneficial owners it will not accept, and that list needs checking before incorporation rather than after. The situation where a company has been formed and no service will take it happens regularly and is only fixed by changing the structure.
There is one general rule. The banking route is checked before the jurisdiction is chosen. In practice that means agreeing the company profile with a bank or payment institution while the country is still being decided. We run that check before incorporation documents are filed, so that the company is not built for a route closed to it. The final decision always rests with the financial institution, and nobody can guarantee an account.
Incorporation is handled by a state registry on formal grounds, and refusal is rare. An account is opened by a commercial bank on its own assessment of risk, and refusal is routine. The timelines are not comparable either: incorporation takes days, opening an account takes weeks or months.
Hong Kong. Local banks run a full review: business plan, counterparty agreements, invoices, ownership structure through to the ultimate beneficial owner, source of funds. A visit in person is not compulsory but improves the odds noticeably. The decisive factor is a clear and evidenced connection between the business and Asia. Payment institutions built around Asian trade open faster and cover most of a trading company’s operational needs, but carry transaction volume limits that become apparent as you grow.
Cyprus. Banking compliance here tightened after the 2013 banking crisis and has only intensified since. Banks ask for a justification of the business model, evidence of real activity, contracts, source of funds and an explanation of why Cyprus specifically. For a company with no obvious connection to the island or to the EU, the process stretches over months. European payment institutions open faster and support euro payments across the single payments area, which is sufficient for most technology companies with European clients.
The USA. Traditional American banks require a visit to a branch in person and documents evidencing a connection to the US market. Without a Social Security Number and a US address the process is long. Financial services working with non-residents open accounts remotely in one to two weeks, but each maintains its own list of countries whose beneficial owners it will not accept, and that list needs checking before incorporation rather than after. The situation where a company has been formed and no service will take it happens regularly and is only fixed by changing the structure.
There is one general rule. The banking route is checked before the jurisdiction is chosen. In practice that means agreeing the company profile with a bank or payment institution while the country is still being decided. We run that check before incorporation documents are filed, so that the company is not built for a route closed to it. The final decision always rests with the financial institution, and nobody can guarantee an account.
Combined structures and the order of work
A good share of the “Hong Kong or the USA” questions do not in fact require a choice. These jurisdictions complement each other more often than they compete.
Asian suppliers plus American buyers. The Hong Kong company handles procurement and operations; the American entity collects payments from US customers and works with local payment infrastructure. Two structures instead of one means double the upkeep and an intra-group agreement, so the arrangement earns its keep only above a certain turnover. Below that threshold it is simpler to run one company and live with the inconvenience.
European and American clients at once. A Cypriot operating company owns the intellectual property and applies the IP Box regime, while the American entity serves clients who want a local counterparty and a familiar payment method. What matters here is that the division of functions is real rather than on paper: allocating profit artificially between related companies without a matching allocation of functions and risks creates a reassessment risk with the tax authorities.
When a combined structure is not needed. If all the turnover comes from one region, a second company adds cost and filings without benefit. Starting with a complex construction is unwise: it is far more sensible to launch in one jurisdiction and build the structure out when the business runs into its limits.
The right sequence looks like this. First you describe the business model: where the clients are, where the suppliers are, what currency settlement happens in, whether investment is planned. Then you draw up a shortlist of two or three jurisdictions that answer the task. Next you check the banking route for each option, at which point some of them drop out, and that is fine. After that you establish where actual management will sit and what substance the company can maintain. And only now do you calculate tax and the cost of ownership over three years. Finally you prepare documents and run incorporation, tax number registration and account opening in parallel rather than in sequence.
Asian suppliers plus American buyers. The Hong Kong company handles procurement and operations; the American entity collects payments from US customers and works with local payment infrastructure. Two structures instead of one means double the upkeep and an intra-group agreement, so the arrangement earns its keep only above a certain turnover. Below that threshold it is simpler to run one company and live with the inconvenience.
European and American clients at once. A Cypriot operating company owns the intellectual property and applies the IP Box regime, while the American entity serves clients who want a local counterparty and a familiar payment method. What matters here is that the division of functions is real rather than on paper: allocating profit artificially between related companies without a matching allocation of functions and risks creates a reassessment risk with the tax authorities.
When a combined structure is not needed. If all the turnover comes from one region, a second company adds cost and filings without benefit. Starting with a complex construction is unwise: it is far more sensible to launch in one jurisdiction and build the structure out when the business runs into its limits.
The right sequence looks like this. First you describe the business model: where the clients are, where the suppliers are, what currency settlement happens in, whether investment is planned. Then you draw up a shortlist of two or three jurisdictions that answer the task. Next you check the banking route for each option, at which point some of them drop out, and that is fine. After that you establish where actual management will sit and what substance the company can maintain. And only now do you calculate tax and the cost of ownership over three years. Finally you prepare documents and run incorporation, tax number registration and account opening in parallel rather than in sequence.
FAQ
Frequently asked questions
If your question is not answered here, get in touch and we will go through your situation with you.
Book a consultationThere is no correct single-country answer, because the tax bases differ. For a trading company with profit under 2 million Hong Kong dollars and an evidenced foreign source of income, Hong Kong comes out lowest. For a technology company with its own software and European clients, Cyprus with the IP Box regime and an effective rate of around 3 per cent. For an LLC with no US-source income, no federal tax arises at the entity level, but tax arises for the owner in their country of residence.
Hong Kong. Settlement in renminbi, a structure familiar to Chinese counterparties, favourable terms under the arrangement with mainland China and straightforward logistics through the mainland. A Cypriot or American company adds friction on the counterparty side in this scenario.
Cyprus, if your clients are predominantly European and your main asset is your own code: the IP Box regime gives an effective rate of around 3 per cent on qualifying income. The USA, if access to American payment infrastructure is critical, your clients are US companies, or a venture round is planned. Hong Kong is rarely the choice in this scenario.
Not entirely. The exemption exists but does not apply automatically: you have to file a claim and demonstrate to the Inland Revenue Department that the profit arose outside Hong Kong, using contracts, invoices and evidence of where the transactions took place. Separately, companies within multinational groups fall under the foreign-sourced income exemption regime, which requires economic substance in Hong Kong for passive income.
The rate was raised on 1 January 2026 under a tax reform approved by parliament on 22 December 2025. The driver was alignment with the OECD global minimum tax. At the same time the special defence contribution on dividends was cut, the deemed dividend distribution rule was abolished and the super-deduction on development expenditure was extended.
Easiest of all through payment institutions, and that holds for all three jurisdictions. Among traditional banks the order of difficulty usually runs: an American bank for a non-resident with no visit, then a Cypriot bank for a company with no connection to the island, then a Hong Kong bank where the Asian link is evidenced. There is no universal ranking: the outcome is set by the profile of the specific company rather than by the country.
Yes, incorporation is completed remotely everywhere on notarised and apostilled documents. The bank account is harder: some banks require a meeting in person or video identification.
Technically yes, in practice it is the most expensive mistake in this area. A company without a working account is cost with no operational benefit, and the fix means either changing jurisdiction or rebuilding the structure. The banking route is checked first.
Cyprus, because of the mandatory audit for every company, bookkeeping to local standards and VAT reporting. Hong Kong sits in the middle: the audit is mandatory but the rest of the reporting is simpler. A US LLC is the cheapest of the three, and a US corporation is comparable to Hong Kong.
Almost every tax system determines corporate residence by place of actual management rather than by place of incorporation. If decisions are taken, staff work and accounts are controlled from another country territory, that country tax authority has grounds to treat the company as its own resident with everything that follows. Cyprus additionally treats any company incorporated under Cypriot law as its resident from 2026, which creates a dual residence risk where management sits in a third country.
Further reading
Jurisdictions mentioned
Asia Hong Kong
Trade, logistics, IT, holdings and international operations
from 750 USD 5 days
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Americas USA
E-commerce, IT, digital services and international contracts
from 1,200 USD 5 days
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Europe Cyprus
Holdings, IP, international services, IT-startups and investment
from 1,650 EUR 7 days
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