The emergence of IT-business to the forefront in the economy of many countries, no one doubts. The development of this line of business provides broad prospects for profit. However, this business is characterized by its own nuances that must be taken into account. From a marketing point of view, this is high competition and a difficult search for customers. From a legal point of view, this is the need for the right choice of jurisdiction for registration, as well as taking into account local and international IT legislation in the future.

 

Lawrange team can take care of all legal issues for IT business. We are ready to work: 1) with manufacturers of computer equipment (PCs, laptops, servers, and so on); 2) with consulting companies and system integrators; 3) with outsourcing IT companies; 4) with product IT companies. In this review, we will focus on the peculiarities of the legal registration of the last of the listed types of business. We offer answers to questions about what a product IT company is and in what jurisdiction it is best to register it.

 

 

What is a product IT company?

 

The term “product company” is used when an enterprise develops its own products. Among such products are software, mobile applications, CRM + ERP systems, antiviruses, collaboration services, and so on. A company can create either just one or several (group) products.

 

Note! The created product or products are often at least 51% owned by the company. By promoting, developing and maintaining these products over a long period, the company makes a profit.

 

Product IT companies operate in several niches, differing significantly in terms of the scope of their activities, the volume of initial investments and the level of risks. We are talking about such niches:

  • global software, including operating systems and software for data centers;
  • development of innovative products (entering the market as a startup);
  • creation of services, systems, mobile applications and other software to solve certain local problems.

 

The least risks entail working in the last niche. With such a business, you can start with a small investment, and then quickly grow. The development of global software requires large finances and several years of promotion. An IT startup is associated with a thorough study of the market, a detailed study of the business model, the involvement of strong specialists and the search for investors. So, each niche has advantages and disadvantages. When making a choice, the entrepreneur should analyze them.

 

 

Differences between product and outsourcing IT companies:

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Comparison criteria Outsourcing Product
What is offered to clients? Development, revision, adaptation of software to order according to the requirements specification. Author’s IT product or group of products.
What is the customer paying for? For the end result. For using the software.
What is the basis of activity? Managing customer projects with deadlines and budgets. Управление собственными продуктами: создание, продвижение, поддержка и развитие.
What is the company doing? With projects. With products.

 

 

Advantages of a product IT company:

  • A demanded product can be created by a team of only 3-4 people, in order to serve millions of users and earn millions of US dollars.
  • A product company has unlimited prospects for scaling.
  • It is envisaged to work on quality with elaboration of details, deepening into the features of the product, and not on deadlines.
  • Team members in product companies are offered an incentive such as a profit bonus.

 

 

Disadvantages of a product IT company:

  • Creating a new product is much more difficult than developing custom software or supporting ready-made solutions (as outsourcing companies do).
  • To prevent users from leaving for competitors, you should constantly keep your finger on the pulse of the market, conduct market research, find out the needs of customers and adapt the product to them.
  • Profit directly depends on the effectiveness of product sales.
  • Product life cycles come to an end from time to time. The reason for this is technological shifts or changes in market conditions.

 

 

Stages of registering a product IT company

 

The first and key step in creating a product IT company is the choice of jurisdiction for registering this business, taking into account taxation, the business climate in the country, and the level of development of the IT ecosystem.

 

Next, the organizational and legal form of the future enterprise should be determined. Often, IT entrepreneurs choose the form of LLC, because the lack of responsibility for their own property of business owners is an important factor in risk reduction. At the same time, in each jurisdiction, LLCs have their own characteristics (in particular, requirements for the authorized capital, residency of founders and directors), which should not be forgotten.

 

Note! Although the activities of an IT product company will most likely be transnational in nature, before registering a business, it is advisable to study the competitors and the features of the IT market in the selected country. It will also be useful to study possible sources of financing, as well as legislation in the field of protection of the company’s intangible assets – objects of intellectual property.

 

After such preliminary preparation, the registration of a product IT company involves the following steps:

  1. Choosing a unique name.
  2. Direct registration of a legal entity.
  3. Optionally – obtaining licenses and permits (including – in the case of activities on the territory of the Free Economic Zone).
  4. Opening a corporate account of the company in a bank or payment system.
  5. Registration of the enterprise with the tax authorities and for the purposes of social security.

 

 

The main factors influencing the choice of the country of incorporation of the company

 

Important! A lot will depend on the jurisdiction of registration of an IT company in the further development of the project, including in the long term. Since the company will provide services of a global nature, it is important to register it in a jurisdiction where favorable conditions have been created for conducting international business.

 

Among the main factors influencing the choice of jurisdiction for registering a product IT company:

  • funds available for use, primarily for the authorized capital;
  • taxation;
  • the level of development of the banking system in the country, and the prospects for opening a corporate account;
  • location of potential customers;
  • the reputation of the jurisdiction in the international market;
  • the need for special permits and licenses;
  • qualification level of local staff.

 

Features and capabilities of the jurisdiction must be compared with the business goals of the project. What is good for one entrepreneur may be completely unacceptable for another.

 

 

In which jurisdiction to open an IT product company?

 

Among the countries where you can start your IT business on acceptable terms are the UK and Australia, Malta and Cyprus, Georgia and Portugal (Free Economic Zone of Madeira).

 

At the same time, the USA (in particular, the state of Delaware) provides good access to investors. Ireland attracts by the presence of tax incentives. Relatively low corporate tax in Singapore and Hong Kong. At the same time, the absence of requirements for a local director should also be attributed to the advantages of Hong Kong. If the priority is the ability to conduct business remotely, then you should take a closer look at the Baltics, especially Estonia.

 

Note! Based on their experience, experts from the Lawrange law firm have compiled TOP-4 jurisdictions for registering a product IT company. We suggest that you familiarize yourself with a brief description of each of the countries in this list.

 

 

Why is it worth opening a product IT company in the USA?

 

Conditions for opening and running a business vary from state to state in the US. Therefore, it is necessary to make the right choice of the place of registration of the company. The state of Delaware is considered to be the best option for foreigners to open a product IT company in the USA due to the attractive taxation conditions that are offered there. Delaware is a good choice if the company plans to offer services in several US states and also intends to look for investors.

 

Among the advantages of developing an IT business in the United States are a strong technological base in the country, proper protection of intellectual property rights, a large number of payment systems where you can open an account. For non-resident entrepreneurs, LLCs can be considered one of the best legal tools for doing business in the field of information technology.

 

 

Why is it worth opening a product IT company in England?

 

The United Kingdom, as the “European capital of technology start-ups”, deserves attention when choosing a location for registering a product IT company no less than the United States. The information technology sector is supervised by the government, which has contributed to the growth of unicorn companies in the country. Among the advantages of the UK for IT business are credibility in the eyes of potential customers and partners, simple management, double tax treaties with 149 countries.

 

Registering a company in England with the support of JSC Lawrange gives you the opportunity to start your own business in one of the few favorable jurisdictions for non-residents. A startup in the country can qualify for tax benefits and attract investors. The income tax rate is 19%, which is a weighted average. If the turnover is less than £85,000 VAT is not payable. Using the legal form of business LLP allows you not to pay taxes if the profit is received outside the Kingdom.

 

 

Why open a product a new IT company in Malta?

 

After the passage of the Law on Information and Communication Technologies in Malta in 2004, the country embarked on the path to acquiring the status of one of the technology centers of Europe. Government programs allow IT companies to develop in a favorable and sustainable business environment. Therefore, the information technology industry in Malta is represented by a large number of enterprises.

 

Registering a company in Malta with the support of Lawrange JSC provides access to such advantages of the jurisdiction as an attractive tax regime, low operating costs, good prospects for scaling and entering new global markets. By joining the IT ecosystem of Malta, a non-resident entrepreneur can count on the necessary prerequisites for a sustainable business with a long-term perspective.

 

 

Why is it worth opening a product IT company in Ireland?

 

The technological culture in the country is so developed that Ireland is often called the “Silicon Valley of Europe”. By registering an IT company in Ireland, you can get a lot of prospects for growing and scaling your business. Among the features of the jurisdiction are the abundance of local talent in the field of information technology, government support for the sector, ease of doing business, and a favorable investment climate.

 

Registering a company in Ireland with the support of JSC Lawrange is an excellent solution when international expansion is planned in the future. Corporate tax in the country is lower than in neighboring Britain, and is 12.5%. At the same time, a special “Knowledge and Development Box” mode is provided for technology startups.

 

 

Conclusions

 

The establishment and development of a product IT company is a business with prospects for the future. If you have already recruited or are able to recruit a team of talented developers, and also have healthy ambitions, then it’s time to start your way into a big IT business.

 

To avoid “pitfalls”, not to waste time and money on mistakes, legal issues related to the registration of a product IT company are ready to be closed by the experts of JSC Lawrange. Our work allows clients to focus on their business, which contributes to achieving excellent results.

 

 

 

 

 

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