Where to open an outsourcing IT company?
Companies operating in a variety of industries are increasingly choosing to outsource non-core activities. Among such non-core areas are personnel management, accounting, marketing, legal support, logistics and IT support. The BPO (Business Process Outsourcing) industry is growing at an unprecedented pace. Third-party suppliers to whom companies outsource non-core activities are provided with the prospect of generating a stable income.
Now the question is: in what jurisdiction is it better to register an outsourcing company in the field of information technology? We will understand the review from the experts of Lawrange law firm. At the same time, let’s say right away: each business is characterized by its own specifics. Therefore, there are no universal solutions for choosing the country of registration.
Our team individually develops a case for each entrepreneur who contacts us. Comparing business needs with the tax system, investment climate, legislation and other parameters in individual jurisdictions, we come to the best option.
What is an IT outsourcing company?
In connection with the widespread introduction of digital technologies into business and the development of network infrastructure, companies have a need to create separate IT departments. And this entailed an increase in overhead costs for maintaining the life of the company. As a result, the business began to look for solutions to reduce these costs. The best among such solutions turned out to be IT outsourcing, especially for small and medium-sized businesses.
Notice! IT outsourcing refers to the transfer to external providers of the functions of administering servers and local area networks of an enterprise, developing websites and mobile applications, implementing and supporting software, as well as cloud services. At the same time, administration can be carried out both remotely and with the departure of a system administrator as needed.
An outsourcing company can sell custom software development services, as well as adaptation and customization of diverse products for clients. Customers pay for the result, which is achieved within the previously agreed terms of reference.
An outsourcing IT company consists of a team of programmers, system administrators, IT engineers, and so on. The specifics of their work lies in the conduct of a number of projects in parallel, in the constant switching to different customers, different approaches and even different markets. This is a priori a transnational business, since services are provided mainly remotely.
Types and directions of IT outsourcing
Although in IT outsourcing, the customer and contractor may be located on different continents, the distance affects some details. For example, we are talking about the convenience of online communication, providing technical support to employees of the organization and troubleshooting during working hours. Depending on the distance between the customer and the service provider, it is customary to distinguish the following types of IT outsourcing:
- onshore (shore, local) outsourcing – a business model that provides for the transfer of IT support functions to a local company (in the same country or even in the same city);
- nearshore (coastal) outsourcing – the conclusion of an IT service contract with an enterprise in a neighboring country, at least in one time zone (a classic example is the cooperation of companies in the EU countries with IT specialists from Eastern Europe);
- offshore outsourcing (offshoring) – hiring an IT team in another country, including when the customer and the service provider are in different time zones, this approach saves costs, but does not allow the business to function as usual with reference to working hours.
***Notice: sometimes the concept of IT offshoring is used in the context of a company transferring its own IT division to another country by registering a separate company, and then concluding an outsourcing agreement with it in order to optimize taxation.
According to Global Knowledge, among the most popular areas of IT outsourcing:
- Software development
Software development services are a key segment of ITO (Information Technology Outsourcing), in which cybersecurity is the top priority. Increasing digitalization leads to an increase in demand for software solutions. The European software market is expected to grow from 126 billion euros in 2021 to 253 billion euros in 2026.
- Cybersecurity
These are, for example, identity and access management, infrastructure security and data security. The demand for cybersecurity services is growing exponentially due to digitalisation, legislation and awareness. The European cybersecurity market is estimated at 38.13 billion euros by 2025.
- Cloud Solutions
Cloud computing skills are used in any type of ITO service. Projected by 2025 The European cloud computing market will reach 136 billion euros.
- Data Analytics
As the amount of data produced in Europe grows, so does the need for services that help businesses use that data to their advantage. As a result, the European market for Big Data and business intelligence solutions is projected to grow from €43 billion in 2021 to €66 billion in 2025.
- Artificial intelligence (AI) and machine learning
As European demand for AI grows across all industries, the market is expected to reach over 40 billion euros in 2025. However, for those providing services in this sector, it is advisable to follow the European Commission’s proposals for a regulatory framework for AI.
It is worth talking about such an area of IT outsourcing as network and wireless communications in this context separately, since only onshore outsourcing is possible for such services. Along with this, the direction of supporting the health of the IT infrastructure also has great development prospects.
Benefits of opening an outsourcing IT company with Lawrange
The Lawrange law firm is engaged in both registration support and organization of further legal services for an outsourcing IT company. We select the optimal jurisdiction for an ITO/BPO project by analyzing taxation, the business environment, the level of digitalization, the skills and availability of staff.
Important! Among our advantages are more than ten years of experience in the field of international law and IT law, the presence of an extensive network of partners around the world, the willingness to delve into the tasks and nuances of the client’s business processes. With us you will receive not just a package of documentation for a newly formed company, you will receive a reliable legal foundation for the development and growth of a transnational IT business.
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Why is it profitable to open an outsourcing IT company in Europe?
The European IT services market has undergone significant changes in recent years. The COVID-19 pandemic has contributed to the digitalization of European companies, which has pushed the ITO market to active growth. At the same time, European companies prefer to outsource services to suppliers in their country (onshoring) or in a neighboring country (nearing). For Europeans, “coastal outsourcing” (niashoring) is the preferred option, since IT service providers in “coastal” areas are close in language, have cultural similarities, and also have minimal time difference with them.
Notice! In 2019, 67% of Dutch companies that outsourced software development used European service providers (and only 33% offshore).
IT projects are often complex, lengthy, volatile, and critical to the client’s strategic future. This makes good communication between the customer and supplier especially important.
Registering a company in Europe is a strategically advantageous way to develop an IT business. Popularity among Western European customers is now gaining providers with registration in the countries of Central and Eastern Europe, primarily in Poland, Bulgaria and Romania. These countries not only offer the usual advantages of being near abroad. With them, as members of the European Union, contracts and payments are governed and protected by the same European law as in the purchasing countries. Traditionally, suppliers from the Baltic States, as well as Cyprus and Malta, do not lose their attractiveness.
Important! Determining the exact size of the European ITO market is difficult, as figures vary widely by source. However, it is safe to say that this is a whole ocean of possibilities. We propose to consider several promising, in our opinion, jurisdictions for registering an outsourcing IT company in Europe.
Arguments for opening a company in England
We offer the United Kingdom as a priority solution for our customers. The country attracts great infrastructure opportunities, a “white” reputation, and the government’s benevolence towards information technology and start-ups. Although the UK has nothing to do with offshore zones, there are quite legal ways to optimize the company’s taxation.
Registering a company in England in the form of LTD (Limited) along with opening an account in 3 payment systems with the support of Lawrange law firm will cost only 1850 EUR instead of the standard cost of 2950 euros. Among the advantages of the jurisdiction are quick registration of a company (in just a few days), the ability to manage a business remotely, a flexible taxation system, and a high level of legislative protection of intellectual property. There are many venture capital funds, accelerators, incubators, business parks in the UK – we are talking about one of the best IT ecosystems in the world.
Arguments for opening a company in Poland
Now Poland is a major player in the IT industry. The country has the largest number of technology startups in the region. In 2021, Poland ranked first in the region in terms of the number and volume of venture investments. Polish professionals rank third among the best IT specialists in the world. This increases the popularity of Poland in the eyes of customers from Western Europe. The development of the IT industry in the country is supported by the government.
Opening a company in Poland is quite simple, especially if you use the support of Lawrange law firm. The procedure for obtaining the necessary documentation can even be completed remotely by filling out a form on the website, paying a registration fee of PLN 350 and a fee of PLN 100. The founder of a Polish company can be a foreigner, and there are no requirements for a director. The minimum authorized capital should be only 1200 EUR or 5000 PLN.
Arguments for opening a company in Cyprus
For many years, Cyprus has retained the status of one of the favorite jurisdictions for IT business. The country is not included in the “black lists” of offshore companies, but offers attractive taxation conditions. In Cyprus, you can easily open a corporate account for a company in a bank or payment system. There are no residency requirements for shareholders.
Registration of a company in Cyprus with the support of Lawrange law firm is fast – you can start your business in just 15 working days. Among the advantages of Cyprus as a jurisdiction for entrepreneurship is flexibility and adaptability in dealing with such significant issues as office rent, selection and hiring of employees, server placement, and so on.
Arguments for opening a company in Estonia
Tallinn, the capital of Estonia, is often referred to as the Silicon Valley of Europe. The IT sector employs up to 10% of the country’s population. More than 4,000 IT companies have Estonian registration. World-famous startups such as TransferWise and Skype come from Estonia. Among the advantages of the jurisdiction are a developed IT ecosystem with incubators, accelerators and venture funds, a special e-residence legal regime, and inexpensive enterprise administration.
Registering a company in Estonia with Lawrange law firm makes it possible to simply and quickly register a business in order to integrate into the European IT environment. There are no requirements for the minimum amount of authorized capital and citizenship of the director in the country; you can manage the company online.
What is the taxation when opening a company?
The tax rates in the jurisdictions we have focused on are average or below the European average:
- In Poland, income tax is 9% for new firms (subsequently the rate increases to 19%), VAT 23%, contribution to the pension fund 9.76%.
- In Cyprus, the basic corporate tax rate is 12.5%, it is not charged if the profit is transferred to a foreign partner, VAT is 19%, royalties are on average 5%.
- In Estonia, income tax is legal. persons is 0%, the obligation to pay 20% tax arises only if the profit is distributed (transferred abroad).
Conclusions
If you plan to develop custom software or other areas of IT outsourcing, you can find favorable tax and legal conditions for this activity. Contact the Lawrange law firm to get the necessary advice and completely relieve yourself of all the burdens of registering a company in a foreign jurisdiction. Working with us is simple, convenient and profitable!