Foreign startup, US venture capital, and taxation

http://hodgen.com/foreign-startup-us-venture-capital-and-taxation/

by philiphodgen • 15 years ago

7 6 15 years ago

timmyd• 15 years ago

"The difference between what you pay for a domain name ($10) and what you sell it for ($6,000,000) is taxable income.

Hilarity ensued."

Huge problem that most startups don't realise from the get-go. IP transfer is a huge issue and it needs to be right from the beginning - that's why seperate holding companies for IP [ala Skype] are typically a good organisational alternative.

elai2• 15 years ago

Aaaaahhhhhhh. What would you suggest for people setting up startups setup as a general structure before everything getting properly started to avoid things like the 6 million dollar domain name headache after your MVP has some traction, but not 'too much' traction. Assume it's the typical SaaS/software business.

philiphodgen3• 15 years ago

If you're a nonresident of the United States, own the domain name as a human. If you have a company formed outside the United States, that can be an owner, too.

For the IP you develop, start with the assumption that whoever pays for the work to be done = owner. The humans working on the code should be employees of the company outside the United States, or independent contractors working for the company outside the United States. This is the "work for hire" idea.

If you've done things wrong, it's better to fix it while the company is still growing and not too profitable. If there is a tax problem it won't be too big. After all, what is the value of a domain name for a typical SaaS situation when it's only making a few thousand a month at the moment? Not much.

The future lies ahead, etc. etc., but at the moment the assets (and code) could reasonably be valued at approximately what you paid to develop them. If you spent $50,000 to get to this point and you're at break-even, arguably the value of the domain name and all of your code and your traction so far is close to $50,000. You're selling for what you spent to buy the asset. Zero tax.

elai2• 15 years ago

Thanks for the answer!

I'm a Canadian that works in the US on a TN. Would it probably be a bad idea to get a green card even if I have future bay area startup aspirations?

Foreign startup, US venture capital, and taxation

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