When startup founders plan to enter global markets, one of the first strategic decisions they have to make is choosing a jurisdiction in which to incorporate the company. This decision is not a formality: it directly affects tax obligations, the ability to attract investment, the speed of scaling, the business’s international reputation, and even the legal protection of intellectual property.
In practice, the most popular destinations for startup incorporation remain the United States of America and the countries of the European Union. Both regions offer developed capital markets, legal stability, experience in supporting innovative entrepreneurship, and access to a skilled workforce.
However, approaches to doing business, tax regimes, reporting requirements, investment culture, and the pace of development can differ significantly.
The U.S.—in particular states such as Delaware or Wyoming—has become a kind of “standard” for technology startups, especially where venture funding is planned. Europe, in turn, attracts founders with its multilingual environment, access to the EU single market, a variety of tax models, and digital initiatives (for example, Estonia’s e‑Residency).
Selection criteria: comparing the U.S. and Europe
Access to investment
One of the decisive factors when choosing a jurisdiction to launch a startup is access to investment capital, in particular venture financing. Venture investment is often the “fuel” that allows technology companies to scale quickly, test markets, hire teams, and expand globally.
The U.S.: a global hub of venture capital
The United States—and Silicon Valley in California in particular—remains the largest and most active center of venture investing in the world. Hundreds of investment funds, accelerators, incubators, angels, and corporate venture arms work with thousands of startups every year. A well‑understood infrastructure has been built there:
- A Delaware C‑Corporation is the de facto standard for startups that plan to raise investment.
- SAFE structures (Simple Agreement for Future Equity) and Convertible Notes are widely accepted instruments for fast early‑stage financing.
- Investors are familiar with the U.S. legal system, have standard contract templates, and are ready to invest in companies that are legally “understandable.”
Moreover, even outside Silicon Valley—New York, Austin, Seattle, and Miami—technology ecosystems supported by local governments and funds are developing rapidly.
Europe: a fragmented but growing market
Europe’s investment landscape is also showing steady growth. In countries such as Germany, France, the Netherlands, Estonia, and Sweden, dozens of active venture funds, accelerators, and public innovation support programs operate. However, there are several specific features:
- The market is more fragmented—investors often operate within a specific country or region.
- Requirements for startups are stricter: European investors typically want to see a profitable or validated business model, even at an early stage.
- Access to funding depends heavily on the country—for example, raising seed investment in Berlin is much easier than in Budapest or Madrid.
At the same time, Europe is stepping up the creation of public‑private venture funds (for example, the European Investment Fund and Horizon Europe) that co‑finance startups together with private investors.
Regulatory environment
The legal and regulatory environment is critical for startups, especially when setting up the company structure, raising investment, issuing team options, and subsequently reporting to public authorities. Flexible corporate law can significantly simplify the launch and scaling, whereas excessive regulation can, on the contrary, hold development back.
The U.S.: flexibility and startup‑friendliness
In the U.S., and in Delaware in particular, one of the most flexible corporate law frameworks in the world has been created. This is not accidental: the state deliberately built an attractive business environment, which is why today more than 60% of NASDAQ‑listed companies are incorporated there.
Key advantages:
- Fast online company registration.
- The ability to issue options, restricted shares, and different classes of shares (common, preferred), which is especially important for structuring capital in early rounds.
- SAFEs (Simple Agreements for Future Equity) and Convertible Notes—standardized, investor‑friendly financing tools that do not require an immediate company valuation.
- The ability to use template legal documents from accelerators such as Y Combinator or Techstars.
Because these tools are widely accepted among investors, lawyers, and financial advisers, the U.S. provides high legal compatibility between startups and the venture ecosystem.
Europe: more formal, but with potential
In EU countries, the regulatory environment is generally more formalized and regulated. This is reflected in:
- Stricter requirements for accounting and reporting.
- Mandatory audits of financial statements in many countries (even for small companies, if certain financial thresholds are exceeded).
- Less flexibility in creating different share classes or issuing options (for example, in France or Germany these processes are complex and costly).
At the same time, it is important to note that Europe is not uniform, and some countries are actively working to simplify rules for technology companies:
- Estonia is an example of a digital state where the entire registration process can be completed online and corporate reporting is automated.
- Ireland offers convenient conditions for IT companies, including a flexible corporate structure and a favorable tax regime.
- The Netherlands is one of the few EU countries with legal mechanisms similar to U.S. SAFE or Convertible Notes.
In some jurisdictions, special “startup visas” or innovation‑support regimes are also emerging, which makes market entry easier and reduces regulatory pressure.
Tax burden
The tax system is one of the key factors that directly affects a startup’s financial model. This is especially true in early stages, when revenues are still unstable or absent and expenses keep growing; optimizing tax costs can be decisive.
The U.S.: higher burden, but with nuances
In the U.S., the baseline federal corporate income tax rate is 21%, but it should be taken into account that each state may impose additional taxes. For example:
- In California, the overall burden can reach 30% or more once state tax is included.
- In Delaware, the corporate income tax rate is 8.7%, but the effective burden is often lower due to optimization via a C‑Corp structure.
Early‑stage startups typically do not have profits, so direct tax liabilities are often absent. However, other fees must be considered:
- Franchise tax—an annual fee in a number of states (for example, in Delaware).
- Sales tax—a sales tax that can differ from state to state.
Important: involving foreign founders or investors raises questions of international tax residence, double taxation, and withholding on dividend payments.
Europe: a flexible but more complex landscape
Within the European Union, the tax burden varies greatly between countries, giving founders the opportunity to choose the optimal jurisdiction depending on the needs of the business.
- Cyprus is one of the leaders among low‑tax jurisdictions in the EU. The corporate tax rate is 15%, and in many cases there is no tax on dividends for non‑residents.
- Ireland has a 12.5% corporate tax rate for trading activities and serves as a hub for European headquarters of major IT companies (Google, Facebook).
- Estonia uses a model with no tax on undistributed profits (0%); tax is paid only when dividends are distributed (20%).
At the same time:
- In France, Germany, and Sweden, rates can reach 25–30%, which is close to the U.S. level.
- In many EU countries there are strict requirements for financial transparency, annual reporting, audits, and automatic exchange of tax information with other countries (CRS).
In addition, some countries have innovative tax regimes, such as:
- Patent Box Regime—reduced taxation of income derived from intellectual property.
- Startup Tax Reliefs—exemptions or incentives for newly established technology companies (for example, in the United Kingdom).
Both directions have strong sides. If a startup is focused on rapid fundraising, international expansion, and partnerships with venture funds, the U.S.—especially Delaware—remains the undisputed leader. If the team is based in Europe, wants to reduce costs, and plans more gradual growth, incorporating in an EU country may be the more advantageous solution. It is important to analyze the growth strategy, target markets, and the legal requirements of each country. In any case, it is worth engaging lawyers who specialize in international law and business structuring.
