The Ultimate Guide to VPN Domicile: How to Choose the Best Country for Privacy, Costs, and Compliance!

How to Navigate Legal Frameworks, Tax Efficiency, and Customer Trust While Preparing for Future Flexibility

When setting up a VPN service, choosing the right country to domicile your business is crucial. It affects your legal standing, operational costs, and—most importantly—your customers’ confidence (remember our customers come first, its ALL about the customer) in how well you protect their privacy.

While CicadaVPN is currently based in New Zealand, we understand that we may need to shift to a more privacy-friendly jurisdiction in the future. In this post, we’ll explore the best countries to domicile a VPN, the steps involved, and whether separating the invoicing entity from the network operating company makes sense.

Important Caveat:

This post is not financial or legal advice. Every business situation is unique, and you should conduct your own research and seek professional advice before making decisions.

Why Domicile Matters

Your company’s domicile determines which laws and regulations apply to your operations, including data privacy and retention laws. For VPNs, this is a critical factor, as your customers rely on you to protect their browsing activity from government requests, surveillance, or leaks. A privacy-friendly country helps build customer confidence, but there are also cost and tax implications to consider.

Start in Your Home Country with a Quick-Shift Plan

One strategy to keep both costs down and flexibility high is to start in your home country with a plan to quickly spin up a new entity in a privacy-friendly country if necessary. For instance, CicadaVPN is based in New Zealand, where we comply with local laws. However, we have contingency plans to relocate our network operations to a privacy-friendly country like Switzerland or Panama if required by legal or business needs.

Starting at home lets you:

• Minimize initial setup costs: Setting up domestically is often cheaper in the early stages, and you’re more familiar with local legal and financial systems.

• Keep things simple: Operating in one jurisdiction at first means fewer complexities in handling taxes and legal requirements.

• Flexibility for the future: With plans in place, you can move to another jurisdiction swiftly if legal requirements change or if you need a more privacy-focused base.

Once your business scales, or if local laws change in ways that compromise customer privacy, you can quickly shift your operations to a more favorable country.

The Top 3 Countries for VPN Domicile

1. Switzerland

• Privacy: Strong privacy laws, no mass surveillance, and no data retention requirements make Switzerland one of the top choices for VPNs.

• Costs: Initial setup can cost between $5,000 and $10,000 USD, with ongoing fees for compliance and local directors.

• Time to Set Up: Typically takes 2 to 4 weeks.

• Tax: Corporate taxes range between 11.5% and 21%, with potential tax incentives for tech companies.

• Best For: High privacy and customer trust, though it comes with a higher price tag.

2. Panama

• Privacy: No data retention laws and no participation in international surveillance alliances like Five Eyes.

• Costs: Setup costs range from $1,500 to $3,000 USD.

• Time to Set Up: Takes about 1 to 2 weeks.

• Tax: Panama uses a territorial tax system, so income earned outside the country is not taxed locally.

• Best For: Strong privacy protections and tax efficiency, but some customers may see it as a “tax haven.”

3. British Virgin Islands (BVI)

• Privacy: Strong privacy protections with no data retention requirements.

• Costs: Setup costs range from $1,000 to $2,500 USD, with low ongoing administrative fees.

• Time to Set Up: Typically takes about 2 weeks.

• Tax: No corporate tax, capital gains tax, or VAT.

• Best For: Maximum tax efficiency and privacy, but may raise questions for customers concerned about offshore jurisdictions.

Separating the Network Operating Company from the Invoicing Entity

One option to consider is separating the network operating company from the invoicing entity. Here’s why this might be beneficial:

• Network Operating Company: This entity would manage the VPN infrastructure, including relays and servers. It’s best to base this in a country with strict privacy laws, such as Switzerland or Panama, to minimize the risk of forced data logging or sharing.

• Invoicing Entity: A separate company could handle billing and financial transactions, based in a tax-efficient location such as the BVI or Panama. This allows you to manage the financial side of the business more efficiently without risking exposure to legal pressures for logging data.

Splitting these two functions helps ensure that even if authorities demand logs from the invoicing company, they don’t have access to the operational data handled by the network entity.

Steps to Set Up in Each Country

Here’s a brief overview of the steps involved in setting up in Switzerland, Panama, or the BVI:

1. Choose Your Legal Structure: Determine if you’ll operate as a corporation, LLC, or another structure.

2. Register the Company: File the necessary documents with local authorities. This can include obtaining a local director or registered agent.

3. Open a Bank Account: Open a corporate bank account in your chosen jurisdiction.

4. Set Up Compliance: Ensure the company complies with local tax and data privacy laws.

Costs and Time to Implement

• Setup Costs: Expect initial setup costs to range from $1,000 to $10,000 USD, depending on the country.

• Ongoing Costs: Annual fees for maintaining a company can vary from $500 to $5,000 USD.

• Time to Implement: You can expect to have the new entity operational within 2 to 4 weeks in most cases.

Tax Implications and Efficiency

• Panama and the BVI offer significant tax advantages due to their territorial tax systems and zero corporate tax.

• Switzerland offers tax incentives but has higher corporate taxes compared to Panama and the BVI.

• Splitting the invoicing entity from the network operations allows for more flexibility in managing taxes while still protecting customer data.

Conclusion

For VPN companies like CicadaVPN, choosing the right country for domicile is about balancing privacy, compliance, costs, and flexibility. Starting in your home country with a plan to quickly relocate if necessary is a viable strategy to keep costs down while maintaining privacy protections. Separating the invoicing entity from the network operations can also add an extra layer of security and tax efficiency. Ultimately, your choice of domicile should reflect both the privacy needs of your customers and the long-term sustainability of your business.

At CicadaVPN, we are fully committed to never providing logs. Our system has been designed from the ground up to ensure that we cannot log customer data in response to any request. In line with the privacy protections of the laws in your country of origin, we would rather shut down the company and relocate than breach the trust of our customers.

Again, this is not financial or legal advice—make sure to do your own due diligence before making any decisions.

Gracias (Español),

David Awatere

Founder of CicadaVPN