Is your software company really located in the best country?
Summary
Introduction
The question may seem provocative when you run a profitable software company with loyal customers and a stable team. Yet it deserves to be asked dispassionately, because the country of registration of a software publisher is rarely chosen deliberately : it is dictated by history, the founders' place of residence, or the ease of administrative procedures at the time. What was optimal at the outset is not necessarily so ten years later.
A software company stands out from others due to one crucial characteristic: its assets are intangible, its staff is mobile, and its customers can be located anywhere. This combination makes the choice of location much more flexible than for a manufacturer or retailer. It also makes this choice more closely scrutinized by tax authorities, who are well aware that source code can be hosted anywhere.
In a previous article, we explained the motivations that drive IT companies to establish themselves abroad . The purpose of this article is different and more practical: it aims to provide you with an audit framework to verify whether your current location is still the right one , not to convince you to leave.
Five tests are generally sufficient to make a decision. They cover the location of the asset, tax compliance, access to resources, legal soundness, and exit strategy. A case that passes all five has no reason to move forward . A case that fails three warrants serious review.
What it means for a software publisher to "be installed"
For a software company, a physical presence isn't just an address, but a network. The country where the company is registered, the country where the effective management is located, the country where the developers work, the country where the servers are hosted, and the country where payments are processed can all be different . This dispersion is what makes the process both rich in options and risky if left to chance.
International tax law addresses this complex reality through several complementary concepts. A company's tax residence is generally determined by its place of effective management, while that of its director is based on personal criteria: permanent home, principal residence of more than 183 days, and center of vital interests . These two residences can diverge, and this discrepancy is often the blind spot in poorly prepared tax cases.
A "well-established" software company is therefore one whose actual organization matches its declared organization. If your company is registered in a country where no one makes decisions, no contracts are negotiated, and no code is written, its presence exists only on paper . It will be challenged sooner or later.
Conversely, a successful establishment is characterized by its straightforward administrative structure: the company pays its taxes locally, employs local residents, holds its board meetings on-site, and could substantiate each of these claims in half a day. This verifiable normality is far more valuable than any sophisticated arrangement. Reputable firms prioritize it over tax rate optimization.
First test: where is your value actually created?
The first test involves honestly mapping value creation. For a software publisher, value originates from three sources: research and development, which produces the code; the sales function, which signs the contracts; and support, which retains the installed base. If these three sources are located in one country and the company in another, the misalignment is already problematic .
Mapping the code, R&D, and support
The exercise is simple to conduct and rarely done. Take your last twelve months, allocate payroll and technical subcontracting by country, do the same for revenue by billing country, and then compare. The two allocations should be roughly similar ; when they differ by more than thirty points, a documented explanation becomes necessary.
This mapping also sheds light on the issue of intellectual property. A software publisher whose code is developed in France but whose licenses are held by a foreign company must be able to demonstrate that the asset transfer was valued at arm's length and that the foreign entity is actually assuming the functions and associated risks. The BEPS framework has significantly tightened the requirements on this point.
Many executives discover at this stage that their company is already multi-country without having intended it, with freelance developers spread across three continents and billing concentrated on just one. This situation isn't illegitimate, but it calls for explicit structuring rather than being imposed upon them . It's often the real trigger for a relocation project.
Second test: does your taxation reflect your business model?
The second test compares your actual tax burden to that which an equivalent model would incur elsewhere. The nominal rate difference alone is insufficient: it's necessary to factor in preferential tax regimes applicable to the software, withholding taxes on royalties, dividend treatment, and the executive's personal income tax. A stated rate of ten percent can prove more expensive than a rate of twenty-five percent once the entire tax chain is considered.
Corporate tax, IP box schemes and withholding taxes
Several European jurisdictions offer so-called "IP box" regimes that apply a reduced tax rate to income derived from protected software, provided that the R&D was conducted locally. Portugal, where corporate tax is around 21 percent with municipal surcharges, combines this type of arrangement with a comprehensive tax treaty with France . You will find details of our approach to this jurisdiction on our page dedicated to tax relocation to Portugal .
Andorra, for its part, applies a 10% corporate tax rate and has also had a tax treaty with France since 2013, making it an attractive option for a European publisher wishing to remain close to its clients. Our full analysis can be found on the page dedicated to tax relocation to Andorra .
The case of royalties and intra-group licenses
As soon as a foreign company invoices royalties to a French entity, two questions arise simultaneously. The first concerns withholding tax, which depends on the applicable tax treaty and can be reduced to zero between member states under certain conditions. The second concerns the reasonableness of the royalty , which the tax authorities will assess in light of the functions actually performed.
Intra-group licensing schemes remain perfectly legal, but they require transfer pricing documentation prepared in the first year, not reconstructed three years later under the pressure of an audit. This is precisely where improvised documentation differs from prepared documentation .
Third test: talent, banks, and cash receipts
A country with attractive tax laws but closed banking is a bad country for a software company. Opening a business account, obtaining a merchant account capable of collecting recurring subscriptions in multiple currencies, connecting a payment provider recognized by your major clients: these three operations determine your daily operations and fail more often than you might think.
The second operational criterion is access to skills. Recruiting a senior developer, a DevOps engineer, or a security manager requires a local talent pool, a workable work permit system, and manageable personal taxes for the employee. A jurisdiction that saves you five tax points but adds six months to the recruitment process destroys value.
The third criterion relates to commercial credibility. Some major European companies apply restrictive purchasing policies towards suppliers located in jurisdictions on watchlists. Checking this point before making a choice, by directly contacting your three largest clients, avoids unpleasant contractual surprises at renewal time.
Certain zero-tax jurisdictions, such as the Bahamas, remain relevant for specific profiles but require particular attention to these three dimensions. We detail these constraints on our page about tax relocation to the Bahamas , as the attractive tax rate does not resolve any of the operational issues there .
Fourth test: would your structure withstand an inspection?
The fourth test is a simulation exercise. Imagine a request for information from the French tax authorities (DGFiP) concerning your foreign entity and list the documents you would be able to produce within thirty days. If the list is only three lines long, your structure is fragile regardless of the quality of the initial setup.
Economic substance, effective management and CFC rules
Three mechanisms combine to challenge an artificially established presence. The theory of effective management allows the company to be linked to the country where strategic decisions are actually made. Article 209 B of the French General Tax Code, the French transposition of the CFC rules, reintegrates the profits of a subsidiary subject to a preferential tax regime when local substance is lacking . Finally, the abuse of law doctrine penalizes arrangements primarily intended for tax purposes.
The defense is not legal but material. Actual offices, not just postal addresses; locally resident employees; bank accounts opened on-site; board meetings held in person with dated minutes; contracts signed from within the country: it is this accumulation of converging evidence that makes a case. Each element taken in isolation proves nothing.
The automatic exchange of information must also be considered. CRS and FATCA regulations make your foreign accounts visible to the French tax authorities, and beneficial ownership registers complete the picture. Discretion is no longer a factor; only verifiable compliance remains. You can consult the definition of tax residence for general principles.
Fifth test: Is the exit prepared?
A software company is sold, raised, or transferred. The country of establishment directly influences the taxation of these events, and it is very difficult to correct a poor choice six months before a transaction. The fifth test, therefore, consists of reasoning in reverse, starting with the liquidity event you anticipate .
Exit tax, capital gains on disposal and buyer due diligence
The transfer of tax residence outside of France by an executive holding significant shareholdings triggers the exit tax mechanism beyond certain thresholds, with a deferral of payment subject to conditions. Anticipating this point before valuation, rather than after, radically changes the cost of the transaction .
From the buyer's perspective, any serious due diligence examines the code ownership chain, the rights assignment agreements signed by the developers, and the consistency of intra-group cash flows. A tax-efficient but poorly documented structure leads to increased liability guarantees, or even a price discount . The annual tax savings are then wiped out in a single transaction.
Certain territorial jurisdictions, such as Panama, offer interesting advantages in these areas for businesses with a truly international focus. We outline the framework on our Panama tax relocation page, emphasizing that territoriality implies a coherent organizational structure , not simply a registered office.
What the most frequently cited jurisdictions are really worth
Business leaders' forums circulate an implicit ranking of destinations, generally based solely on corporate tax rates. This ranking is misleading because it ignores personal taxation, the quality of the tax network, and banking feasibility. A jurisdiction can only be judged in relation to a specific business profile .
Georgia illustrates this nuance well. Its distribution tax model, inspired by the Estonian system, mechanically favors companies that reinvest their profits, which corresponds to the profile of a growing software publisher. The country also has a regime dedicated to exporting IT activities, described on our page about tax relocation to Georgia , but its geographical distance hinders the recruitment of European talent.
The United Arab Emirates, Cyprus, and Malta are also back in the discussion, each with a different balance of rates, conventions, and substance costs. None of these jurisdictions is inherently better: the right question is never "which is the best country," but rather which is the best country for this particular company , with this specific business model and leadership.
One final parameter is often overlooked: the regulatory trajectory. The global minimum tax of fifteen percent, changes to European tax lists, and revisions to tax treaties alter the landscape every two or three years. Choosing a country therefore requires assessing its political and fiscal stability over the duration of your project.
Conducting the implementation audit in practice
The implementation audit is not a theoretical exercise but a review of existing documentation based on your actual figures. It takes place over a few weeks, without any international involvement, and results in a binary answer with conditions attached. In one-third of cases, the conclusion is to maintain the current structure .
A four-step method
The first step reconstructs your actual consolidated tax situation, including management, for the last three fiscal years. The second step models two to four location scenarios, incorporating the full cost of local assets: rent, salaries, recurring fees, and travel expenses. The third step compares the net gain with the legal risk of each scenario.
The fourth step produces an operational schedule. It specifies the order of operations, generally either the transfer of the manager's residence first or the creation of the foreign entity first, depending on the circumstances, the minimum number of days of presence required, and the declarations to be filed in France. This schedule is the most useful deliverable of the audit because it transforms an intention into an executable sequence.
The most important methodological rule remains: never decide based on a single criterion. A manager who chooses their jurisdiction based on the corporate tax rate is just as likely to make a mistake as one who chooses it based on the weather. The decision belongs to the manager, not the board , but it must be based on a complete analysis.
Comparative table of the jurisdictions studied
The data below are public orders of magnitude up to date as of 2026, to be verified on a case-by-case basis depending on the nature of the activity and the structure chosen.
Jurisdiction | Corporate tax | Software plan | Convention France | Point of vigilance |
Portugal | Approximately 21% plus municipal surcharges | Reduced rates on software, local R&D required | Yes, full agreement | Salary costs and administrative delays |
Andorra | 10% | No dedicated scheme, low general rate | Yes, since 2013 | Very tight labor market |
Georgia | 15% to distribution only | Status dedicated to export-oriented IT activities | Yes | Distance, perception of major accounts |
Panama | 25% on local source income | Territoriality over foreign income | Yes | Substance required, image with buyers |
Bahamas | No tax on profits | Not applicable | No | Banking services, acceptance of European customers |
Testimony from a SaaS publisher executive
“We published subscription-based management software, with around sixty clients spread across France, Belgium, and Spain, and a team of eleven people, including seven developers. I had been convinced for two years that we had to leave, and I had even started looking into the formalities in Dubai . The audit showed that my application failed three of the five tests, mainly because all my R&D and all my clients remained European.”
“We ultimately opted for an intermediate solution, with a European entity that is truly well-funded and the existing technical team retained. The tax savings are less than I initially anticipated, but they are secure and documented , and above all, my key account clients raised no questions during the renewal process. In hindsight, the Dubai scenario would have cost me two years of disruption.”
Anonymous testimony from the head of a management software publisher, supported by Coreway Consulting.
Frequently Asked Questions
At what level of performance should a software company start asking itself this question?
There is no regulatory threshold, but experience shows that below approximately three hundred thousand euros in annual profit, the full cost of a viable business location absorbs almost all of the tax benefit. Above this threshold, the choice becomes truly open and warrants a quantified analysis.
Can you keep your French clients after relocating the company?
Yes, there's nothing preventing you from invoicing French clients from a foreign company. However, you must handle VAT correctly, verify that there is no permanent establishment in France, and ensure that the foreign company has the necessary personnel to perform the invoiced services.
Do we have to move there ourselves, or can we stay in France?
Both situations exist, but they do not offer the same advantages. A foreign company managed from France risks being considered French for tax purposes based on its effective management headquarters, which negates most of the intended benefit.
What happens to code already developed in France?
Its transfer to a foreign entity constitutes a sale of an intangible asset, which must be valued at an arm's length price and generate a capital gain taxable in France. This step is frequently underestimated and often represents the main cost item of the project.
Does the global minimum tax apply to a software SME?
The scheme targets groups with consolidated revenues exceeding €750 million, thus excluding the vast majority of independent publishers. However, some countries have introduced minimum domestic levies, which should be verified on a jurisdictional basis.
How long does it take to complete this site audit?
The complete diagnostic process typically takes a few weeks, allowing time to gather the necessary documentation, client contracts, and the actual allocation of teams. Implementation, once decided upon, then extends over six to eighteen months, depending on the jurisdiction.
Conclusion
Determining whether your software company is based in the right country is neither a matter of intuition nor comparing rates gleaned from a forum. It requires a methodical audit that considers the actual location of your assets, your effective tax burden, your operational constraints, the legal soundness of your structure, and the liquidity event you anticipate .
A significant proportion of the cases examined conclude with the existing structure being maintained, possibly with limited adjustments. This conclusion is not a failure: it saves you from a costly reorganization and provides a documented answer to a recurring question . Cases that truly justify a departure are rarer than commonly believed, but the benefits are then substantial and lasting.
You run a software company and want to objectively assess whether your current location is still the right one. You can request a personalized study from Coreway Consulting : we will review your case and provide you with a reasoned recommendation, even if it suggests maintaining the status quo.
