In recent years, an increasing number of African startups have been registering their businesses in offshore territories (such as Delaware, British Virgin Islands, Mauritius, the UK, Cayman Islands, Bermuda, etc.) rather than their home countries. This trend of *foreign domiciliation is partly driven by strategic motives, including favorable tax policies, access to capital markets, and intellectual property protections. Jumia, Africa’s first unicorn, exemplifies this model, as it registered in Germany. Countless other startups, like Flutterwave, have followed suit, incorporating in the United States, a trend reflected in venture capital (VC) funding patterns.
While offshore incorporation can provide benefits such as better access to capital or a more predictable regulatory environment, it also introduces a range of challenges that founders must carefully navigate. These obstacles, ranging from legal complications to operational headaches, can outweigh the perceived advantages if not properly managed.
Investor Preferences: No One-Size-Fits-All Solution
One of the key motivations behind African startups registering abroad is investor preference over choice of foreign domiciliation. However, there is no universal consensus among investors regarding the optimal jurisdiction for a startup’s domicile. While some investors favor startups incorporated in Delaware, a popular choice for US-based venture capitalists, others are wary of the risks associated with US regulatory exposure. Certain investors may push for jurisdictions with more flexible tax laws or better intellectual property protections, while others avoid certain regions due to geopolitical risks. Founders are thus left trying to cater to differing preferences, often without clear guidance on what will truly benefit their business long-term.
This uncertainty underscores the importance of founders maintaining a clear understanding of their investors’ strategic priorities. Failure to align can lead to friction and potentially missed opportunities for financing. Startups may face demands to restructure at later stages, a costly and time-consuming process.
The “Incorporation Trap”: Lack of Post-Registration Support
A frequent issue African founders face when registering their startups abroad is the lack of ongoing support from incorporation agents. Often, these service providers assist with initial setup but disengage once the incorporation process is complete. Startups are left to navigate complex regulatory environments without adequate guidance or support for staying compliant with local laws, filing requirements, or tax obligations.
This disengagement leaves founders vulnerable to compliance failures, fines, or business disruptions. Moreover, without proper advice on how to optimize their operations post-incorporation, founders might find that the regulatory benefits they were expecting never materialize. In countries with less transparent regulations, this can quickly become a serious operational risk.
The “Mirage” of Complementary Services
Structuring a startup abroad can offer more than just incorporation — banking, employee visas, and other business services are often part of the package. However, in practice, many African founders discover that access to these services is not guaranteed. In some jurisdictions, startups face difficulties opening business accounts or securing work permits for international employees, especially if the startup’s engagement with incorporation agents is limited to the basics.
This lack of integration between incorporation services and the startup’s ongoing business needs can hamper growth. Without banking access or proper visas, startups may struggle to operate smoothly or scale across borders.
Hidden Costs and Agent Overbilling
For many African founders, the cost of maintaining a foreign-registered entity quickly becomes prohibitive. Incorporation agents often charge exorbitant fees, sometimes demanding annual payments for seemingly minor tasks such as using their office address for correspondence. These expenses can add up, particularly for early-stage startups with limited budgets.
Worse still, startups may face unexpected legal or tax bills if they are not diligent about monitoring the financial and regulatory obligations tied to their chosen jurisdiction. This risk is compounded by a lack of ongoing support from incorporation agents, leaving founders to bear the cost of compliance without the necessary expertise to manage it.
Redundancy in the Face of African Startup Acts
Another challenge is the growing adoption of Startup Acts across Africa. These regulatory frameworks are designed to foster entrepreneurship by offering tax breaks, funding opportunities, and other incentives to locally domiciled startups. Founders who have incorporated abroad may find themselves unable to benefit from these new local policies, putting them at a competitive disadvantage.
In addition, foreign-registered startups may struggle to secure official recognition, such as obtaining a “startup label” in their home country. This redundancy creates a gap between the benefits of being incorporated abroad and the emerging advantages of local incorporation, prompting many founders to reconsider whether structuring abroad is still the best option.
Best Practices: Making the Right Choice
While the challenges of structuring a startup abroad are significant, they are not insurmountable. Founders who take the time to evaluate their business activities, investor preferences, and operational needs can make more informed decisions about where to domicile their companies.
A key recommendation is to choose jurisdictions that align with both investor expectations and the startup’s operational realities. Additionally, engaging reputable agents with a proven track record of providing ongoing support — beyond just incorporation — is crucial. Startups should also ensure that the jurisdictions they consider offer a business environment conducive to their specific industry, whether that be technology, finance, or manufacturing.
Finally, founders must remain vigilant about the legal and financial commitments tied to foreign incorporation. Monitoring these commitments regularly can prevent unexpected costs and ensure that the startup remains compliant, wherever it is registered.
The allure of African startups registering abroad is understandable, particularly in the quest for access to global markets and capital. However, the path is fraught with challenges that can derail a startup’s progress. From conflicting investor preferences to hidden costs and regulatory traps, founders must carefully assess whether the benefits of foreign incorporation truly outweigh the potential downsides. By making informed, strategic decisions, African startups can better position themselves to thrive, whether at home or abroad.
*Foreign domiciliation is when a company sets up its legal home, or officially registers, in a different country than where it primarily does business. Startups often do this to take advantage of benefits offered by other countries, such as lower taxes, more investor-friendly regulations, better legal protections, or easier access to international markets. Essentially, the company is based in one country for legal and financial reasons, even though it operates or serves customers in another. This strategy is common for startups seeking to grow globally or attract foreign investment.
