Thread by @dunkhippo33

Today's tweet thread is for emerging managers (& possibly new angel investors) who are investing in international startups. (And for non-US startups: this is why it's hard to invest abroad)

Here are some best practices on compliance (scintillating, I know!) we've learned >>

1) Although I had worked at a global firm before, I didn't know prior to starting @HustleFundVC just why so many investors shy away from international investments.

I thought it was fear of investing outside of one's backyard. But a big reason is US compliance! Ugh.

2) Here are some of the reasons that I've written about before about why it's tough to raise from US investors if you are incorporated outside the US:

https://twitter.com/dunkhippo33/status/1224797508053782529?s=20

3) But today, I want to focus in on something called PFIC (Passive foreign investment company) rules.

What's that? They're US compliance laws to ensure that investors are not money laundering overseas.

4) So if you have *invested* in a non-US entity, this thread applies to YOU!

(and def applies to us -- we do a fair bit of investing into Canadian corporations + SG corporations).

5) The root issue is that the US government does not want investors putting their cash into companies overseas and not reporting this cash.

So to ensure this does not happen, you may have to file PFIC paperwork re your international investments.

6) If you are curious about what makes for an international startup fall under PFIC rules, feel free to read this form from the IRS as a good bedtime read:

irs.gov/pub/irs-pdf/i8…

7) But the long of the short of it is that companies that are not profitable generally do not require PFIC reporting.

So every year at this time of the year, we auto-send an email to our non US Delaware C corp companies asking them to check whether they are profitable or not.

8) BIG thank you to all of our non-US incorporated portfolio companies who have already filled that out. It's a huge help!

9) For companies that are profitable, then those companies go into a different bucket, where we will need to fill out that tax form above as well as gather other paperwork (like the company's books etc).

for every single company...

10) This whole thing seemed like a real bear at first, but 4 years into being a VC, we now have our decision tree down pat to scale this.

That being said, we still very much PREFER US Delaware C corp, because it means less time filling out paperwork for both our founders and us

11) The funny thing is that we emailed so many VC firms for advice on this. And

a) few firms had a process for this. Most just suck it up every year
b) OR they make their companies convert to US Delaware C corps to avoid this

If someone is has software for this, I'm all ears