June 22, 2012 at 7:40 AM ET
The best countries for entrepreneurs do not necessarily have the biggest economies. In fact, based on a new report by the Organization for Economic Co-operation and Development, four of the 10 best countries for entrepreneurship have among the smallest economies in the developed world. While it is no surprise that the United States and the United Kingdom are among the best countries for entrepreneurs, most businesses would not put Portugal or New Zealand among them.
In order to determine the best countries for starting a business, the OECD took into account the time it takes to start a business, the number of procedures necessary to start a business, the cost of following through with those procedures compared to national income per capita, and the minimum paid-in capital necessary as a percentage of income per capita. Based on this data, 24/7 Wall St. identified the 10 countries where it is easiest to start a business.
According to OECD chief media officer Matthias Rumpf, the restrictions examined in this report can be a deterrent to starting a business: “if you have to spend all the time to cope with red tape, you can’t spend that time to work on your business plan, to ship your products, and to reach out to clients.”
Just because it is easy to start up a business does not mean that small businesses are being started or that they comprise a large part of the economy. While New Zealand is one of best countries to start a small business, it ranks 21 out of 29 countries (where data were available) in the percentage of people working for small businesses. Meanwhile, the country ranks third in the percentage of people who work for large companies.
24/7 Wall St. also looked at the countries’ total gross domestic product and GDP per capita, anticipating a correlation between the ease of starting a small business and the strength of the economy. However, no relationship was apparent. While several of the best countries for entrepreneurs are among the largest countries in the world, such as the U.S. and France, smaller economies such as Chile and New Zealand also made the top 10.
The OECD also looked at the perception of entrepreneurship among citizens, including perceived opportunities to starting a business, the percentage that believe they have the skills to start a business, those who believe the fear of failure would prevent them from attempting to start a new venture and the high status of successful entrepreneurs.
Based on the OECD report, perception does not necessarily produce good opportunities. For example, while Switzerland has the eighth-worst score for starting a new business, residents had the seventh-highest perception about opportunities. Meanwhile, South Korea is the seventh-easiest country to start a small business, but only ranked 25th in perception out of 34.
These are the 10 countries that are best for entrepreneurs.
1) New Zealand
Starting a business in New Zealand only requires applying online with the New Zealand Companies Office. It takes one day and costs just $127, after which a certificate of incorporation is issued via email within minutes. Further, there is no minimum paid-in capital needed for starting a company in New Zealand. Despite the ease of starting a business, 42.13 percent of New Zealanders work for a company with more than 250 employees -- more than any nation other than the U.S. and UK. Still, New Zealand has maintained a high percentage of new companies created each year: 12.1 percent in 2007, 12.1 percent in 2008 and 10 percent in 2009.
Entrepreneurs can enjoy the quick process of starting their businesses in two days for just over $400 in Australia. Of those residents surveyed by the OECD, 48 percent perceive Australia as being a good place for business opportunities, the fifth highest out of 27 OECD nations surveyed. Australian business owners have a total tax rate of 47.7 percent -- five percentage points higher than the average OECD tax rate, which may deter potential business owners.
In Canada, there is just one step involved in starting a business: filing for incorporation through the online Electronic Filing Center. Filling out the necessary forms and paying all associated fees takes about five days and costs about $195. This process is relatively cheap, costing just 0.4 percent of Canada’s income per capita while requiring no minimum paid-in capital. Also, Canadian businesses were taxed in 2011, at just 28.8 percent of profit -- far less than nations such as the U.S. and France, which taxed profit at rates of 46.7 percent and 65.7 percent, respectively. However, not many Canadians have taken full advantage of the ease of starting a business. In 2008, Canada had one of the lowest percentages of start-ups of any OECD country for which information was available.
4) United States
In the U.S., innovators and entrepreneurs are highly praised in the media, according to 68 percent of those surveyed by the OECD. There are very few procedures and $675 in fees necessary to start a business. There is, however, a high incidence of company failures, at 10.43 percent per year, which suggests that it may be difficult for small and medium-sized companies to stay in business. According to the Bureau of Labor Statistics, almost half of new companies fold after just five years of operation.
Starting a business in Ireland only requires four procedures, a total of 13 days and costs between $100 and $165. The country rewards its most successful businesses by giving them special access to financing. Start-ups incorporated in the past five years, which have had at least 20 percent growth in three-consecutive years, had a 69 percent success rate in getting loans and a 100 percent success rate in receiving financing from existing stockholders. To compare, in the OECD 63.4 percent of start-ups that are growing quickly receive loans and just 77.6 percent receive shareholder financing. In 2011, 83 percent of people surveyed said successful entrepreneurs had high social standing. But the Irish Times estimates the number of people starting a new business each month has declined from around 2,800 in 2008 to 800 in 2010.