To go global and do it successfully, foreign-owned companies need to be seen through the eyes of the federal law and be formally recognized by the state of incorporation. First, they need to gain insight into the business practice in the United States. There is a number of factors that foreign founders should consider when establishing operations on American soil. These factors include the type of an entity structure, tax issues and law compliance. If a foreign company will be the parent of a US entity, then you need to make sure you are following transfer-pricing rules and regulations. Also, if you are moving to the States, you should consider undergoing pre-immigration tax planning as well as succession planning and creation of trusts like BVI. All that, and more, before you arrive in the U.S. Here are some of the questions you need answers to.
How can I establish operations in the U.S?
Once you make the decision to establish operations in the States, you need to gain an understanding of the incorporation process and the U.S. legal system. The practice of forming a business in the United States has to be in accordance with the federal, state and local laws. All 50 states have their own set of laws that apply in their areas of jurisdiction.
You will have to deal with both international and U.S. tax law, obtain visas and open a business bank account. There are regulations, licenses and taxes that you’ll need to follow, obtain and pay for establishing your business. Therefore, it is best that you consult with a lawyer experienced in immigration, international and U.S. taxation and tax treaties, as well as in company formation. They will help form your business in compliance with the law.
Where will my company be located and incorporated?
You need to choose a location to set up your business, as well as the state of incorporation. It is more pocket-friendly to incorporate in the same U.S. state where your company will be operating. To make a decision, you are to weigh two main factors: your goals and your budget.
Incorporating in the state of operations is usually the best decision when your business is a closely held company operating principally within a single state. If you are physically located in one state but operating your business in multiple states, you are required by law to register your company in each and every one of those states. This process is called foreign qualification. Also, keep in mind that a foreign company operating in another state is subject to annual report fees and taxes from both the state of operations and the state of incorporation.
Should I establish a branch office or a U.S. entity?
Foreign-owned companies are not required to operate in the States through a U.S. entity. They are allowed to open an outlet of the company called a branch office, though this is not an ideal arrangement for liability and tax reasons.
For instance, by establishing a branch office, which is not considered a separate legal entity, a foreign company is subject to taxation on all income earned. Also, the parent company would not be shielded from liability caused at the branch level. Thus, establishing a separate legal entity is advantageous for controlling both liability and tax issues.
What company structure should I choose?
When deciding on the type of entity they will use to conduct their U.S. operations, foreign nationals can choose from a Corporation (C), a Limited Liability Company (LLC) or a Partnership. Before you settle on a structure, gain in-depth information from your legal counsel about the advantages and disadvantages of each form of business entity.
LLCs can provide you with flexibility regarding how your business can be managed and financed. They can elect to be taxed at the member level or as a corporation. C corporations, on the other hand, have to file a federal tax return every year and are required to file an annual tax return by law in most states. They are also subject to double taxation: at the entity level and at the shareholder level. However, C corporations can be made public, they are more scalable and, therefore, attractive to investors.
Should I seek legal counsel and representation?
To find out more about corporate law, tax law and planning, consult with a firm specialized in solving problems you may encounter down the road. A skilled attorney can help your new enterprise achieve business goals, resolve any regulatory matters, minimize tax complications and errors of any kind during the formation process.