US Incorporation for Foreign Business Owners
Any foreigner who would like to make investments or do business in the US doesn’t need to incorporate a company here. The reason – The US tax department – IRS (Internal Revenue Service) is happy to send bills to the foreign company for any of the domestic tax that it owes.
But starting a business in the US as a foreigner would make things much more comfortable to manage. This is because, if the IRS sends something to the company that is foreign, it takes months since it is sent by the regular mail. On the other hand, starting a business in the US as a foreigner would give you the liberty to choose when you would like to pay the taxes.
Basically, before moving ahead and opening a business in US, here are the four things that you must keep in your mind for starting a business in the US as a foreigner:
Point 1: Choose your company structure
It is common for the foreign nationals to establish a C-corporation due to the benefits like the ability to expand by providing the unlimited stock. Another reason is that it is highly attractive to the investors from the outside, even though this type of business is taxed twice: once at the corporate level and the next on the dividends of the shareholders.
But for the corporate shareholders starting a business in the US as a foreigner, the advantages are obvious to them. The first is that they are qualified for a low dividend rate. This means that as long as the US company does not have any real estate, the corporate parent would not pay the capital gains after the US affiliate has been sold.
Moreover, even if you are a single person starting a business in the US as a foreigner, it would be better to get a C corporation as the structure would protect you from the direct IRS investigation. And, obviously, you would not want to have your name on the US tax rolls.
And it is well-known that the C corporations have to pay more for the protection which is in the double tax that they pay. But if you are smart enough like many others who have and are starting a business in the US as a foreigner, you can efficiently use the pension costs, salaries, and other expenses to lessen the overall corporate income and erase the trouble of double taxation.
With all this said, there are some cases where the limited partnership structure would be the best business structure choice. The reason is that in the limited partnership, the partner who does not have a good management control would have limited liability. And in this case, the profits would be passed through the members, who would eventually end up paying the income tax on their personal tax return.
Point 2: Select a state for starting a business in the US as a foreigner
The business of the company should decide where it should be located. This means that starting a business in the US as a foreigner should pay off well if you open your business in a state where your company dominates the market. So, instead of opening a Glass Manufacturing business in California, where IT is the industry that rules, you can open the Glass Manufacturing company in Wyoming where it would help your business grow.
Other than this, if you are trying to open a service-based business or something where the concentration of the same type of business is less, Delaware and Nevada are great places. The best thing about these places is that they have flexible corporate laws that offer a lot of protection to the directors and shareholders. Moreover, for a person starting a business in the US as a foreigner, it has outsider-friendly rules as well.
In Delaware, you wouldn’t need to obtain a business bank account or a physical address for starting a business in the US as a foreigner. So, before you start your business anywhere, select the place that would be the best for it.
Point 3: Register your business
The requirements and the forms for starting a business in the US as a foreigner vary from state to state. But to give you a slight idea, here is how it works in Delaware, which has a much more simplified model as compared to the other US states:
- The heads of the company (you in this case), choose a unique name for the company.
- The owners then choose a registered agent like Inc Paradise for obtaining all the legal documents for starting a business in the US as a foreigner. The company would be able to use the agency’s physical address. (Only applicable in Delaware)
- The company would need just to fill out a one-page incorporation certificate that would display the name of the corporation, the address, and name of the registered agent, the mailing address and the name of the incorporator, along with the par value and total amount of the shares that the company is allowed to issue. The starting fee is $89, and it would raise substantially based on the amount of capital raised or the stock issued.
As soon as the company gets incorporated, it needs to have a report filed that would cost $50 and would also have to pay for the franchise tax that starts from $175 on an annual basis. Even though you would feel that the process is generally straightforward, you would need a professional firm to help you. This is since you would need the help in starting a business in the US as a foreigner so that there are no problems and you fulfill all the requirements precisely.
Point 4: Get an EIN (Employer Identification Number)
The EIN is not just for hiring employees, but it also helps in opening a business bank account, for obtaining a business license, and even for paying the taxes. You can apply for the EIN with the IRS for free. But if you are starting a business in the US as a foreigner, and you do not have the Taxpayer Identification Number that is issued by the IRS, you would not be able to get the EIN online. You might need to apply for it via fax or by visiting the office.
In most of the cases, it is advised that starting a business in the US as a foreigner is a much better option rather than just doing business from your home country. Even though forming a company is not that tough in the US, but the tax consequences and strategies are the same in almost every country. Hence, it is important to consult experts for even starting your business in US, like Inc Paradise. Contact for more details!