I get at least 2-3 emails a day asking this question one way or another. I figured I could provide a primer in order to do this.

What would be some reasons a foreign company would want to set up shop in the US?

  • Better Taxes – The US currently has a maximum 35% on net income earned in the United States. Even lower on the first $50,000 at 15%
  • More exposure – Some companies need to set up shop in the US in order to manufacture product here, sell on Amazon US, use US based services like Stripe, as well as carry their product in US stores. Some video game developers would prefer to have a better tax situation when selling on Steam, or Xbox Live. Regardless, the extra exposure from having a “US based” company will sometimes far outweigh the costs to do it.
  • Freedom from VAT tax – In the US, you can set up your company in a sales tax free state, and not pay any VAT or Sales tax on sales of products or services, Sales tax in the US is pretty complex and can be different from state to state.

Before I dive deep into this, I want to point out that this is not an inexpensive process, at minimum it will cost around $1,500 to do with a yearly cost of at least $600-700. And that is the minimum. The main reason for this is the legal help that is necessary to set up some of these items (which is unavoidable) as well as the mandatory yearly tax and franchise filings.

OK, first things first:

1) YOU NEED A US C-CORPORATION

The reason you will need a C-corporation rather than an LLC (aka partnership) is a that an LLC is usually treated as a “pass-through” entity. This can cause issues if your company in the US makes net income and is required to pass that through to you as an owner in another country. By doing this the The LLC (aka partnership) makes this whole concept of “tax savings” not applicable because you are eventually going to pay tax on any net income from the US in your country.

With that said, if you live in a country with a tax treaty with the US see here, then you can potentially open an LLC and allow that net income to pass through to you in your country and NOT be double taxed. If you are not looking for the tax savings, and you are in a tax treaty country, then it may actually make sense to set up an LLC rather then a C-corp, though this will be rare.

Delaware used to be the place to set up a C-corp or LLC easily, though with increased fees, I find that MONTANA is the best state to set up a C-corp or LLC. This usually costs ~$500 plus $100 per year for a registered agent and annual filing (Delaware is $800 and $300 per year). This process will get you Bylaws, and EIN (business ID number) and Articles of Incorporation.

2) YOU NEED A BANK ACCOUNT

This is a difficult one, and can take the most time and money to do. In order to open a business bank account in the US you need:

  • a) A registred company, EIN number, and Bylaws that include a corporate resolution
  • b) An officer of the company with a Tax ID number (TIN or SSN)*
  • c) A US based address

* I want to note, that I have heard of some banks which have locations in the foreign country and in the US to allow you to set up a US based account without needing to get a tax ID number. I do not know these banks.

  • a) Setting up your C-corp was accomplished in step 1
  • b) Getting a Tax ID number can be difficult. It must be applied for in a W9 application. You must provide identity and a reason for your application. You can find more about that here. This process can take up to 5 months, so proper planning is absolutely necessary. With the help of a professional, this can cost at minimum $800.
  • c) A US based address should be easy to get, lots of companies provide mail forwarding services.
  • d) Most banks require someone to be “in person” to start the account, unless there is a bank that is also located in your own country (see more below). You will need someone in the US to help. I have not found a bank yet that allows a 100% online opening, and I am pretty sure they don’t exist. You will need to show up with all of your documents, including your passport and a healthy initial deposit. I have worked with a bank that allows this, but there is no guarantee, and I charge a lot to ensure that you are serious about it.
  • e) In today’s global economy, opening an account with a foreign bank that has a branch in the US can be easier than ever. Open an account there to establish that you are reliable and they may allow you to open a bank account for US use as well.

3) YOU NEED TO DO ALL THE PROPER YEARLY FILINGS AS WELL AS THE MANAGEMENT OF THE US BASED FINANCES

This usually requires the help of a professional.

  • You must file an annual company report with the state and pay any franchise taxes (cost: Montana it is $20)
  • You must pay a registered agent for your company (this cannot be done by me)(cost: $100 per year)
  • You must file a federal tax return (cost: $500+)
  • You must create company minutes detailing an annual meeting of shareholders(cost: none)
  • Annual tax planning – if your company makes income, it may be smart to plan with a professional the tax implications
  • Monthly bookkeeping – a professional can help you with this, but it can be done on your own

4) HOW TO TREAT THAT MONEY THAT IS TRANSFERRED

Any money that is transferred from the US to you or your company in your foreign country is either considered a Dividend distribution, or payment for services performed. Both are most likely taxable in your country. If your county is in a tax treaty with the US (see link above), you may not have to worry about paying tax in the US, this can only be determined by the type of income or payments, a professional can help. If you are NOT in a tax treaty with the US, it may get complicated, and you may need to withhold tax on all transactions, hire a professional.

Conclusion:

There is is! Hopefully that helps, I will try and periodically update this with better and more detailed information.

IRS CIRCULAR 230 DISCLAIMER: Pursuant to regulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries and appraisers before the Internal Revenue Service, unless otherwise expressly stated, any U.S. federal or state tax advice in this communication (including attachments) is not intended or written to be used,and cannot be used, by a taxpayer for the purpose of (i) avoiding penalties or taxes that may be imposed under federal or state law or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter(s) addressed herein.

All Posts
×

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly