More and more often, entrepreneurs want to relocate their business abroad. When choosing a jurisdiction, the question arises: where is the most profitable place to invest? Of course, we advise states with a high level of economic development not to miss out on markets and clients. An important aspect is the ability to minimize the tax burden legally. In this context, we suggest considering the United States of America as a legal field for doing business.
What should you know to open a business in the U.S.?
- First, thanks to the federal structure of this country, you can choose from 50 states, each with its laws and requirements. Such variability helps you to incorporate your business in the most comfortable place.
- Secondly, in addition to the state’s transparent legal system and constant stimulation of business development, America offers tax savings in the so-called “zero” states (such as Wyoming, Nevada, Texas, and others). This means that at the state level where the company is incorporated, the income tax rate will be 0%.
- Thirdly, the U.S. is an excellent jurisdiction for start-ups. It has leading positions in different world market areas and thus creates a competitive environment for the IT industry, financial and business services, engineering, pharmaceuticals, etc.
An important point when incorporating a company is choosing its legal form because it affects the structure and taxation of the business. In the U.S., the most popular and in-demand are Limited Liability Company and C-corporation.
What is the main difference, and which form is better to choose?
- LLC is a legal form of limited liability company, the founder of which can be one owner, that at the same time is equal to a company member. The main advantage here is taxation, which is carried out as follows: there is no corporation tax at the federal level. The individual income tax rate is progressive and depends on the base (0-37%). The tax varies from 0-15% at the state level, but if you choose the above-mentioned “zeros,” the tax is 0%. Depending on the number of company members, the Internal Revenue Service of America (IRS) may classify an LLC as a corporation or partnership. In turn, the owner has the right to apply for a form of classification (Entity Classification Election) for federal tax purposes and identify their company as a “fiscally transparent entity,” thereby avoiding additional liabilities. One of the nuances is the limitation of the activities that LLC cannot conduct (banking, insurance, etc.).
- C-corporation is a type of corporation used by non-residents of the USA to attract public investments. This form is more advantageous for a highly profitable business, which plans to develop actively. Its founder wants to open a corporate/personal account in an American bank or immigrate. The main difference with an LLC is taxation, which in this case is on two levels: federal corporate income tax at a flat rate of 21% plus individual income tax at a progressive rate from 0-37%. At the regional level, income taxes are paid at a rate from 0-15%, but it is possible to choose the state “zero.”
Tax peculiarities
The U.S. has introduced a “franchise” tax, an annual fee for incorporating in a particular state. By analogy with our legislation, it can be defined as a kind of license fee usually handled at a fixed rate.
For example, in Delaware and Nevada, the “franchise” tax amount is $250, and in Arizona, it is $80.
Much confusion arises with the abbreviations of the tax numbers used by the U.S. IRS. Let’s break down the 3 most important ones for a business owner in the US. Similar in function are the EIN and TIN. The first is a taxpayer identification number for companies. It is used to identify business entities for tax purposes. The TIN, in turn, is its counterpart but is presented to companies that have employees.
A separate taxpayer identification number is the ITIN given to natural persons to identify them for tax purposes. It is issued only to persons who do not have the right or grounds to receive SSN (social security number), i.e., foreigners/non-residents.
Learn more about sales tax in U.S. by the link.
Features of opening a bank account in U.S.
Opening a bank account is complicated, as it is currently impossible to do it remotely. It is mandatory to be physically present in the U.S., undergo compliance procedures, provide evidence that you are the business owner and plan to run it in the states. The alternative is payment systems, where you can open a corporate account and make/receive transfers. Since their number and conditions offered are very varied, it is better to consult with specialists to select the best option for your business.
U.S. law provides for a two-tiered declaration of income. On the federal level, the IRS decides on all matters of filing returns, while at the state level, the power belongs to the local tax authorities. Since LLC profits are taxed only after they are distributed among the participants, they have to file individual tax returns.
The primary trend is to switch to electronic methods of communication with business entities. If you violate tax regulations and fail to pay taxes, you will be charged interest and penalties for late payments.
Since the requirements for company founders are unlimited ( a non-resident/legal or natural person can establish it), there is no need for a nominal director. LLC is managed either by participants or an appointed director, while C-corp necessarily needs a director (can be a shareholder).
So, given the legal culture and economic level in the States, combined with large markets and solvent customers, we recommend you consider this jurisdiction for business incorporation. Ask Finevolution for more information about the U.S.
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