Selling Goods and Services in the United States
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Companies owned by non-US citizens that want to do business in the US must decide whether they plan to have a presence in the country (for example, sales offices and staff), whether to form a corporation or a limited liability company (LLC) here and how to handle the myriad of issues that multicultural business activities can generate.
There’s no simple answer to every non-US company’s needs when it comes to selling in the U.S. The steps to take depend on a careful assessment of the business plans, legal rules in the US and abroad, financing issues and more.
Business Plans
What type of activity does the company plan to undertake in the US? The answer to this question dictates whether a company should be formed here. In other words, the foreign enterprise’s business plan determines whether US company formation is advisable.
If a company only plans to sells goods, perhaps through the Internet or wholesaling to US companies, it may not be necessary to form a US company. But this answer is not necessarily the final word--some US consumers are more likely to purchase things over the Web from a US company rather than a company oversees, so it may be desirable for marketing purposes to form US company after all.
If the business plans to sell services here, it is inescapable that a U.S. company is needed to run things locally. By being here, the company can be held accountable for its actions.
Legal and Tax Rules
There are no US or state laws barring non-US citizens from forming businesses in this country. The American marketplace is open to all.
Assuming a non-US business decides to form a company here, the next question to solve is which type of company should be used. Many non-US businesses operating in the US choose to form their business as a limited liability company (LLC). There is no limit on the number of investors who can own interests in the business, and there is no restriction on non-US citizens being members (owners) of the LLC.
Non-US businesses need to understand that company formation in the US is controlled at the state, and not at the federal, level. The LLC can potentially be formed in any one of the 50 states or the District of Columbia. In which state should the LLC be set up? The answer depends on whether the company has an actual presence in the US For instance, if the company has an office in Miami, it may wish to form the LLC in Florida. If the company does not plan any physical presence here (meaning it will operate solely from overseas), then formation of the LLC in Delaware or Nevada, the two most business-friendly states, may be preferable. If a non-US company operates in more than one US state, it may form the LLC in any of these states, but must also register to do business in the other states (a process called foreign qualification).
While LLCs are a very popular choice of business entity today, a number of businesses opt to form regular corporations, which are called C corporations, in the US. A primary reason for this choice is the ease of getting additional investors involved and the possibility of taking the company public in the future (something that cannot be done with an LLC).
In some cases, the laws of the company’s home country may affect the choice of entity, so it is vital to consult with an attorney familiar with both US and international law to make an informed decision regarding which entity is best for your business.
It is important to note that non-US business owners who form a regular corporation cannot elect S corporation status. S corporation status allows shareholders (owners) to report their portion of business income and expenses on their personal income tax returns and avoid corporate level taxation. The US tax rules state that non-US citizens cannot be shareholders of S corporations.
Tax wise, non-US companies that are engaged in business in the US or have a permanent business establishment are subject to US taxes in the same manner as wholly-US companies. If the business is an LLC, this means filing federal and state income tax returns for the LLC as well as for each of the LLC’s members.
Members would need to determine their resident status. If they are nonresidents, they are taxed in the US only on US source income (for example, their share of the LLC’s income). If they are US residents, they are taxed on their worldwide income. Resident status is not limited to those having a Green Card. Resident status also applies to those with a physical presence in the US. For example, for 2006 a person is treated as a resident if he or she is in the US for at least 31 days and at least 183 days during 2004, 2005 and 2006 (counting all the days in 2006, but only 1/3 of the days in 2005 and 1/6 of the days in 2004). Even if this residency test is satisfied, a person can still be treated as a nonresident in certain situations (for details on determining residency and tax obligations, see IRS Publication 519, U.S. Tax Guide for Aliens, at www.irs.gov/pub/irs-pdf/p519.pdf).
Non-US businesses that do not operate in the US (for example, do not have any income from US sources) do not owe any federal income taxes; however, there may be annual state charges or fees for maintaining the LLC or corporation.
Financing
Some non-US businesses may want to become US companies to gain easier access to capital. Banks in the US lend money to small businesses more readily than many of their foreign counterparts. Once a non-US business has been operating in the US for at least two years, this business has the same access to capital through US banks as wholly-US companies.
Alternative: Non-US companies that do not want to form a business here but merely wish to import their products to the US should explore import rules through the US Customs and Border Protection.
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