We hear so much news about how American multinationals use shell companies in tax havens to evade taxes. At the same time, not many know about how foreign companies sometimes use the tax rules in our nation to reduce their tax burdens. The US, as we all know, is the biggest market in the globe, and every business wants a share of the pie of this market. It is easier to scale your business here than in any other country in the world. We have examples of companies that have solely focussed on the American market, and gone on to become the biggest names in their niche.
We’ll let you in on some useful information that is not well known to the public at large, and we hope that this information will give you a reason to change the way that you look at doing business. The US is one of the best marketplaces of the world to operate in, especially for foreigners, as the country has excellent tax rules that are beneficial to them. The flipside of these rules is that they are not valid for local citizens, who have to pay both federal and state taxes. However, these citizens have no incentive to shift abroad, as offshoring can be an expensive proposition for a small-sized business. The reason for this favorable treatment of foreigners is that the government in the US wants to retain its dominance in the global economy. For this, the country needs even more businesses to set up base here and make investments that create wealth as well as jobs. After all, the President says he wants to make America great again, and foreign capital, as well as expertise, will play a crucial role if this ambitious goal is to be achieved.
Building a local business
So, as a foreigner, the question for you is, how do you go about building a presence in the US? There are many options available before you, and all have their pros and cons. The first is that you can export your goods and services to the US and accept payments in your home country. Thus, you are required to comply with the laws of only your nation. This model is a relatively pain-free means of doing business, as you can use your current systems to manage the increased workflow.
But, there are many drawbacks to this approach. Many US businesses prefer doing business with only local vendors, as they can hope for legal redress in case anything goes wrong. If you do not have a presence in the US, then realistically speaking, the importer of goods and services has little recourse against you.
The next method to operate your business in the US is to establish a new company in a low-tax jurisdiction such as Wyoming or Delaware. You can also buy a shelf corporation in the US and start operations. Another technique is to acquire or merge with a US-based company. In this blog post, as well as the next one, we will compare the benefits as well as the drawbacks of all these approaches so that you can make an informed decision.
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Taxation for Foreign-Owned Businesses
Let us get to the details of the tax benefits that apply to foreign-owned businesses.
However, businesses need to ensure that they maintain and preserve proper records so that everything is above board in case the authorities ask for some information. We would advise you to take professional help from experts such as the team at ShelfCorpGiant, who ensure that all formalities for your shelf corporation are completed so that you do not get stuck in some legal issues later. The IRS is always looking at ways through which it can increase tax collection, so you need to be careful at every step of operating a business in the US; otherwise, you could get caught in their sights.
Registering a business- things to keep in mind
You can establish a single-person limited liability S Corp or C Corp in the state of your choice. The reason why we are advocating a single person structure is to reduce compliance issues that may crop up in the future. We have written a detailed article on the type of business structures that you can choose here. Then you need to select a suitable location to register your business. The most business-friendly states are Wyoming, Delaware, and Nevada. Delaware is the choice of most foreign companies due to its established financial ecosystem, and the relative ease of doing business in the state. However, other states such as the ones mentioned above are gaining favor with investors from abroad. States such as Nevada and Wyoming do not have any corporation or personal tax and have reduced paperwork and compliance to such an extent that investors are flocking to register here. Though they have done a lot to attract foreign as well as local capital, they still have a long way to go before they can even think of dethroning Delaware.
In the next post, we will discuss in detail about what should be the ideal path for you to establish a local presence in this nation, and the role that US shelf companies can play in your international expansion.
Also Read – When should you buy a Shelf Corporation?