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While the United States boasts the most substantial consumer market globally, it also historically had one of the highest corporate income tax rates, which presented a catch-22 scenario for foreign businesses wanting to explore the U.S. market. However, the updated 2017 Tax Cuts and Jobs Act (TCJA) reduced the federal corporate income tax to 21%, empowering foreign businesses to act.
For those hoping to leave a professional footprint on American soil, here are five steps for establishing a business presence in the U.S.
Set up a virtual office
The most seamless method for forming a business presence in the U.S. market is to secure a digital mailbox and register your company using the digital mailbox address from a location of your choosing. To provide a registered agent in the selected state of incorporation, that registered agent must possess a physical address in this state.
With a digital mailbox at your aid, you can establish a business presence in multiple U.S cities. As a bonus, a digital mailbox will accept mail on the registered agent’s behalf, eliminating the inconvenience and astronomical costs associated with international mail services.
For those interested in digital mailbox services, consider upgrading to a virtual office, complete with a telephone number, fax number, and live receptionist. With these tools, a foreign entity can conduct business in the U.S. without anyone being the wiser about the location of your satellite office. Everything is legal, and you have a solid reputation built in with your U.S.-based physical address.
Select your entity of choice
You must register your business as an entity of your choice:
- Limited Liability Company (LLC)
- S-Corporation
- C-Corporation
- Free-Zone Company
- Foreign Branch Office
- Representative Office
- Partnership
Keep in mind that an LLC protects the owner by separating their business and personal assets in the face of lawsuits.
Typically, a foreign business is established as a PE via a branch or subsidiary, a corporation that can be a limited liability partnership, limited partnership, or general partnership. These PEs are formed at the state level. Note that your choice of state does not have to correlate with your business headquarters’ location.
Consider location-based needs in the U.S.
Choosing your state wisely can prove to be a crucial step in reaching demographics through targeted marketing, understanding local competitors, identifying state tax regulations and laws, and finding your supply chain. Other essential factors include transportation needs and accessibility to skilled contractors.
Find the proper relationship structure
Establishing a business presence in the U.S. means selecting the correct entity for your business matters. The model fails when the parent company’s subsidiary acts as the agent. The parent-subsidiary relationship structure is crucial to establish before venturing into the U.S. market. The model for your relationship structure may employ an independent distributor model, commission model, or consignment model.
Keep up with federal and state taxes
Stay on top of required filings for federal and state taxes. For example, any foreign business engaged in trade during the year must file a return on Form 1120-F, even if it had no connected income or holds an exempt status by a tax treaty. Similarly, income tax rules shift if the company is a Passive Foreign Investment Company (PFIC) or Controlled Foreign Corporation (CFC). There is even talk of pressure imposed by the U.S. to establish a minimum global tax rate.
Wrap up
The doors are now open to explore the U.S. market, and the only barriers to expansion are self-imposed when foreign companies fail to research their stateside needs. With the right vision and strategy, your U.S. business expansion is bound to succeed.
This content is a joint venture between our publication and our partner. We do not endorse any product or service in the article.
