Do you run an overseas business? Thinking of expanding and selling into the U.S. market? Miami CPA assesses pros and cons and the answer comes down to the physical presence test.
Because U.S. residency or citizenship is not required, non-U.S. citizens can readily sell into the U.S. However, many overseas business owners aren’t clear on whether they are required to incorporate in the U.S. and the associated tax implications according to Miami CPA Gustavo A Viera..
Miami CPA list of what you need to know:
Should I Incorporate My Business in the U.S.?
This is a question that comes up frequently at our Miami CPA Firm given the size of out international practice. And there’s not a clear-cut answer for all businesses. But physical presence in the U.S. is a key indicator.
Essentially, if your intent is to sell goods into the U.S.—whether online or through U.S. partners such as a wholesaler—you may not have to file for incorporation in the U.S. However, if you plan to have a physical presence in the U.S. (such as an office or employees), then incorporation, whether as a corporation or limited liability company (LLC), is worth considering. Likewise, for online businesses in particular, remember that many U.S. consumers feel more confident buying from a registered U.S. business, so that’s another important factor to weigh up. Miami CPA Viera emphasizes this is a commercial reason, not a tax one.
Each business is different and it’s important to look at incorporation in the context of your overall business goals, state incorporation laws, taxation considerations, as well as your ability to scale and manage that legal entity from overseas.
To understand the factors that might impact your decision, book some time with a good U.S. business attorney who understands both international and U.S. law.
How to Incorporate a Foreign Business in the U.S.
Once you’ve made the decision to incorporate, you’ll need to understand the process.
In the U.S., business incorporation occurs at the state level for all business owners, regardless of whether you are a citizen or a foreign national.
The process will vary from state-to-state, but generally involves two steps: applying to register in that particular state, and establishing a registered agent with a valid address in that state (no P.O. Box numbers). A registered agent can be either the business owner or another person who is authorized to receive legal papers on behalf of the business, such as an attorney or Miami CPA.
What Business Structure Should I Choose?
The most popular choice of business structure for non-U.S. citizens is to form an LLC, although you can also legally form and own shares in a C corporation. Non-U.S. citizens cannot retain shares in an S corporation because business income is reported on personal U.S. income tax returns.
To learn more about choosing the right business structure and how to file for incorporation, check out Miami CPA Business Structure guide. This blog offers more insight: Top 10 Questions About Small Business Incorporation Answered.
Which State Should I Incorporate In?
If most of your clients are concentrated in a specific state or you have an office or physical presence in a state, it may make sense to incorporate there. If you don’t plan on having a physical presence in the U.S., you can form a corporation or LLC in states such as Nevada and Delaware, both of which are considered friendly to foreign companies.
If you operate in more than one state, you can elect to incorporate in any of these states. However, you are required to register your business in the other states in which you operate; this process is called foreign qualification and you can apply for it with the help of a lawyer or online incorporation service. Again, for the best advice, consult a U.S. business attorney who has expertise in both U.S. and international law.
Do I Need to Pay U.S. Taxes?
If you are a non-resident business owner, the U.S. Internal Revenue Service (IRS) will tax you on income that is sourced in the U.S. If your business is incorporated in the U.S., you may also be required to pay an annual fee to the state where your business is incorporated.
The IRS offers a guide specifically on International Business, but if you are still left with more questions, it is always good to check with a qualified attorney or accountant.
U.S. citizens will likely need an Employment Identification Number to start up, a process that requires their social security number (SSN). In the case of foreign businesses, an Individual Taxpayer Identification Number (ITIN) will suffice. The IRS issues these 9-digit tax processing numbers to individuals who are required to pay US taxes but who are ineligible for a SSN, including resident and non-resident aliens and foreign nationals.