To help you determine whether the USA is the right target market for your global expansion, we have compiled a definitive guide to inform you of the key business incorporation steps.â€¯Â
Is your business contemplating expanding into the USA? The United States of America is the world’s largest economy, and many businesses are drawn to the opportunity of establishing a presence in the profitable market due to its rich talent and ease of entry.
However, there are many pain points that companies need to consider as the process can be labor-intensive and costly. To help you determine whether the USA is the right target market for your global expansion, we have compiled a definitive guide to inform you of the key business incorporation steps.â€¯
What are the benefits of expanding into the US market?
1. Skilled workforce
The US reputation for innovation and productivity is largely owed to its highly skilled workforce. It boasts a robust vocational and education system and over 50% of upper secondary graduates have a vocational qualification. This means that you will always have qualified employees in the business that you want to set up in the USA. â€¯
2. The US access to funding
The US has the largest foreign direct investment (FDI) initiatives in the world. This implies that the country heavily invests in international businesses. In 2020, the FDI initiative was valued at $4.6 trillion, while in 2021, the US venture capital firms invested $160 billion in over 10,000 businesses.
3. Entrepreneurial mindset
The US ranks among the top 3 most entrepreneurial markets in the world. In the country, entrepreneurs are forward-looking and this is captured vividly by Allyson Stewart-Allan, author of Working with Americans.
4. The US market size
The US is the world’s largest economy with a Gross Domestic Product of over $20 trillion. The GDP growth in 2021 was 5.7% and the trend is expected to continue upward. It also boasts a 330 million population and this makes the USA an ideal country to invest in.â€¯
What are the top challenges of expanding to the US?â€¯
Though there are several benefits of doing business in the US, there are also several drawbacks. The social market may be prosperous, but expanding businesses come across extensive regulations and high labor costs. Some of the challenges include:
1. Lengthy process for starting a business
The biggest challenge of expanding into the US is the complicated and long process of starting a business. The US ranksâ€¯46th on the World Bank’sâ€¯starting business index and this accounts for procedures, time, and cost.
2. Robust employee protections
Individuals looking to tap into the US market need to be aware that it has some of the strongest employee protections in the world. Employment laws set strict requirements that employers should enforce on their employees.â€¯
3. Complicated tax laws
Setting up a business is not the only complexity. Notably, the fiscal system is very convoluted, so anyone looking to set up a business there needs to partner with a local tax consultant to help them file taxes and organize their finances.
How do companies set up an entity in the US?
Choose Your Company Structure
Depending on the nature of your business, there are several legal entity types you can choose from. These include:
Sole Proprietorship:â€¯In the US, this is a company that is owned by a single person and is not separate from its owner in terms of legal representation. This means that the owner bears full responsibility for any debts or obligations of the company. Moreover, the owner of such a business enjoys all the profits that the company earns, and any generated income is added to the owner’s personal tax returns.
Partnership:â€¯A partnership is similar to a sole proprietorship, with the difference being that it is owned by more than one person.
Limited Liability Company:â€¯An LLC is a company with multiple owners, but it is a separate legal entity from its owners. A document known as an operating agreement governs Limited Liability Companies. This document outlines how the company will be governed. Under US corporate law, an LLC is the most flexible business structure since they are easy to manage.
C-Corporation:â€¯A C corporation is a legal entity where the shareholders or owners are taxed separately from the company. C-corps are the most prevalent corporations and they are subject to corporate income taxation. Taxes on profits from these companies are both from personal and corporate levels creating a double taxation situation.
S-Corporation:â€¯This is a type of corporation that meets certain Internal Revenue Code requirements. If it does, the company can pass credits, income, losses, or deductions on to shareholders without having to pay federal corporate taxes. This type of entity is associated with small companies that have less than 100 shareholders. The S corp status gives the business benefits of incorporation while enjoying tax-exempt privileges.
How to register a company in the USA?
Once you have decided on the type of entity you wish to establish, you will be required to formally register your business. The process will vary depending on the entity type you have selected. Below are the primary steps and requirements.â€¯
1. Choose a unique name as a trademark
You will be required to choose a unique trade name that is not currently registered in the US. If you are still undecided about a suitable name, be sure to consult the US Patentâ€¯Trademark databaseâ€¯to view trademarks that may no longer be available
2. Register with state agencies
Once you have a name, you will be required to register your business in the state where you intend to conduct your business. To do this, you need to:
· Have a physical address in the relevant state
· Conduct in-person business meetings in that state
· Prove that most of your income comes from that state
· Hire employees from your chosen state
3. Get a registered agent
A registered agent is an individual or business that is responsible for receiving Service of Process (SOP) when a business entity is in legal action, such as a summons or lawsuit. In all states, it is a mandatory requirement when forming a new company.
4. File for Foreign Qualification
Filing for Foreign Qualification refers to registering your entity with the secretary of the state office of another state. It facilitates your company to pursue growth opportunities in other states without having to incorporate a new business entity. This is usually the first step when expanding your business operations in a new state. Once you have filed for the qualification, you may receive a certificate of authority which makes it possible to obtain state-level business licenses and tax registration.â€¯
5. File state documents and fees
The necessary documents will vary depending on your business structure and where you want to register it. However, the most common requirements include: Business location Business structure Registered agent information Value and number of shares Management structure, ownership, or directors
6. Register with local agencies
For LLCs, corporations, and partnerships, you will be required to file for city or county licenses. If you are using a trading name, you might also be required to register it with the local county or city.
7. Open a Business bank account
You will also be required to have a business account to run your entity’s financial transactions. This is mandatory if you are starting an LLC or corporation. There are several options to choose from, but it will pay to conduct some research for more affordable bank providers.â€¯
If you require assistance with setting up an entity in the US, please Contact Us.
What is the Tax structure in the USA?
Taxation of income earned by non-US citizens is dependent on whether the income has a nexus with the US and the extent and level of the non-citizen’s presence in the US. There are many tax benefits for companies looking to set up in the US. However, it is key to understand the tax structure first. It can be broken down as follows:â€¯
Alternative minimum tax (AMT)
AMT is imposed on LLCs, C corporations, and S corporations with an average 3-year gross revenue not exceeding $7.5 million. This tax is computed by adjusting the company’s regular taxable income by specific adjustments and tax preferences. Adjustment items or tax preferences arise if a company has substantial accelerated depreciation, intangible drilling costs, percentage depletion, or non-taxable income.
Corporations with 100 or fewer shareholders are taxed under Subchapter S of the Internal Revenue Code. These companies are taxed in a manner similar to but not identical to partnerships. This implies that all taxable items, such as deductions and income flow through the owners of the entity. Therefore, S corporations are not subject to US federal tax income.
Gross transportation income taxes
Nonresident individuals and foreign companies are subject to an annual 4% tax on gross transportation income (USSGTI). However, there is an exception for income associated with a US trade or business. Transportation income is defined as any income resulting from or connected with:
• The use, leasing, or hiring of an aircraft or vessel
• The performance of services related to the use of an aircraft or vessel.
State and local income taxes
In addition to the federal income tax, some states impose a state income tax. Local governments also levy income taxes based on state income tax calculations. State income tax is imposed at a graduated rate on the taxable income of every corporation, individual, trust, and certain estate. These rates will vary by entity type and state. However, they conform closely with federal taxable income.â€¯
If you would like to discover more about the tax structure in the US or have any questions, please Contact Us.â€¯
What Visas are available to employees looking to immigrate?
There are 4 visa categories available to companies with employees who are looking to relocate to the US. These include:
Visa options for the USA
1. Temporary Investor Visa: E1 & E2 Visa
Candidates who are looking to establish a company in the US may be eligible for an E1 or E2 visa. Although not all candidates will be eligible for this visa category, those who do qualify are able to register entities in the US. Spouses, employees, and children of these visa holders may also qualify for a visa.
2. Permanent Investor Visa: EB-5 Visa
The EB5 Visa allows the candidate to live, work and register as an entity without having an employer in the United States. To qualify for this visa, substantial investment is required. Candidates need to invest at least $900,000 in a US enterprise that creates at least ten or more jobs for American citizens. Successful candidates for the EB-5 visa may receive a green card, which could eventually lead to citizenship.â€¯
3. Business Expansion Visa: L-1 Visa
The L1 visa is also known as a business expansion visa. It offers temporary residence for employees of international companies with offices in the US. This visa is available to employees working for companies outside the US that have subsidiaries, branches, affiliates, or joint ventures with companies in the US.â€¯
4. US Corporate Immigration
If you have a business and would like to expand your operations in the US, the Corporate Immigration visa is your best option. It is precisely designed for small to medium-sized enterprises (SMEs) and may apply to large companies that are looking to seamlessly transfer their employees to the US.â€¯
All in all, the United States is a perfect country if you are looking to expand your business. However, the process can be taxing more so if you are a foreigner. Fortunately, we are here to help you. Contact Us so that we can advise you accordingly on what you need to have your business set up in the USA.
With our intelligence on 170countries, OPEN FOR BUSINESS Guide rounds up the best countries to consider for international expansion including USA with up-to-date tax and immigration systems to guide you through the maze of business practices and make good decisions. Download it below.