The type of entity chosen should always take account of the tax implications which arise.
CST Tax Advisors can assist clients with US company establishments and advice on the choice of an appropriate US state in which to establish an entity. As a non-citizen, there are many decisions to be made and our advisors have the experience to help you get your enterprise off to the right start.
Your first step is to select the best entity structure for your business. Each entity type offers benefits to your business in terms of operation and taxation. Non-residents follow the same steps to set up business entities, but also need to consider getting visas, opening bank accounts, and international tax laws.
A partnership structure includes two or more people who agree to share the profits and losses of the business. Partnerships are treated as “pass-through” entities, which means that all profits pass through the business to the partners, who in turn pay tax on those profits as personal income. Each partner is liable for any losses incurred by the business, which is one of the drawbacks to this particular structure.
An LLC is an option similar to a partnership in that profits are passed through to the owner or owners, but the owners are protected from personal liability for the business.
Corporations are completely separate from the people who found and own the business. Corporations, also referred to as C-corporations, are taxed and held liable for their profits, losses, and actions. In addition to corporate taxation on profits, any dividends paid to shareholders are also taxed at the personal level. This potential double taxation is sometimes considered a drawback. There is an alternative corporation structure called an S-corporation, which can elect to be taxed as either a C-corporation or an LLC.
Another available legal business structure is a sole proprietorship, although this business structure is more appropriate for an owner/operator.
Some US states have a reputation for being more business friendly than others. Delaware, Nevada, and Wyoming often come to mind. Utah also frequently ranks highly in lists of the best states for business. Each business, and business owner, has different needs and therefore careful consideration is necessary. Some of the points to think about while making this decision include:
As a non-citizen you will need to take care of other details to establish your business in the US. While it is possible to establish and run a US based business from outside of the country, depending on the legal entity structure you choose and the level of involvement in the day to day running of the business may require you to attain a visa to work in the US. The Department of Homeland Security publishes a list of visas and guidance on which visa is the most appropriate in a given situation.
In our previous article on the topic of sales tax...Read more
Written by: Peter Harper and Janpriya Rooprai
Illustrations by: Janpriya Rooprai