There is a lot to consider when expanding your business to the US. We have received a series of specific questions and find ourselves addressing a common trend of issues and concerns for our Global Small Business clients.
Here is a short list of some of the real life example questions and issues we have come across and the way the issue or question was addressed.
NOTE: Click on any of the topics below to view common answers and helpful information.
- Does it even make sense to form a US company?
- If you will have customers, need a US bank account, and/or will have physical presence here (people, office, or products housed here) then the answer is typically yes, you do need a US company.
- How do I setup a bank account in the US?
- In order to get a bank account in the US you need an FEIN number, in order to get the FEIN number you need a US company, to form a US company you’ll need to either do it yourself or hire someone to help you form it (recommended that you speak with a US attorney and a US tax professional). Once you form the company, you will need to come out physically to a US bank branch to do an identification check to open your bank.
- Where and how should I form my company?
- It depends. Most companies will form a Delaware Corporation, or in some cases LLC. Then fully registering the company will depend on where you have nexus (physical presence) while operating in the US. For example, if you plan to have an office, people, or a warehouse in California, you will most likely incorporate your company in Delaware, and have to register as a ‘foreign business’ in the state of California. This state registration(s) is a requirement, and also may involve registering for sales, payroll, and other state or local taxes.
- I want to pay my people and or my-self. How should I do this?
- People - You cannot choose to pay them as contractors or from wherever you want, there are certain rules. More often than not, any people working in the US for you are going to be deemed employees, which means you will need to go through the proper payroll registration process, and then keep up with proper employee onboarding, processing, and tax requirements.
- Paying yourself or officers - Officers of a corporation also need to take a reasonable ‘employee’ compensation - meaning you need to pay yourself through the US payroll system. In many cases, you will also be able to draw money or pay yourself guaranteed payments. This will depend on how you are formed, your role in the company, and other factors. Paying your-self may also affect your personal tax reporting and liability requirements.
- Do I or did I have to file that tax form?
- There are a lot of different levels of tax for any company in the US. There is also specific informational only tax reporting requirements for foreign owned businesses. Just because you don’t have sales yet, doesn’t always mean you aren’t on the hook for filing some informational reports to the IRS or state(s) you’re registered in. See below examples:
- FBAR or FinCEN - Informational only, with a steep $10,000 filing penalty. Required annually dependent on signature authority of foreign bank accounts - see our blog about the FBAR.
- 5471 or 5472 - Informational only, with a steep fine. Required annually as part of your annual income tax filing.
- 1120F - This is for foreign corporation income tax returns. In other words, if you are operating a foreign Corp. with no US entity, but are subject to US income taxes, then the IRS requires you to file a similar income tax return as if you were a US company.
- Annual Income Tax - Due 3 months after your fiscal year end in the US. If you have corporation it is always best to file something annually even if you have no income to ensure all other reporting requirements are met and the IRS and states know in fact that you had no income.
- Sales Tax - This is an ongoing requirement based off of individual state regulations, where you sell your products or services, and requires registering in the state before you can be compliant. It is important to understand your sales tax requirements so that you can collect sales tax from your customers and remit to the government on time to avoid penalties, interest, and/or paying these taxes out of your own pocket.
- 1099s - This is an annual informational filing requirement for any outside vendor or contractor you pay over $600 in a calendar year to. It is important to collect a form W-9 from any vendor or outside contractor you work with BEFORE paying them, as it will mitigate having to chase them down at year end to get the proper information and tax ID #’s from them to file your 1099’s.
- W8BEN - For foreign employees to stay personally compliant.
Payroll, benefits, and insurance
Do it yourself payroll in the US is not a good idea. There are plenty of solutions to automate payroll onboarding, paying your people, and keeping you in compliance with all the federal, state and local payroll taxes you will be subject to. All of which are extremely important in terms of making sure your US company stays in compliance, and a proper payroll system can also serve the means for you to provide benefits and insurance to your staff.
You will need to register as an employer if you wish to setup a company payroll system. If you think you’ll have just one employee that needs benefits, you may want to check out a PEO (Professional Employer Organization) to totally outsource payroll. This may actually be your only option, as it is not possible to get a single member benefits plan connected to payroll, like you could with a team of staff here. This is something you really need to think about before you can put feet on the ground here and start getting them paid for their efforts in growing your US company.
Setting up your back office and accounting system - ‘US-ifying’ your accounting system and procedures
While your US company may operate very similar to your foreign company, there are extra steps and considerations in setting up your US accounting system. Things like sales taxes, payroll taxes, US filing requirements, etc. will all require that you do things differently in terms of accounting for your business here.
You need a chart of accounts that is replicable and able to consolidate with your foreign books, and keeping the tools (like Xero and industry specific add-ons) similar is always a big help. However, you’ll need a workflow and list of accounts that is consistent with US standards. You should really have a US advisor who can at the very least understand your business and system so that they can review the way you have things setup, and then support you to make sure you stay in compliance as you grow. The rules are constantly changing state by state and at the federal level too, and doing things the right way (like collecting sales taxes, or booking revenue/expenses correctly) could mean thousands of dollars and/or hours of headaches or corrective work saved when it comes time to pay or file.
- I didn’t file on time, what do I do now?
- You still have options, but abatement processes, levels of penalties and interest, and the way you should handle getting compliant will vary significantly.
- As soon as you know you have not filed a return, or you receive a tax notice you should reach out to a qualified US tax professional to address it accordingly.
- Also, make sure you talk to them about other reporting requirements and keeping you in compliance so you don’t stress over future deadlines or notices. If they aren’t familiar with some of the tax forms mentioned above (Form 5472 for the FBAR for example) then it’s probably time to find another tax professional who understands foreign filing requirements.
- What else should I consider when expanding my business to the US?
- Attorney - Along with accounting and tax advice you will need help from a lawyer in receiving legal advice in regards to company documents, contracts, visas or immigration rules, and other legal matters. It is best to at least form a relationship with an attorney and get an initial consultation. If anything is going to get in the way of you running a successful company here in the US before your even get started it will be a tax or legal issue.
- Insurance - You will need business insurance here in the US. Both to mitigate risk, and to actually contract with customers or vendors (many of them will want to know your insured to limit their risk too). If you will have employees you will need various levels of insurance as well (health, workers comp, etc).
- Investment - If you are looking for investment or funding for your company in the US you will need to be more careful in terms of how and where you form your company. You also will inherently be under more scrutiny in terms of how you do your accounting, reports you’ll need to provide, and proving that you will follow best practices and stay in compliance. For example, they typically want accrual accounting reports, a business plan and forecast, and may require that you are a Delaware C Corporation and provide accurate, timely financial reports every month or quarter.
The above is only a short list of the things we have seen in order to give you a basic understanding of what you may run into while expanding your business to the US. This is not intended to be tax or legal advice, and you will still need to consult and engage with the proper professionals to know for sure what steps you need to take to get formed the right way and stay compliant here.
Looking for more information on bringing your business to the U.S.? Click here to view our guide on ‘Expanding Your Company to the US’.
Check out this webinar recorded while our CEO Bruce was in Australia this month (September 2016) where he and Lisa Callaghan from Interactive Accounting discussed expanding to the US, as well as the benefits of having local foreign advisors collaborate to provide a global back office and compliance solution. Click the below link to view the recording.
We’re happy to do a free personalized consultation any time. Just reach out to us via any of the contact forms on our site and we’ll be in touch to discuss your specific questions and needs.
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