We work with clients who are interested in doing business in the United States. In late 2017, the Tax Cuts and Jobs Act (TCJA) changed the US tax landscape. If you are considering expanding (or setting up) your business in the US, we can help you navigate the new tax reality.
We help clients from all over the world with tax issues, including:
- Determining the best way to structure your business (e.g., sole proprietorship, partnership, S corporation, or C corporation)
- Establishing transfer pricing for inter-company transactions
- Choosing a US state to establish the business and state taxes
- Applying for an Employer Identification Number (EIN)
- Setting up payroll taxes
- Handling required informational reporting
- Conducting pre-immigration tax planning for employees relocating to the US
Four Types of US Taxes to Consider
There are four main categories of taxes that apply to most foreign businesses operating in the US:
- Federal taxes, which are collected by the Internal Revenue Service (IRS)
- Withholding taxes on certain types of income
- State and local taxes, which are assessed on income and sales
- Payroll taxes, including Social Security and Medicare Taxes, which are a combination of employer costs and employee costs
Under TCJA, C corporations are now subject to a 21% flat tax rate. For C corporations that export products or provide services for the benefit of foreign persons, you may be eligible for a reduced rate of 13.125%.
In certain circumstances, C corporations that have foreign subsidiaries are now eligible for up to a 100% “dividends received deduction” of income received from those subsidiaries. In other circumstances, they are eligible for a reduced tax rate of 10.5%, as well as foreign tax credit relief. Dividends paid to individual shareholders are typically taxed at 20% capital gain rates, but not until earnings are distributed.
Partnerships, especially Limited Liability Companies (LLCs), remain a popular structure for foreign investors due to their legal protections. These entities are not taxed at the partnership level, but at the member level, at rates up to 37% for individual member. However, members may be eligible for a special deduction of 20% of their income due to the qualified business income (QBI) rules.
Foreign owners of US businesses are typically subject to withholding taxes on any business income received. Withholding rates vary depending on the type of business owned and the type of income received but are generally between 21% and 37%.
State and Local Taxes
In addition to federal taxes, investors should also consider state and local tax laws, which can easily add another 10% to federal rates. State taxes include income taxes and sales taxes. Sales taxes are similar to Goods and Services Taxes (GST) or Value Added Tax (VAT). They are typically paid by the consumer but collected by the seller.
Many foreign investors are surprised to learn that the US has more than 13,000 different taxing jurisdictions at the state and local level with no uniform laws or administration.
Businesses must apply “facts and circumstances tests” to determine whether they are subject to the laws of a particular jurisdiction. In the past, physical presence in a state was the most prominent indicator of tax obligations. Now, some court cases have granted states more taxing authority based on the benefit that a business receives from a state’s residents.
Tax Credits and Incentives
The US market wants to attract foreign businesses and investment. Tax incentives exist at the federal, state, and local levels. The most popular credits include activities related to research and development, accelerated depreciation, small business stock, and manufacturing.
Credits and incentives can be granted for:
- Hiring US employees
- Locating a business in a certain geographic zone
- Serving foreign markets
We can help you determine the credits and incentives that match your business so that you can lower your tax rate, eliminate certain taxes, and enjoy tax rebates.
Unlike most US CPA firms, we are a boutique firm that has been specializing in international tax strategies for decades. We have extensive expertise in helping businesses with cross-border tax issues.
We can help you with:
- Business structuring (e.g., sole proprietorship, partnership, S corporation, or C corporation)
- Selection of a US state to establish the business and pay state taxes
- Application for an Employer Identification Number (EIN)
- US and state tax return preparation
- Preparation of required informational reports, including Form 5472, 1120-F protective filings, Form 114, Form 8938
- Permanent establishment issues
- Transfer pricing
- Foreign tax credit utilization
- GILTI Tax planning
- Pre-immigration tax planning for employees coming from a foreign jurisdiction to the US
- Set-up of a new US bank account
- Structuring of compensation packages for business owners
- Set-up of US payroll
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
Looking for a Nexia International Partner?
We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.