Congratulations! You’ve begun the process of starting a company in the USA. At this point, it’s likely that you have created a name and business plan. You’ve probably even chosen a business structure. So now, it’s time to register your company.
1. Legal and Tax Considerations
Business and tax go hand-in-hand. To ensure a smooth start to registering your business, you’ll need to have a good understanding of the US federal and state tax requirements.
Here are some of the most important legal and tax considerations for a foreign resident alien to do business in the USA:
Legal Considerations
Visa and Immigration Status
Non-U.S. residents will be able to run their businesses in any way with no visa required. If you plan to visit the U.S. and manage your business whilst in the country, for example, by hiring people, signing contracts, or holding negotiations, you may need a visa (usually a B1) to do so.
Establishing U.S. Presence
You will need to establish a physical and legal presence in the U.S. which will involve appointing a registered agent.
Adherence to U.S. Laws
Familiarize yourself with and adhere to all relevant U.S. laws, including labor laws, anti-discrimination policies, and industry-specific regulations.
Tax Considerations
Federal Tax Responsibilities
Depending on your business structure, such as a non-US resident LLC, you’ll face different federal tax obligations. These include income tax, self-employment tax, and, if applicable, employment taxes for employees. You can keep up to date with information using state and government resources such as the IRS.
State and Local Tax Laws
Be mindful of the tax obligations that vary by state and locality. This can encompass state income taxes, sales taxes, property taxes, and other local levies.
International Tax Agreements
Investigate any tax treaties between the U.S. and your home country that may affect your tax liabilities.
Reporting Foreign Assets
If you maintain financial assets outside the U.S., ensure compliance with the Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) regulations.
Obtaining an ITIN
In the absence of a Social Security Number, an Individual Taxpayer Identification Number (ITIN) may be necessary for tax purposes.
Acquiring an EIN
Understand the importance of an Employer Identification Number (EIN) for employee hiring, business bank accounts, and other operational necessities.
Avoiding Double Taxation
Be aware of the potential for double taxation on income earned in the U.S. and explore mitigation strategies like tax treaties or foreign tax credits.
2. Choose Between LLC & C-Corp
When registering a business in the US, two things you will be required to do as part of the process are to confirm the business name and structure. As a non-citizen, you can choose from a Limited Liability Company (LLC) or a Corporation (C-Corp).
Here’s a brief overview of each structure:
LLCs
An LLC, or Limited Liability Company, is a flexible business structure in the United States that combines elements of both corporations and partnerships. For a non-citizen, an LLC offers limited liability protection, meaning personal assets are generally protected from business debts and lawsuits.
Additionally, an LLC provides pass-through taxation, where business income is only taxed once on the owner’s personal tax return, avoiding the double taxation common in corporations. Non-citizens can own and operate LLCs in the U.S., allowing them to invest in and manage a business in the U.S. market without the complexities and formalities of a corporation.
C-Corp
A C-Corporation (C-Corp) is a legal structure for a business in the United States, characterized by its independent legal status from its owners (shareholders). For non-citizens, a C-Corp offers the ability to raise capital more efficiently through the sale of stocks and potentially attract more investors, including venture capitalists.
C-Corps also provide limited liability protection, shielding the personal assets of the shareholders from business debts and legal actions. However, they face double taxation, where the corporation’s profits are taxed at the corporate level, and dividends distributed to shareholders are taxed again on their personal income tax returns.
Did you know? Non-citizens in America can only have an LLC or C-Corp. S-Corporation (S-Corp) is another structure but you must be a U.S. citizen or legal resident to own one.
3. Choose a Name
Once you have chosen a structure, you need to confirm your business name. The name you choose must not have already been used. Most states have their own database of business names that you can check it against. You would head to the state’s official website, for example, the State of Delaware.
You can also verify if a name is available to use with the US Patent and Trademark Office.
4. Select a State
Once you have confirmed the name and structure of your business, you will need to think about which state you wish to register it in. For non-citizens, Delaware is always a preferred choice, especially as you aren’t required to have a physical presence in the state.
If you need further guidance on which state to register your business in, we will also cover that in this article.
5. Appoint a Registered Agent
It is at this point, you should also choose a registered agent. You must have a registered agent to own a business in America and be legally compliant.
A registered agent is able to receive legal and business correspondence on your behalf, as well as provide you with a business address that is visible to the public. Many registered agents, such as Valis International, offer services such as EIN retrieval and corporate banking services, which can be useful for those not residing in the US.
6. How to Register a Business Entity
You will then need to file either an Article of Incorporation (C-Corp) or Article of Organization (LLC). Typically, registration is done with the Secretary of State’s office, a Business Bureau, or a Business Agency.
The information required for these filings will very from state to state but generally, they include the business name and address, nature of the business and details of the registered agent. You will also be expected to provide details of any members, managers, owners, and directors.
7. Getting an Employment Identification Number
Once you have registered your business entity, you can then apply for an EIN. This is essential when registering a business as a foreign national in the USA. An EIN is used for tax reporting and payroll. The number is also useful for various other business related admin.
If a non-citizen operating a business in the United States does not obtain an Employer Identification Number (EIN), several consequences and limitations can arise:
Tax Issues
Without an EIN, the business may face difficulties in fulfilling its tax obligations. The EIN is necessary for filing various business tax returns and forms with the IRS.
Banking Challenges
Most U.S. banks require an EIN to open a business bank account. Without it, non-citizens will likely struggle to separate their personal and business finances, which is crucial for financial management and legal protection.
Hiring Employees
An EIN is required to hire employees in the U.S. Without it, a business legally cannot pay employees or withhold payroll taxes.
Business Credit
Building business credit might be hindered without an EIN, as this number is often used to track business credit transactions.
Legitimacy and Credibility
An EIN can enhance the legitimacy and credibility of a business in the eyes of suppliers, lenders, and potential business partners.
State Licensing and Permits
Some state licenses and permits may require an EIN for the application process.
Legal Compliance
Continuously operating without an EIN when one is required can lead to legal and financial complications, including penalties and fines from the IRS.
Apply for an EIN
The easiest way to obtain an EIN is via the IRS online. You are also able to apply via mail or fax but this has a longer timeframe. Online submissions receive an EIN instantly whereas mail and fax can take around 6 weeks.
An easier way to obtain an EIN, is to use a registered agent such as Valis International, who will apply for your EIN on your behalf which frees up your time to manage your business. If you are short on time, it is worth choosing a registered agent that will offer this service.
8. Business Banking
Once you have obtained an EIN, you can apply for a US bank account which you can apply for remotely, although you are highly likely to need an ITIN to do so (see next step).
Once you have your business bank account, you will then need to set up a merchant account. If you don’t do this, you will be unable to accept debit or credit card payments from customers. American consumers are frequent card users so you’re unlikely to want to forgo this step.
9. Get an ITIN from the IRS (optional)
Although optional, it is highly recommended to get an ITIN from the IRS. This is used by foreigners to file tax returns but can also be used for business banking purposes. Having an ITIN will make banking easier and will also help you get credit as it is used for credit reporting.
To apply for an ITIN, there are several options but if you wish to apply remotely, you will need to submit a W-7 form alongside proof of identity, a tax return, and foreign status documents. This process normally takes around 7 weeks.
10. Licenses and Permits
Licenses and permits are an important part of business operations in the USA. This is especially true when it comes to how to register a foreign business in the USA. You can only apply for these once you have registered your business entity. You are also likely to need an EIN.
Of course, the permits or licenses you will need are going to vary. Factors that can alter the permits you need include tour industry, business location, and nature of your activities.
The most frequent permits and licenses include:
- Business Operation License
- Professional or Occupational License
- Health Department Permits
- Environmental Permits
- Zoning Permits
- Sales Tax Permit
- Alcohol or Tobacco Permits
Each state will have a varying process for applications. Once you have identified which permits you need, find the process for your relevant location. If you plan to register your business in a different state, then you will need to check with the authorities there what is required.
Typically, you will need to submit documents, pay a fee, and ensure your business adheres to specific compliance standards. If you fail to obtain the correct permits, you could face penalties, such as a fine, or even business closure.
Registering with State Agencies vs Federal Agencies
Registering a business in the United States as a non-US citizen involves interacting with both state and federal agencies. These agencies play distinct roles in the registration process, and understanding the differences between them is crucial for non-US citizen business owners.
Here we explore the key differences:
Registering with State Agencies
When you, as a non-US citizen, decide to establish a business in the US, one of your first steps will likely be to register it at the state level. Here’s what you need to know about registering with state agencies:
State of Formation
You typically register your business in the state where it is formed or where it operates. This is often referred to as the “home state” or “domicile.”
It is, however possible, to register in a different state to your home state, or if you don’t reside in the USA you can pick the one that benefits you most, for example, business friendly states such as Delaware or Wyoming which benefit from factors such as better taxes.
Business Structure
The specific requirements for registering with state agencies can vary based on your chosen business structure. Common structures for non-US citizens include sole proprietorships, partnerships, LLCs (Limited Liability Companies), and corporations.
Name Registration
You’ll need to select a unique business name that complies with your state’s naming rules. Many states require a name search to ensure your chosen name is available and not already in use by another business.
Articles of Incorporation/Organization
If you’re forming a corporation or LLC, you’ll typically need to file Articles of Incorporation or Articles of Organization with the state. These documents outline essential details about your business, including its structure and purpose.
Business Licenses and Permits
Depending on your business type and location, you may need to obtain various licenses and permits from state and local authorities to legally operate. These can include general business licenses, industry-specific permits, and health department certifications.
State Tax Identification Number
Many states issue a state tax identification number, which is separate from the federal Employer Identification Number (EIN). This number is used for state tax reporting purposes.
Annual Reporting
Most states require businesses, including non-US citizen-owned businesses, to file annual reports, which provide updates on your business’s status and contact information. Failure to file these reports can result in penalties or dissolution of the business.
Registering with Federal Agencies
While state agencies primarily handle business registration and licensing, federal agencies focus on broader aspects of federal taxation and compliance. Here’s what you need to know about registering with federal agencies as a non-US citizen:
Federal Employer Identification Number (EIN)
The Internal Revenue Service (IRS) issues EINs, which are essential for federal tax purposes, including non-US citizen-owned businesses. Even if your business doesn’t have employees, an EIN may be required for tax reporting and banking purposes.
Taxation
Federal agencies, such as the IRS, administer federal tax laws, including income tax, self-employment tax, and payroll tax. Non-US citizen business owners must understand and comply with federal tax requirements.
Federal Licenses and Permits
Some businesses, regardless of the owner’s citizenship, may require federal licenses or permits, particularly if they engage in activities regulated by federal agencies. Examples include alcohol, firearms, and aviation-related businesses.
Intellectual Property Protection
If your business involves intellectual property, such as trademarks or patents, you may need to register them with federal agencies like the United States Patent and Trademark Office (USPTO).
Import/Export
If your non-US citizen-owned business engages in international trade, you may need to register with federal agencies like the U.S. Customs and Border Protection (CBP) and comply with import/export regulations.
Industry-Specific Regulation
Certain industries, such as healthcare, finance, and transportation, are subject to federal regulatory bodies like the Food and Drug Administration (FDA) or the Securities and Exchange Commission (SEC). Non-US citizens operating businesses in these industries must adhere to federal regulations.
Choosing Where to Register Your Business in the USA
Selecting the right location for your business is a critical decision, especially as a non-citizen looking to register in the USA. In this section, we’ll explore key factors to consider when choosing the best state for your business endeavors.
Consider Business Type
Determine the most suitable state based on your business structure, such as LLC, corporation, or sole proprietorship.
Evaluate Location
Assess states with favorable business climates, proximity to customers, and access to suppliers.
Research Taxation
Compare state tax rates, including income, sales, and property taxes, as they can vary significantly.
Legal Environment
Look for states with business-friendly legal systems and streamlined registration processes for non-citizens.
Cost of Living
Factor in living costs, operational expenses, and business-related costs, which can vary by state.
Industry Focus
Choose a state aligned with your industry’s strengths and regulatory environment.
Seek Legal Guidance
Consult legal experts experienced in assisting non-citizens with business registration in the US.
Top 5 States for Non-Citizens to Register a Business in the USA
Selecting where to register your business as a non-citizen entrepreneur in the USA is a critical decision that can significantly impact your success. In this section, we’ll explore key factors to consider when choosing the optimal location for your business.
1. Delaware
Known for its business-friendly environment, Delaware offers privacy protection, efficient processing of corporate paperwork, and a well-established legal system, making it an attractive choice for non-citizen entrepreneurs.
2. Wyoming
With no corporate or individual income taxes and minimal regulatory interference, Wyoming is appealing for startups and established companies alike, providing financial advantages to non-citizen business owners.
3. Indiana
Offering competitive corporate tax rates and incentives for business growth, Indiana’s supportive atmosphere and cost-effective living make it a favorable state for non-citizen entrepreneurs.
4. Nevada
Non-citizens seeking tax benefits and financial privacy may find Nevada appealing due to its favorable tax structure and minimal reporting requirements.
5. Texas
Texas boasts no personal income tax and competitive business-friendly policies, making it an attractive option for non-citizen entrepreneurs looking to establish their businesses in the USA.
Do You Need a Registered Agent?
A registered agent, sometimes known as a statutory agent or resident agent, plays a crucial role in the process of registering and maintaining a business in the USA. Here are some key points to consider:
Legal Requirement
In many states, including Delaware, having a registered agent is a legal requirement for businesses, including those owned by non-citizens. The registered agent acts as an official point of contact between your business and the state government. They receive important legal documents, such as tax notices, legal notices, and official state correspondence on behalf of your business.
Physical Presence
A registered agent must have a physical street address within the state where your business is registered. This is essential for receiving documents and ensuring legal compliance. As a non-citizen, you might not have a physical presence in the state where you plan to register your business. In such cases, hiring a registered agent with a local address is crucial.
Privacy and Convenience
Utilizing a registered agent provides an added layer of privacy for your business. Instead of your personal address being on public record, the registered agent’s address is used. Additionally, it ensures that important documents are promptly received and forwarded to you, allowing you to stay compliant with legal obligations.
Continuous Availability
A registered agent must be available during regular business hours to receive documents. This ensures that you don’t miss any critical communications from state authorities. If you’re not consistently present at a physical address within the state, a registered agent’s services, such as those offered by Valis International, can help bridge this gap.
Professional Service
Registered agents are familiar with state regulations and compliance requirements. They can help you navigate the complexities of business registration, annual reports, and other legal matters. This expertise can be invaluable, especially if you’re not well-versed in U.S. business laws.
Changing Registered Agents
It’s possible to change your registered agent if needed, but it typically involves formal paperwork and fees. As a non-citizen, selecting the right registered agent from the start can save you time and effort.
American Dream
Registering a business in the USA as a non-resident involves several important steps. This guide has covered key aspects, but it’s essential to seek expert advice to navigate the complexities effectively. With the right approach and support, you can achieve your business goals in the USA.
If you are a non-citizen looking to register your business in the USA, we can help. Schedule a call with our director, David, who can discuss the process with you.
