FAQ’s FOR BUSINESSES COMING TO THE US
by Daniel Won
Everyone will agree that the world is much smaller now than it has ever been, and it continues to shrink. It is becoming more and more common for Us companies to have international operations, and conversely, for non-US companies to operate in the US.
This is the fourth [and final] in a series of blogs about the tax aspects of non-US companies doing business in the US.
What are non-federal taxes that can apply?
• State taxation
• Sales taxes
• Local jurisdictions
There are other taxes besides federal income taxes and payroll taxes. Most states in which you have presence will impose their own income tax; for California, the corporate tax rate is 8.84%. If you operate in multiple states, you may have multi-state filing requirements.
There are also sales taxes imposed on the purchase of tangible personal property. The sales tax rate in San Francisco is 8.75%. In most cases, it is the vendor who will have the responsibility to collect and remit the taxes to the applicable state tax agency. Also, cities and counties may also impose various lesser tax add-ons that can be based on income, receipts, payroll, property, etc.
What are some key accounting considerations?
You will have to decide how to manage the day to day accounting and payroll functions. Oftentimes, especially for smaller companies, outsourcing of the accounting, payroll, and bookkeeping functions is a good alternative. This allows the executives to focus on starting and running the business.
On the accounting software side, a good choice may be cloud based software, which can be accessed both locally and by overseas managers, as well as by any third-party service providers.
There are also questions regarding management oversight, especially if managers are over-seas, including:
• Home office reporting
• Review and approval of bills
• Authorization of cash disbursements
Where do small companies get physically set up?
Many small companies gravitate to co-working space, often with accelerators or incubators. The leases are normally short term and the customary amenities of an office environment are usually available. If employees are from outside the US, they may do this for a period upon arrival while they scope out the terrain.
The employees would instantly have like-minded colleagues they can network with and share information. This is particularly important if they operate in the tech space, where things change with the blink of an eye and you need to be in whatever groove, immediately. Once they become familiar with their situation, they can then have the confidence and comfort to move on.
Is this a DIY?
The individuals in charge of the US entity should hire accounting, tax, and legal advisors who are thoroughly knowledgeable of the various aspects of starting a company in the US.
Common advice needs when you begin operations in the US relate to entity formation, taxation, accounting and bookkeeping, banking, labor laws, intellectual property protection, and visa matters.
As a non-US person, you’d also want ready access to other resources as needs arise. Good international specialists will know practitioners in various areas that might be suitable for your specific situation. [labor law, employee benefits, IT, real estate, valuations, etc.]
Having the help of accounting and legal specialists to navigate the complexities of the US system will give you peace of mind and allow you to focus on growing your business in the US.
In the coming weeks, we will pivot from this series about doing business in the US to a new series on international estate planning. Thank you for reading. If you have questions about US taxation relating to international transactions, either business or personal, please contact us.