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 consider having international operations, and conversely, for non-US companies to consider operating in the US.  Being “international” is becoming commonplace.

This is the first in a series of blogs about the tax aspects of non-US companies doing business in the US.

  1. Why are companies coming to the US?

There are lots of reasons why companies are coming to the US.  First, the technology scene is vibrant, and in order to really participate, you need to be here.  You need to collaborate with and interact with others to really be in the groove.  It’s hard to really be involved if you are thousands of miles away.

Second, the fund-raising environment, although always tough, is the best in the world here.  We have robust, deep, and broad capital markets.  Here, you can actually pitch your ideas and plans to audiences who will listen.  You can be in the face of Silicon Valley venture capitalists who can immediately write a check if they feel you have a good idea.  Compare this with trying to get appointments with mid-management EU banking executives where you may face more delays than excitement.

Third, well, if it’s California, where our firm is based, you’ll have lots of enthusiastic, talented volunteers, who very much want to be sent here.

In the background, there are the benefits of an educated and innovative workforce.  You’ll have better access to US customers and the huge US marketplace.  You’ll also benefit from a stable economic, legal, and political environment.  The reasons for being in the US go on and on.

  1. Can you do business in the US without coming?

You can certainty do business with US customers without actually being here.  You can sell direct from your home country.  You can hire a sales agent in the US.  You can contract with a US distributor or reseller to purchase and resell your products.  You can form a joint venture or partner with an existing US company.  You can do all these things.

But of course, all this is second best to being here and conducting business directly.  The advantages are obvious; you get the vibe immediately, directly.  You get face-to-face contact with US customers, better creditability all around, more effective control, better branding, effective delivery of product or services.  The list goes on and on.

Of course there are also clear obvious negatives:  costs for establishing the company, staffing up, US taxation, legal exposure, numerous regulations here, and long distance management.

  1. What are the available business structures?

The first decision when setting up in the US is entity structure.  Considerations in this decision would include who owns the company, capital requirements of the business, plans for profit repatriation, taxes and whether or not there are tax treaties.  Here are some of the common entity types used by businesses entering the US:

  • Corporations
  • LLCs or Partnerships
  • Branches

In the coming weeks, we will discuss each of these entity types, what the income tax treatments are, and the pros and cons.

We will also be providing other FAQ’s about doing business in the US, from the perspective of a non-US company.

If you have questions about how you or your business may be impacted, please contact Daniel Won, at: [email protected]