Which U.S. Entity Formation is Best for Foreign Sellers?
A U.S. entity formation is a popular option for many foreign sellers. If you go the route of establishing a U.S. entity, many factors can help you determine which entity and state are best. However, our main concern is that if you do not get all these elements answered correctly, the potential audits may be devastating to your U.S. business years down the road.
The good news is that we can share the correct order of all these elements to help you avoid the severe problems that have derailed others.
Here is a summary of the key elements that you will want to cover when forming a U.S. entity:
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- U.S. Tax responsibilities based upon entity type. Do you want to retain profits in the U.S. or have them flow to your country?
- Will the U.S. entity change the legal business on your platform? For example, Amazon does not allow for a single-member LLC disregarded to update your legal business. You must form an LLC that is considered a U.S. tax payer.
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- Are you engaged in a U.S. trade or business? This will help determine which U.S. tax returns are required to be filed.
- U.S. Ownership options by a foreign entity or individual. Includes liability issues if the U.S. entity veil is pierced as a result of a product liability lawsuit.
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- Tax Treaty insights. Will the U.S. entity be viewed as a hybrid entity in your country? Will you violate the tax treaty?
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- Which state is best for your U.S. entity formation? More importantly, what is the factors beyond cost that you must consider? Do you have product liability insurance and can afford lower filing fees and more risk?
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- U.S. tax returns responsibilities annually. This includes both federal and state returns. Some states will require a state corporate return or franchise tax return as you register for sales or use tax.
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- Sales tax responsibilities since the U.S. Supreme Court Case in June of 2018. This involves all the new economic nexus cases, reporting and notice states, marketplace facilitator states, and physical nexus (FBA stock). Have you crossed economic nexus thresholds in other states via non-marketplace sales?
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- LLC formation, managed by managers or members? Do you want to disclose ownership information, need investors, flexibility with management? Do you have the correct operating agreement to match the taxation and number of members? This is really important for foreign sellers. Our U.S. entity formation packages help address the best way to structure an LLC.
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- Key timing factors related to U.S. EIN and banking. Make sure to avoid a permanent establishment upon filing the EIN, get the right insights in the ever-changing U.S. banking requirements related to saving money on remitting of sales, and use tax.
In the end, you get what you pay for, especially when you form a U.S. company. There are so many online U.S. company formation options, and most make it seems so simple, but they have don’t direct you with all the steps necessary for overall U.S. compliance. Our recommendation is our sister company, NCP, with over 24 years of experience. Learn more about U.S. formations at this link.
