Can non-U.S. residents form a business here in the United States?
While the answer to my question is definitely a resounding, “yes”, not many foreigners are aware of this, especially those in the middle class. They tend to think that for them to form a company here, they’d have to be a U.S. citizen.
Were you thinking of the same thing too? Did you also want to open a company here in U.S. but ended up not pursuing your desire since you thought you’d need to be a U.S. citizen?
If you answered, “yes”, then it’s high time that you get your act together. I will share with you four very important points that you need to consider when starting a company here.
Before that, allow me to share with you some of the benefits that you can enjoy when starting a company in the U.S.:
- Tax advantages: The possibility of U.S.-sourced income being taxed less.
- Ease of selling in the U.S. market (from the tax and customs perspective): Access to U.S. investors, venture capital funding, and the public markets.
- Enhanced company reputation to customers both in the U.S. and other parts of the world.
- When the company goes public, they can be listed in the U.S. stock market.
- Personal liability protection.
The Caveat
Although non-residents are expected to undergo the same process as those living in the U.S. when forming a business, there are conditions and limitations specific to foreigners that you must be aware of. For instance, setting up a bank account, securing a visa, and international tax regulations are three of the procedures that non-residents find the most complicated.
Now that you have a vague idea of the good (and bad) things that you can expect, let’s get right into the meat of things. The four points that you need to consider when opening a company here in the United States are:
1. Company Structure
Foreigners can form either a Limited Liability Company (LLC) or a corporation (C). However, the S corporation is exclusive to U.S. citizens or residents only).
Schwartz International tax adviser and lawyer Richard Hartnig, as quoted in an Investopedia article, says that a C corporation is attractive to foreign nationals despite the double taxation on its profits; that at the corporate level and as shareholder dividends.
Miguel de Vega Rodrigo, a serial entrepreneur who successfully formed businesses in the U.S. as a non-resident also recommends choosing a C corporation for the following reasons:
- C corporations are more scalable and can be made public.
- If you want your business funded, investors prefer a C corporation.
2. Citizenship by Investment
“Citizenship by investment” is when an individual acquires citizenship in another country by investing a sizeable amount of money in that country. Many countries offer this program, including Austria, Cyprus and Russia. In the U.S., a form of citizenship by investment is also available, which is an option to consider if you plan to eventually make a life for yourself and your family in the United States. “Green card through investment” is how it’s called by the U.S. Citizenship and Immigration Services (USCIS).
Foreign investors who invest $1 million or a minimum of $500,000 in areas with high unemployment rates may be granted conditional permanent residence by the USCIS, along with their spouses and unmarried children under 21 years of age. A maximum of 10,000 visas per fiscal year may be granted to qualified entrepreneurs.
3. Business Registration
U.S. companies are incorporated at the state level instead of federal. Delaware and Nevada are known as low-burden states making them extremely appealing to many foreign investors.
However, Hartnig cautions that incorporating a business in either of these jurisdictions doesn’t exempt you from business obligations in high-cost states like California. Therefore, you’re better off registering your business in the state you plan to dominate. Otherwise, Delaware comes highly recommended. Next is Nevada.
Besides the low tax rates, de Vega Rodrigo suggests incorporating in Delaware because of these reasons:
- No need for a Delaware bank account or a physical address in Delaware
- No state income tax imposed on Delaware corporations not operating within the state
- Delaware’s corporate laws are fair, consistent, and well understood
- Investors prefer Delaware entities because, in contrast to California, common stockholders can’t block a merger, among others.
- Delaware laws offer directors generous protection, including indemnification from losses resulting from a lawsuit
Your U.S. company can be registered online. There are business formation specialists online who can function as your registered agent to facilitate the process.
4. Bank Accounts
While not a requirement during the business registration phase, an Employer Identification Number (EIN) is necessary to open a bank account, secure a business license, obtain loans, hire employees, and pay taxes, a necessity, therefore, in the overall scheme of things.
An EIN can be applied for directly from the IRS for free, but if you’d rather not do it yourself or you find the forms and procedure confusing, then look for a business formation specialist who can help you with the process. Before going through the motions of setting up a U.S. business, make sure that you can actually open a U.S. bank account. While it does seem simple on paper, as earlier mentioned, this process can be really tricky.
The Patriot Act, in response to the 9/11 attacks, has made it difficult for foreigners to open a U.S. bank account. It requires that banks verify the identity of any person opening an account with them, and that these persons pass all mandatory anti-money laundering and anti-terrorism checks.
There are several ways this requirement can be satisfied:
- Get a visitor visa, travel to the U.S., go to your bank of choice, and personally open an account.
- Go to a U.S. bank with a local branch in your country of origin for identity verification, if their policies allow such an arrangement.
- Use third-party services to help you set up an account.
Conclusion
While not necessarily a walk in the park, non-U.S. residents can legally form U.S. companies, and even obtain permanent resident status by making substantial financial contributions to the U.S. economy.
If this is a route you plan to undertake, it pays to know your options and the possible obstacles you would have to hurdle before taking a major step forward.
Disclaimer: None of the information above constitutes legal advice. Please consult an attorney, immigration lawyer or tax lawyer, etc... (depending on the kind of legal advice you need).