A Guide to Set up a Business in the US as a Non-Resident
A Non-US resident may face some challenges when setting up a business in the USA. One of the main struggles is simply not having a US address, no social security since you’re physically outside of the country. Also, you might have little to no knowledge and experience about the legal and tax systems of the United States. Hence, unlike US citizens or residents, the process of creating a new business organization is more challenging and for this you should consider ensuring a variety of required services in order to do it correctly.
Types of Entities You Can Open in the US as a Non-Resident Business Owner
- C – Corporation – A C-corporation or a regular corporation facilitates a limited personal liability to the owner where he is not using his personal income tax return in paying the taxes on the corporation’s profit. The corporation itself is the one paying out the cash to the government at a lower rate compared to the other forms of business Setting up a corporation would mean a fair amount of paperwork, but a lot of legal formalities will be rendered prior to a startup.
- LLC – Limited Liability Company – Just like the corporations, LLCs are facilitating limited liabilities to the owners but only as far as the payment of taxes is concerned. LLCs are more of partnership firms where the owners report their business income based on their own personal tax return. This is the type of business arrangement that is not requiring a lot of legal formalities as other forms of business requirement. This could be the main reason why it is the best choice for starting a new business.
- S – Corporation – This is a corporation where special tax status is elected together with the IRS (Internal Revenue Services). This tax treatment is allowing the corporation’s income to be treated like an income of a sole proprietorship or partnership where the shareholders get the income. Hence, the individual tax returns of the shareholders will report its loss or income generated by an S corporation. Same with the LLC, an S-corporation is providing all the limited liability of a regular corporation while owners are paying taxes for their business income. However, unlike LLC, S-corporations should be a regular corporation first prior to applying for a unique tax-paying status and continue to follow all other corporate regulations. All of these suggest that an S-Corporation business structure has a requirement of careful consideration and even expert advice prior to startup.
Furthermore, the corporation should be a U.S corporation to qualify for an S-corporation status with not having above 75 shareholders. It can have one class of stock only. The shareholders should be estates, individuals, or certain qualified trusts who have the consent in writing to the election of the S-corporation. The shareholders can’t be a non-US resident.
If you don’t know what type of corporation you need, check the 4 Common Business Structures.
The exact papers needed to be filed to a corporation depends on the laws of the state where the corporation is being settled. However, the Article of Incorporation is the most demanded and common paper.
- Article of Incorporation – The Article of Incorporation states the primary rules governing the corporation’s management. A corporation starts to become active on the date where the applicable governmental office in the state of incorporation accepts the Article for filing. Filing an Article of Incorporation may cost between $80 to $800.
- Proof of working officers – This is proof that shows your company is handled by a set of officers such as the President, Vice-President, and Secretary as required.
- Fictitious Business Name Statement – Fictitious Business name statement is required to be filed. Also, this is known as DBA (Doing Business As). The rule of the government in filing the DBA is based on the reason that in case of any dispute, legal problems are easy to keep by the government authorities. Furthermore, it aids in having other permits and licenses such as opening a business checking account. This is to be filed to the county clerk of the county where the incorporation is to be started.
A wise step in doing all these is to hire a registered agent who does provide a registered address for the receipt of legal papers. A registered agent will serve as the local contact for other government agencies and for the Secretary of State. Also, the registered agent receives notice of any tax notices, suits, etc; the registered agent will be the one to forward them to the corporation. However, one can become a registered agent if his address is within the state of the incorporation that you will establish.
Do I Need a Visa to Open a US Business?
You don’t need to have a visa to open a business in the USA. However, having a business is not enough if you want to live inside of the US. This is the main reason why lots of people are getting one. There are a few visa options that you can choose from, the most popular one for entrepreneurs is the E-2 visa. Obtaining this type of visa means you qualify to the following criteria:
- You should be a citizen from a country that is part of the Treaty of Commerce, Navigation, or Friendship with the US. You can get a full list of eligible treaty countries at the Department Of State’s Treaty Countries website.
- You should already have an investment or planning to have a significant amount of investment in a US business. You are not required to invest an absolute set of money. However, if you invest less than $100,000 then you could have difficulties in getting this visa. Also, stipulations state that it should be a substantial portion of your personal funds in general.
- You should show proof of having a controlling share of 50% or more of your business.
Furthermore, your spouse is eligible for a work visa and is up for an indefinite renewal with the help of the E-2 visa. However, the E-2 visa is not creating a clear path where you can obtain a Green Card. It will most likely end up as a permanent status of a non-resident alien when starting a business and enter the US with this type of visa.
There are a lot more other visa options that you can explore if the E-2 visa is not suitable for you. You can find the full list of US visas on the US Citizen and Immigration Service’s Entrepreneur Visa Guide. Right now, the following visas are the most common ones:
- F-1 OPT (Optional Practical Training) Visa – This type of visa is for the students studying in the US with an active F-1 Visa who plans on opening a business that is associated directly with their university major.
- H-1B Specialty Occupation Visa – This type of visa is requiring you to work for a position that is typically requiring a bachelor’s or more advanced degree, or a foreign equivalent in a specialized field.
- O-1A Extraordinary Ability and Achievement Visa – This type of visa is granted to people who have proof of having extraordinary skills in arts, science, sports, education, or business. Plus, you must have sustained a national or international recognition for this.
- L-1 Multinational Transfer Visas – This type of visa enables foreign companies in transferring executive, managerial, and specialized employees to a US branch who have been employed at a foreign company for at least one year.
- E-1 Treaty Trader Visa – This type of visa is only applicable to work on the activities which were approved during the issuance of the visa itself. One should be a citizen of a country that has a treaty of navigation and commerce with the US. It is a requirement for an E-1 visa holder to create an important value for their company in terms of the legal trading of goods, banking, and services. There is no limit on the amount of trade although the US empathizes with the number of transactions over the total value of the actual trade.
What State Should You Register Your Business?
It is best to consider registering your business in a state that has lower tax burdens especially if you are an online company or has business across a range of regions. Delaware is one state that is surprisingly inexpensive for entrepreneurs. What makes this state popular is the corporate law it has where it gives significant security to the directors and shareholders. A bank account or a physical address isn’t necessary for incorporating a business in Delaware. Also, the state is welcoming foreign entrepreneurs through the different available languages on the website of Delaware’s corporate law.
5 Steps to Register Your Company
The registration process from state to state slightly varies. It depends on what you are forming, whether it is a C-corporation or an LLC. You can consider the process for starting a business in Delaware as a good model since it is nearly the same process that a US citizen would experience. Here are the following steps that you should follow:
- Company Name – Discovering your new company’s name should be the first on your priority list. This is a great way and a simple step that your creativity and imagination will be used. There’s more to think about than just having a company name. For instance, you probably want to have an idea of what your company logo should be, or a company slogan attached to it. Many people are people believing that the best company names are the ones that truly relate to their products or services that they are providing. This makes the company easier to remember by their potential clients or customers. Hence, it is another thought to consider. If you plan on setting up an operation online, then you would be wanting to make sure that your desired domain is still available. So, having a quick look through a domain provider should be done. You can use a company name checker such as the Wisteria Formations to ensure the availability of your new LTD company name.
- Hire a registered agent who is responsible for receiving the legal documents of the company. This is a requirement by the law and should maintain a physical address. Also, keep regular business hours in the state since you are not living in the USA. This is an essential expense where you will need the name and address of the registered agent in completing the paperwork in the next step. You could try listing a friend or a relative as your registered agent, however, doing this might involve this individual into your personal business transactions and put an unwanted weight on them in legally accepting your legal documents.
- Once your name and agent are established, you will be filling out a certificate of incorporation which outlines the name and address of your company, the address of your company’s agent, the name and legal address of the incorporator and the value of authorized shares. There is a fee of $89 in filing the certificate of incorporation and the fee increases depending on the amount of stock issued or raised capital.
- Filing an incorporation report and paying your franchise tax will be done next. There are a lot of foreigners who choose a corporation just because it aligns better with the rules and regulations of your home country. Also, it is given by default that a C-corporation which is the process of paying your taxes to the IRS must you owe IRS taxes on the income generated from the US.
- Finally, you will be obtaining an EIN (employer identification number). You can employ employees, pay taxes, open a bank account, and get whatever licenses needed with the EIN. An online application for EIN is available for free together with the IRS. You will be getting the Taxpayer Identification Number or by the principal officer of your company. Obtaining an EIN (employer identification number) is a must for you to file and pay taxes in the USA. You can then apply for an EIN after the state sends a verification that your articles for incorporation (for Delaware corporations) and articles for the organization (for Delaware LLCs) are being processed. This can be done by filing Form SS-4 with the IRS (Internal Revenue Service). The IRS accepts EIN applications by email, phone, or online. It is a one-page form that has a planet of instructions.
Once you have completed these 5 simple steps and taken them all into consideration, you will be on your way to beginning your business processes.
Disclaimer: This guide is for informational purposes only and does not guarantee success in getting your business in the US as a non-resident. Also, this guide does not claim to cover all the aspects of the topic. You are therefore advised to seek a professional advice.