Setting Up a Company in the USA

The first stage in setting up a company in the United States is deciding on the basic framework of the new business. The most important choice is the type of legal entity. The usual options are an LLC, a C-Corp or an LLP, although other structures are available. Next comes the choice of state. In addition to Delaware, popular options include Wyoming, Florida, New York and Nevada, among others. You will also need to decide on a company name and on how many members and managers or directors the company will have, including how ownership will be divided between them and how much share capital the company will start with.

The second consideration is the tax burden the company will bear depending on where it is registered. Federal income tax accounts for the largest share of that burden, so choosing a low-tax state reduces a company’s overall tax bill only to a limited degree. Sales tax is also relevant, but it does not depend on where the company is registered: it is charged according to the customer’s location, so the company’s home state has no bearing on it.

The third factor when forming a US company is the standing and reputation of the chosen state. Investors generally prefer jurisdictions with a mature, predictable legal system, of which Delaware is the best-known example. Everyday business partners, however, are often more comfortable dealing with companies from their own state or from major states such as Florida and New York.

The fourth step is to consider how much privacy the owners and managers will enjoy. Some states record only the company’s name and registered address on the public business register, whereas others require the full names and addresses of the managers or directors to be published.

The fifth point is the recurring annual cost of maintaining a registered office and handling the company’s post. Annual renewal and maintenance fees vary considerably from state to state.

Finally, a company can choose its tax treatment, either on formation or at the start of any calendar year. This option is available to both corporations and LLCs.

What are the advantages of setting up a company in the USA?

• a strong reputation and high standing in international business;
• an image of professionalism and trustworthiness in the eyes of public authorities and banks;
• rapid registration, often completed within a single day (24 hours);
• assistance with opening a business bank account;
• a robust legal system designed to protect capital and investments;
• the option of registering for US sales tax as well as European VAT;
• share capital can be as little as one dollar or one euro;
• a high degree of privacy and identity protection for owners and managers when the company is structured as an LLC;
• personal assets are kept entirely separate from business obligations, so neither members nor managers are personally liable for the company’s debts, and their position is protected under US law;
• foreign nationals can own and manage the company without any form of residence permit;
• strong appeal to venture capital and private equity investors, as the company can issue preferred shares.

What our US company formation service includes:

• Formation fees. All mandatory state filing fees are included;
• Tax identification numbers (EIN / ITIN). Registering the company with the IRS for income tax purposes;
• Corporate documents: an official certificate confirming the company’s formation and good standing; the initial resolutions of the owners and management; a complete register of shareholders or members; a list of directors or managers; share certificates (paper documents evidencing ownership); and the company’s governing documents, such as articles of association, by-laws or an operating agreement;
• Corporate Kit. A smart, professional binder for keeping all the company’s records safely in one place;
• Registered office. A registered address for one year, including scanning or forwarding of official post from the courts, tax authorities and the business register, with the option of adding handling of everyday business correspondence;
• Apostille. Official international certification of documents, required for opening bank accounts outside the USA or for transferring ownership interests.

Tax rates

Federal Taxes

Types of federal tax: Federal corporate income tax – applies to C-Corps Federal individual income tax – applies to LLCs and individuals

Companies with the suffix Inc., Ltd. or Corp. all fall under the same C-Corp tax regime. These companies must file a US tax return every year without exception. Profits are taxed first at company level and, if subsequently paid out to shareholders, the dividends are taxed again.

S-Corp status is available only to US citizens and permanent residents. Foreign founders can therefore choose only between a C-Corp and an LLC.

An LLC (Limited Liability Company) pays no tax at company level; its profits are taxed only once, in the hands of the owners. The members report the company’s profit or loss on their personal tax returns as business income. If the LLC has warehouses or offices in the USA, or managers or employees actually working there, its members must file a US tax return. As soon as the company starts operating in the USA through permanent staff or premises, it creates a “permanent establishment” or a “place of effective management” there, and the income generated by those US operations becomes taxable in the USA. If the company carries on no genuine business in the USA and has no offices, warehouses or staff there, its members need to file a US return only if they are US citizens or spend extended periods in the country.

Social Security and Medicare contributions (known as self-employment tax) apply to LLC members who physically live and work in the USA.

Individuals pay income tax if they are employed in the USA, run their own business there or receive other types of income.

State Income Taxes

Types of state income tax: State corporate income tax – applies to C-Corps State individual income tax – applies to LLCs and individuals

As a rule, this tax is paid not in the state where the company is registered but in the state where it actually has offices and staff. For example, if a company is formed in Delaware and sells to customers in Florida, but has its office and staff in California, it owes state income tax in California. If the company also opened an office in New York, it would need to divide its income into the portion earned through its California operations and the portion earned through its New York office, with each portion taxed at the rate of the relevant state. Some states, such as Alaska, Florida and Texas, levy no state income tax on individuals at all.

Sales Tax – State Tax on Sales

Sales tax, the US equivalent of VAT or excise duty, varies from state to state. It is usually between 5% and 10%, and some states do not charge it at all. The rate depends on where the customer lives or is based, not on where the company is registered. So if a customer is located in Florida, the company must charge Florida sales tax, even if it was formed in Delaware and has its offices in California.

Obligations in subsequent years