How to Set Up a Company in the United States as a Foreigner?
As any foreign citizen who has tried to expand his or her business into America knows, the process can be quite complicated and frustrating owing to the complex regulatory scheme involved in everything from ensuring you get the correct visas to developing a sound grasp of the mechanics of U.S. law.
Owing to our depth experience with international clients, we are familiar with business setups in the U.S. by foreigners and the legal issues they face. Therefore, we can effectively assist our clients with everything from visa applications to creating internal stock option plans to ensuring compliance with local and federal laws related to the creation of unregistered securities.
Our years of experience have taught us that there are six frequently-occurring issues that foreign businessmen and women hoping to expand their businesses into the U.S. should take into consideration:
As a foreigner looking to start a business in the U.S., should I apply for a certain type of visa?
Indeed you should—there are two choices available to you. The first is the E-2 visa, which is ideal for foreign nationals who plan to start a business. In order to qualify, you must: 1. be a legal citizen of one of the treaty countries, 2. have invested or be currently engaged in the process of investing in the U.S., 3. you must invest a certain amount ($100,000 is generally considered the minimum), and 4. you must plan to return to your home country once the visa expires.
The second option is the EB-5 visa. This one is less strict about nationality requirements but requires more money up front: $1 million (or $500,000 for investments in targeted employment areas and rural areas). You must also create at least ten full-time jobs.
It has been posited that a third option may become available in the future, one which will allow foreign nationals to remain in the U.S. if they meet certain predetermined objectives.
As a foreigner, what kind of business entities can I choose? Are there any limits?
If you are not a U.S. citizen or resident alien, you cannot register an S Corporation; we advise our clients to instead register a C Corporation This also allows businesses the freedom to simply open a branch of their business in the U.S. without having to be wholly based there.
Even if you are a resident alien, in some cases a C Corporation is still advisable, notably when you wish to seek venture funding at a later time. C Corporations are a more appealing investment platform for venture capitalists seeking to raise funds at a future time.
What about taxes? Do foreign businesses that wish to operate in the U.S. carry heavier tax burdens?
This is a complex matter, one that you should always thoroughly discuss with your legal advisor, as some grey area exists around the taxes associated with the sale and disposition of real property by foreign businesses, along other income that the IRS may decide is “effectively connected” to your business.
In brief, however, your business will be taxed at the same rate as U.S. corporations (35% currently) on all income connected to said business. C Corporations are subjected to two levels of tax, one at the entity level and another at the stockholder level (upon the distribution of earnings). You should also be aware that U.S. corporations are taxed on their global income.
A C Corporation held by a foreign business operating in the U.S. via a branch will be subject to a 30% withholding tax on some forms of non-business income accrued in the U.S., along with an additional branch profits tax.
Which jurisdiction’s laws will my corporation need to adhere to?
Generally one has to adhere to the laws of each jurisdiction in which one conducts business. Ergo, you must remain in compliance with both U.S. law and the laws of the foreign nation where you plan to accrue investors, employ people, or conduct business.
Throughout this process there are some key issues you will want to ensure are thoroughly covered, notably the following:
- Make sure that your intellectual property is protected by law in each jurisdiction so that you retain full rights of ownership.
- Adhere to all local labor and employment laws.
- Adhere to all data privacy laws in each jurisdiction
- Act in accordance with OFAC regulations as you conduct business abroad; there is authorization required to transact with OFAC sanctioned persons, entities, and jurisdictions. OFAC sanctions may affect your corporation if you employ U.S. persons, or if your company is an affiliate or subsidiary of a U.S. company.
- Act in accordance with the U.S. Foreign Corrupt Practices Act, which oversees the conduct of U.S. businesses in foreign jurisdictions. The FCPA prohibits the bribery of government officials, among a range of other less than forthright and honorable business practices.
Are there any relevant U.S. securities or corporate laws I should be aware of?
Yes; you’ll need to comply with certain state and federal securities laws so as to make sure that all unregistered shares you issue will be exempt under the Securities Act of 1933, as amended. In particular, you’ll want to note the exemption from registration that is included in the Regulation D safe harbor of the Securities Act, under Rule 506. Rule 506 permits issuers to grant securities to accredited investors with no limit and to raise capital without a limit being imposed on the amount.
Likewise, concerning unregistered securities, you should remain vigilant about the various “Blue Sky” laws of different states (any in which you intend to offer unregistered securities for sale).
In addition to federal securities laws, some states have their own securities laws, and these laws all have their own list of requirements. In California, for example, the issuing of unregistered securities is required to comply with Section 25102(f) of the California Corporations Code.
What about laws surrounding employees and their compensation? Are there any special ones foreign businesses need be aware of?
Yes; as soon as you begin to set up your business, you should look into U.S. regulatory compliance related to employee compensation. Option plans and equity grants are governed by relevant state and federal laws, and some of these provisions may be applicable to foreign employees and likewise to those who may move to the U.S. at a later date.
If you or your employees are foreign persons receiving restricted stock, it is strongly advised to get an 83(b) election (for recognition of tax on purchase date) if said persons may relocate to the United States prior to the time the stock fully vests. Otherwise, it will be subject to U.S. taxation. There is a 30-day non-extendable, no-exceptions deadline for filing (i.e., filing must be done within 30 days of issuance of the stock).
You should also be sure to have all employees and independent contractors who will work with your business sign an intellectual property assignment agreement prior to them doing any work for your company.
The aforementioned is a heavily truncated list of some of the many complications and considerations you must take into account when starting your business in America as a foreign citizen. If you are a foreign citizen seeking to expand your business in the U.S. and require legal advice on these and other issues, please contact one of our attorneys today at Romy@juradolawfirm.com, or call us at (305) 921-0440 to learn more about our practice and discover how we can help you start your new business.