A foreign company often seeks opportunities to operate in the United States, but the process involves various registrations and regulations. Below is a guide to understanding the requirements for a foreign corporation to do business in the US.
Registration and Compliance
A foreign corporation is considered a company formed outside of the state in which it intends to conduct business. To be legally operative, these corporations must register with the state by obtaining a Certificate of Authority from the secretary of state and maintain a registered office with an agent to receive legal notices. It is critical to ensure regulatory and tax compliance within the state of operation.
States like Pennsylvania have unified registration rules applying to all foreign businesses. When registering, the corporation is accorded rights similar to domestic corporations, provided they adhere to state-specific business laws.
Two primary structures for foreign companies in the US are:
- Limited Liability Companies (LLCs) where members are shielded from company losses.
- Partnerships formed by agreement without formalities, although written agreements are recommended.
New entities are also required to obtain an Employer Identification Number (EIN) from the IRS for tax and identification purposes.
Taxation and Legal Considerations
Foreign corporations are subject to a 21% federal tax on global income, in addition to state taxes. To report global taxable income, these corporations must use Form 1120-F. Various other forms may be required for international tax issues, with certain exceptions based on the presence of foreign partners or interests.
The US Environmental Protection Agency enforces environmental laws, non-compliance to which may lead to civil and criminal penalties. Foreign corporations must also be aware of state laws they may be liable under, such as incurring state taxes even without having a physical office in a state.
It’s important to note that corporate owners, or shareholders, are typically not liable for the company’s debts and judicial liabilities, except in specific cases such as piercing the corporate veil. Foreign companies may also form alliances with US-based companies for collaborative business operations.
Tax Overview for Foreign Corporations
The current federal corporate income tax rate is 21%, and state tax rates vary. Foreign corporations are subject to taxes on their global taxable income, and US income is additionally taxed up to 30%. This encompasses earnings from any US trade or business activities, including dividends, interest, or royalties.
Corporate tax applies at both the federal level and in 47 states, plus the District of Columbia, with some localities also levying corporate income taxes. Foreign corporations with a US economic presence, such as Canadian companies, must comprehend US tax filing obligations to leverage credits and exclusions, like the Foreign Earned Income Exclusion or Foreign Tax Credits, and to avoid the branch profits tax, which is imposed on top of the corporate-level tax.
In conclusion, while the process of establishing a foreign corporation in the USA can be cumbersome, leveraging expert consultancy services simplifies the registration and compliance efforts.