A foreign corporation is a corporation formed in another state. These corporations must register in a state before conducting business there. Pennsylvania has one set of registration rules for foreign businesses. To operate in Colorado, foreign corporations need a Certificate of Authority.
States require foreign LLC registration to ensure regulatory and tax compliance. The term “foreign” means the company registered in a different state. Foreign corporations must obtain a certificate of authority from the secretary of state to conduct business. They must maintain a registered office with an agent who can receive legal notices.
Business Structures for Foreign Companies in the US
Two primary structures for foreign companies in the US are:
1) Limited Liability Companies (LLCs) – where members are shielded from company losses. An LLC provides partnership and corporate benefits.
2) Partnerships – formed by agreement without formalities, although written agreements are suggested.
New entities need an Employer Identification Number from the IRS for taxes and identification.
The US Environmental Protection Agency enforces environmental laws. Violations can bring civil and criminal penalties and lawsuits. Major laws address air and water pollution, waste, toxins, and conservation.
Foreign corporations pay 21% federal tax on global income and state taxes. They use Form 1120-F to report global taxable income. Other forms address international tax issues.
Can a foreign company do business in the US? To do so, it must comply with all applicable registration and taxation requirements.
Foreign corporations pay 21% federal tax on global income. They use Form 1120-F to report global taxable income. Tax rates vary by state.
Corporate tax is imposed at the federal level on all entities treated as corporations, and by 47 states and the District of Columbia.
Taxation on US Income
Foreign companies with US income are taxed up to 30% on these earnings. To alleviate US tax, they would need to rely on the Foreign Earned Income Exclusion or Foreign Tax Credits.
The branch profits tax is imposed on foreign corporations engaged in the conduct of trade or business in the United States and is equal to 30% of the “dividend equivalent amount” for the tax year.
A domestic corporation is taxed on its worldwide income and files Form 1120. A foreign corporation is taxed only on income that is considered to be US-sourced and may be required to file Form 1120F.
Tax-free LLC income for foreign owners of a US LLC is an attractive option. A US LLC opened by a non-US citizen or nonresident can allow for earnings that are not taxed in the US. Foreigners are only subject to US tax if they are “engaged in a trade or business in the United States” (ETOB).