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Establishing a Foreign Business Presence
in the United States
The United States welcomes direct foreign investment and business enterprises.
Foreign investors can organize business activities in the United States
in various ways. The optimal structure for a particular business venture
depends on a number of legal and tax considerations.
A foreign business may enter the US market by selling goods or services
to unrelated US buyers. As its business develops, the foreign business
may appoint a US-based agent or distributor to market its goods or services
in the United States. However, a direct presence in the United States
may be desirable as the volume of business, the need for direct sales
contacts, and other considerations warrant. After deciding to establish
a direct presence in the United States, a foreign business should then
determine whether to conduct business independently or in a "joint
venture" with a US firm.
If you choose the branch office approach, there are two ways to establish
a branch office in the United States. Both serve to place the foreign
business on the local state's tax lists and to permit the business to
use the legal processes. One method is to register with the state in order
to do interstate or foreign business in the state by certifying the name
and address of the resident agent in the state. The other method is to
qualify to do intrastate business in a particular state by certifying
as above and by obtaining a certificate of "good standing" from
the country or state in which the business is organized.
An advantage to commencing business with a branch office is the absence
of any legal formalities other than qualifying to do business. A disadvantage
is that the assets of the parent foreign corporation or owner may be exposed
to any liability created by the activities of the branch office.
Instead of a branch office, a foreign business may choose to operate through
a subsidiary corporation organized under the laws of a state in the United
States. One benefit of using a separate US subsidiary is that, as a general
rule, only the assets of the US subsidiary are placed at risk because
of the US operations. Secondly, in most instances, a corporation's officers,
directors, and shareholders are not liable for the corporation's debts.
Thirdly, the use of a separate subsidiary may help clarify what income
will be subject to US and foreign country taxation. Finally, a new federal
tax on "branch" profits eliminates almost all federal tax differences
between a branch office and a US subsidiary.
If a foreign business plans to enter into a relationship with a US business
to share resources in a common enterprise (such as producing goods or
supplying services), then some form of a joint venture should be contemplated.
Joint ventures between foreign and US businesses are common today, and
probably will increase markedly in the future as more businesses pool
their resources to serve world markets.
Joint ventures in the United States commonly are structured in one of
two ways: either the two businesses each contribute capital to a newly
created corporation in exchange for an subsidiaries, the foreign and US
businesses either into a general partnership agreement and operate the
joint venture as a partnership. There are various tax and corporate law
issues relating to the preferred form of organization in particular cases,
but the business goals of the venture can be accomplished in either form.
As far as taxes, these will generally be quite low. Initially, you may
incur between $100 and $500 in filing fees depending on the approach you
take. The only other taxes would be mainly income taxes on the profits
on revenues earned in the United States. So if in early years, you have
meager profits, you will have few taxes.
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