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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