HOW DOES YOUR US COMPANY AFFECT TAX IN YOUR COUNTRY OF RESIDENCE?
This page is part of our series focusing on USA
When setting up a US company, you must consider how the tax authorities in your country of residence will classify such an entity. This is in addition to any tax implications for you that may flow from any new US company.
NB: before going further, please take a minute and read some of the detailed comments on international tax planning available on this website.
On this page
- International Tax Agreements
- The United States has double taxation
- Creating the right legal form is paramount
- The need to show “local substance”
- Active income
- Frequently Asked Questions about Taxes, Company Formation & Residence in the USA (FAQs)
- Mount Bonnell’s personalised guidance through US taxation, company formation and residency
INTERNATIONAL TAX AGREEMENTS
The US has what are known as “double taxation agreements” with most countries, so the normal rules in that regard apply.
For tax purposes the United States is not classified as a low-tax country. At least, not if the US company, as in the case of a US C-corporation, is being properly taxed within the United States.
So to avoid incurring any additional taxes, your US company needs to demonstrate both something substantial to its structure – in terms of staff – and that it is an on-going commercial venture.
THE UNITED STATES HAS DOUBLE TAXATION
CREATING THE RIGHT LEGAL FORM IS PARAMOUNT
For example, more or less, an American company/corporation corresponds to the European idea of a company/corporation. So, in Europe, in principle, profits from a US corporation are treated for tax purposes as if they were the profits of a local corporation.
This is not always the case, however, especially in some parts of Europe in regard to an American LLC. Put simply, if you want to start a partnership in the US then it’s better to use the Limited Partnership (LP), which is structured like a limited partnership. NB: further specialist advice on this is necessary
The shares of an American C-Corp can be traded on the stock market like that of any LLC.
THE NEED TO SHOW “LOCAL SUBSTANCE”
Although we provide you with an appropriate office address in the desired US metropolis, you should, in any case, have the intention to set up at least one virtual office after the start of the business and employ an assistant on an hourly basis.
An active director is provided by us and is included in the package price. The director is active because he is involved in the management of the company, for example by signing contracts of the company. However, this is only to be understood as an initial substance and will not be sufficient in the long run.
Examples of active income include:
- Income from production activities
- Income from trading activities
- Income from services
- Income from the acquisition/allocation of capital
- Income from profit distributions of corporations
If the relevant conditions are fulfilled, you may only have to pay Capital Gains Tax on the profit received in your country of residence. For example, in Germany this is as a withholding tax, currently taxed at 25%.
Frequently Asked Questions (FAQs) About Taxes, Company Formation, and Residency in the U.S.
MOUNT BONNELL’S PERSONALISED GUIDANCE THROUGH US TAXATION, COMPANY FORMATION AND RESIDENCY
If you are planning a project in the US you will probably have begun already your research into the business framework Stateside. Available on line on this, as on most subjects, there is a wealth of information.
And that can be the problem.
Saturation point in terms of information is not the same as being informed. And there is no getting away from it: tax, whether locally or internationally, is never less than complex.
In addition, most locally based US accountants know little of the international tax contexts from which you have come and for which you need answers.
To move beyond this impasse, we now offer the Mount Bonnell one-hour telephone advice session. All the questions you have on taxation, incorporation, and residency in the US and then some.
This conversation can be about specific, more technical, issues, whether it is US tax or corporation, or on the subject of LLCs, or maybe it’s just a need to discuss various strategic options now under consideration. Whatever it is, we can help you by talking matters through with some expert advice that takes you towards a satisfactory conclusion.