Select Page

How Your U.S. Corporation Will Be Taxed

How Your U.S. Corporation Will Be Taxed

AT A GLANCE: This is how taxes affect your C-Corporation

This page will cover the establishment and management of your U.S. corporations as part of our U.S. themed focus series.

It is inevitable that, when you have set up your U.S corporation, you will have to pay tax. In the U.S tax can be complicated and complex and you may be faced with several types of tax including corporation tax (both federal and state) as well as employment tax and many other forms of tax. Our advisors can help with all you taxation needs and in this section of the site we explain how your profits are taxed and how you can legally optimise your tax.

“In this world, nothing can be said to be certain, except death and taxes.”

(Benjamin Franklin writing in a letter to Jean-Baptiste Leroy in 1789).

Unfortunately, this remains true today when it comes to your U.S. company. No matter how good things are going for your business, it always works even better for Uncle Sam.

Your U.S. Company

Which State? Which Legal Form?

Corporate Tax at a Federal Level

But rest assured, aspiring U.S. entrepreneurs can breathe easy just now as, at the end of 2017, President Trump passed a major tax reform greatly reducing taxation on corporate profits.

Until recently, the U.S. had one of the highest corporate taxes regimes among the major industrialized nations. Now that statistic has been flipped, with U.S. taxation among the lowest of the G20 countries.

On this page, you will learn about what to expect from the corporate taxes on any profits generated by your U.S. company.

Profits From Participants

Any U.S. corporation has to pay corporate income tax on the company’s profits. However, there is no trade tax.

Corporate taxation is levied by both the Federal Government and the State Government.

U.S. uses a territorial tax system like the E.U.

Profits from your subsidiaries typically do not have to be taxed in the U.S. when they are distributed to the U.S. parent company. Profits on the sales of foreign interests in companies are also tax-exempt in the U.S. parent company.

Foreign Profits

Profits gained from foreign customers are taxed at around 13%. For example, a Texas-based corporation sells its products to customers in the E.U. The profits from these sales will be taxed in the U.S. at approximately 13%.

 

Profits from Foreign Subsidiaries in Low-Tax Countries

If a U.S. based company has subsidiaries in low-tax countries that generate profits from non-U.S. clients, the parent U.S. company will be taxed. Typically, these taxes are limited at around 10% – with 80% of the taxes paid abroad being credited.

For example, a U.S. corporation with a subsidiary on the Isle of Man is free of taxes on all profits. If the corporation has subsidiaries in both high and low tax locations, positive windfall profits may occur in those tax jurisdictions.

If, for example, the same U.S. corporation has another subsidiary in Germany, it will pay approximately 25% in corporate and business taxes on profits there. So if the company generates €100,000 in profits, it will pay €25,000 in taxes. Of this €25,000 can be claimed by the corporation – €20,000.

Corporate Tax at a State Level

Corporate tax drastically varies at a State level, with some States not charging any corporate tax.

These states have no corporate tax at the state level:

  • Nevada
  • Ohio
  • South Dakota
  • Washington
  • Texas
  • Wyoming

However, Ohio, Texas, Nevada, and Washington have a sales tax called gross receipts tax. For example, in Texas, this tax is 0.331% on sales over $1.1 million.

Sales Tax

Each US state charges a sales tax on the purchase of goods, which can be loosely compared to VAT. However, deliveries to other states via post are tax-free.

The following US States do not charge sales tax:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Sales tax in other states varies between: 5%–9% (this is a combined tax rate from State and local sales tax).

A reseller is not charged sales tax (similar to the EU Reverse Charging). Depending on the U.S. State, retained sales tax is paid either monthly or quarterly. Almost all U.S. communities charge a community sales tax surcharge. For example, in California, State sales tax amounts to 7.5%.

VAT does not exist in the United States. The introduction of VAT at a Federal level similar to the European model has been debated for years. According to various experts, this could be charged at around 1% – 2%, and would be charged on top of the existing sales tax.

Click to Enlarge Map       Neque porro quisquam est qui dolorem ipsum

Social Contributions

In the U.S., what are known as social contributions are made. These are similar to their equivalents in Europe. They are withheld directly from the employer and transferred straight to the IRS.

The following are known as social contributions:

  • Pension (Social Security): 12.4% for incomes up to $110,000. This is divided 50/50 between the employer and employee.
  • Old-age health care (Medicare): 2.9% of the total salary. This is divided 50/50 between the employer and employee.
  • Unemployment (Unemployment Tax): These social contributions are levied at both a Federal and State level. At a Federal level, the employer pays a maximum of 6% of the payroll but no more than $105 per year. This rate is very erratic, however, as it depends on the industry and how many employees take advantage of the insurance. Social contributions for new employers usually range between 1%–3% for all States, but in some cases this can rise to a maximum of 10%. However, this only applies to those that earn a yearly wage of approximately $40,000.

Compact Tax Comparison of the Proposed States of Residence

On this page, Mount Bonnell will introduce the 6 major U.S. locations that we suggest to clients from which to base their new U.S. corporations. This table shows the different tax rates at these locations:

cityCountryCorporate tax stateIncome tax statevalue added tax
AustinTexasNone (0.331% Gross Receipts Tax are payable on sales.) Free Tax: $ 1.1 Million Per Year)No8.15%
BostonMassachusetts8th%5.2%6.2%
JacksonWyomingNoNo4%
Las VegasNevadaNone (0.05% - 0.3% Gross Receipts Tax are payable on sales.) Free Tax: $ 4 million per year)No8.15%
MiamiFlorida5.5% (from $ 50,000 annual profit)No6.62%
New York CityNew York7.1%8.82%8.47%
San FranciscoCalifornia8.84%13.3%8.41%
WashingtonDistrict of Columbia9.975%8.95%5.75%
WilmingtonDelaware8.7% (plus 0.4% - 0.75% Gross Receipts Tax are to be paid on sales .Avail: $ 300,000 per quarter)6.6%No

Withdrawal & Collection of Profits from the Corporation

Setting up and then a running a successful business in the U.S. begs the question: how do I get my profits out of the company?

Well, we have a dedicated page on this topic. You can view it here.

Calculation Examples

To give you an idea of taxes in the U.S., we’ve calculated the typical taxation for a U.S. corporation in four different scenarios. For these various examples, we’ll situate our company in Wyoming where there are no state taxes.

Example 1

U.S. C-Corporation in Wyoming:

  • Profits are 100% taxed at the standard U.S. corporate income tax rate (21%).
  • The Shareholder is a person.
  • 100% of profits are distributed as dividends.
cityCountryCorporate tax stateIncome tax statevalue added tax
AustinTexasNone (0.331% Gross Receipts Tax are payable on sales.) Free Tax: $ 1.1 Million Per Year)No8.15%
BostonMassachusetts8th%5.2%6.2%
JacksonWyomingNoNo4%
Las VegasNevadaNone (0.05% - 0.3% Gross Receipts Tax are payable on sales.) Free Tax: $ 4 million per year)No8.15%
MiamiFlorida5.5% (from $ 50,000 annual profit)No6.62%
New York CityNew York7.1%8.82%8.47%
San FranciscoCalifornia8.84%13.3%8.41%
WashingtonDistrict of Columbia9.975%8.95%5.75%
WilmingtonDelaware8.7% (plus 0.4% - 0.75% Gross Receipts Tax are to be paid on sales .Avail: $ 300,000 per quarter)6.6%No

Example 2

US C Corporation in Wyoming:

  • Gains 100% taxed with IP Box / Overseas US Treasury rate in the Company (13.125%)
  • Shareholder Natural person.
  • 100% of the profits are distributed as dividends.
cityCountryCorporate tax stateIncome tax statevalue added tax
AustinTexasNone (0.331% Gross Receipts Tax are payable on sales.) Free Tax: $ 1.1 Million Per Year)No8.15%
BostonMassachusetts8th%5.2%6.2%
JacksonWyomingNoNo4%
Las VegasNevadaNone (0.05% - 0.3% Gross Receipts Tax are payable on sales.) Free Tax: $ 4 million per year)No8.15%
MiamiFlorida5.5% (from $ 50,000 annual profit)No6.62%
New York CityNew York7.1%8.82%8.47%
San FranciscoCalifornia8.84%13.3%8.41%
WashingtonDistrict of Columbia9.975%8.95%5.75%
WilmingtonDelaware8.7% (plus 0.4% - 0.75% Gross Receipts Tax are to be paid on sales .Avail: $ 300,000 per quarter)6.6%No

Example 3

US C Corporation in Wyoming:

  • Gains 100% taxed at the standard US corporate income tax rate (21%)
  • Shareholder UK Holding Company
  • Beneficiary of the UK Holding Company is a natural person who is a non-Dom taxpayer in Malta
  • 100% of the profits are distributed as dividends.
cityCountryCorporate tax stateIncome tax statevalue added tax
AustinTexasNone (0.331% Gross Receipts Tax are payable on sales.) Free Tax: $ 1.1 Million Per Year)No8.15%
BostonMassachusetts8th%5.2%6.2%
JacksonWyomingNoNo4%
Las VegasNevadaNone (0.05% - 0.3% Gross Receipts Tax are payable on sales.) Free Tax: $ 4 million per year)No8.15%
MiamiFlorida5.5% (from $ 50,000 annual profit)No6.62%
New York CityNew York7.1%8.82%8.47%
San FranciscoCalifornia8.84%13.3%8.41%
WashingtonDistrict of Columbia9.975%8.95%5.75%
WilmingtonDelaware8.7% (plus 0.4% - 0.75% Gross Receipts Tax are to be paid on sales .Avail: $ 300,000 per quarter)6.6%No

Example 4

US C Corporation in Wyoming:

  • Gains 100% taxed with IP Box / Overseas US Treasury rate in the Company (13.125%);
  • Shareholder UK Holding Company;
  • Beneficiary of the UK Holding Company is a natural person who is a non-Domicile taxpayer in Malta;
  • 100% of the profits are distributed as dividends.
cityCountryCorporate tax stateIncome tax statevalue added tax
AustinTexasNone (0.331% Gross Receipts Tax are payable on sales.) Free Tax: $ 1.1 Million Per Year)No8.15%
BostonMassachusetts8th%5.2%6.2%
JacksonWyomingNoNo4%
Las VegasNevadaNone (0.05% - 0.3% Gross Receipts Tax are payable on sales.) Free Tax: $ 4 million per year)No8.15%
MiamiFlorida5.5% (from $ 50,000 annual profit)No6.62%
New York CityNew York7.1%8.82%8.47%
San FranciscoCalifornia8.84%13.3%8.41%
WashingtonDistrict of Columbia9.975%8.95%5.75%
WilmingtonDelaware8.7% (plus 0.4% - 0.75% Gross Receipts Tax are to be paid on sales .Avail: $ 300,000 per quarter)6.6%No

Your U.S. Company

Which State? Which Legal Form?

Frequently Asked Questions (FAQs) About Taxes, Company Formation, and Residency in the U.S.

We’ve compiled over 150 of the most frequent questions and answers (FAQs) on tax, company formation, and residency in the U.S. in our knowledge base. You can visit our knowledge base here.

If you find that your personal questions have not been answered, book a telephone consultation here.

Get Advice on Taxation, Company Formation, and Residency in the U.S.

If you already have a project that you want to implement in the U.S., you will most likely have already dealt with the intense framework conditions in the U.S. Online, you can find a wealth of information on almost every subject. Though all this information is available, it is common for one to reach a point of confusion. There are too many aspects to consider simultaneously and the starting position can be complex.

To solve this mental knot and pave your way to success, jump on a 1-hour telephone counselling session based on taxation, incorporation, and residency in the U.S. In this conversation, we will discuss specific technical issues such as tax, U.S. corporations or LLCs. Or we can discuss any strategic options you are considering.

Moving to the States – lock, stock and business – is not simple, but it doesn’t have to be hard either. We have a lot of information on line for you, but the Mount Bonnell ethos is that personal touch so lacking in so many of today’s businesses.

Like the Texas of old, we are true to our word. And like the founders of the Lone Star State we intend to make things as easy as possible for the people we work with so give us a call. We’re waiting – expecting even – that call about a question or questions you feel embarrassed to ask.  Whether technical, financial or personal, don’t be shy. We have heard them all before, and, what’s more we enjoy answering them.

So what are you waiting for, book a consultation and let’s get started.