Factors to consider when starting a U.S. business
Trademark
Frequently, a name is valuable and should be trademarked throughout the United States by registering it in Washington, D.C. This will involve a name search of all uses of the name throughout the United States (telephone books, state trademarks, etc.). If not used by other entities, the trademark and logo can be registered. Once registered, no one is able to utilize the trademark without permission. If the name is already in use, for example, by someone only in Los Angeles but is not registered in Washington, D.C., then it may be possible to register and protect its use throughout the United States with the exception of the area where it was previously utilized, such as Los Angeles in this example.
Legal Entity; Operations1. Choice
A separate Florida corporation is generally organized to operate the United States business to avoid a double tax, called a “branch profits tax,” disclosure of foreign financial statements in the United States, and possible reallocation of profits between a foreign country and the United States by the United States taxing authorities (IRS). In the case of possible expansion outside of Florida into other states, the Florida Corporation would either register to do business in those states (a relatively simple procedure) or most likely incorporate a subsidiary to operate in the new state so that profits in each state will be taxes separately.
2. Formation
Incorporation in Florida is a relatively easy process. A Florida corporation requires only one director and Incorporation in Florida is a relatively easy process. A Florida corporation requires only one director and a President and Secretary, all of whom may be the same person. These individuals and any of the stockholders can be foreigners. Additional directors and corporate officers can also be named and there is no fixed number of stockholders necessary, nor is there any minimal capital requirement. A company can be organized with only $1 .00 of capital. Organization takes only a few days and costs are minimal.
3. Accountant
An accountant is not required, although one is usually retained, to help organize the initial books, provide private monthly statements to the company’s officers, and file the annual tax return.
4. Banking
Opening a bank account for the company can be easily accomplished. Generally the banking institutions desire copies of the corporate documents, acts authorizing individuals to sign on behalf of the corporation, and some knowledge of the persons involved in the company.
5. Employees
There are no minimum requirements or maximum limits as to the number of employees a corporation may have. Employees have few governmentally prescribed rights. They generally may be hired or fired at will without indemnification and employment is usually a matter of private agreement. For example, a clerk may have two weeks vacation, 3-5 sick days and work 9:00 a.m. to 5:00 p.m. Of course, this may vary by agreement. Usually employers also pay health insurance, which can cost between $1,000 to $2,000 annually, depending on the plan and age of the employee. Coverage for an employee’s dependents is often paid by the employee.
6. Immigration
Nonresident alien employees must have work visas. Finding highly qualified personnel should not be difficult because of the large Portuguese and Spanish speaking populations in Miami. Employees from a foreign country may be transferred by means of an L-1 visa or an H-1 visa, while employees of a country qualified by treaty with the United States may obtain employment under an E-1 or E-2 visa. The H-I visa is used to bring a foreign employee on a temporary or seasonal basis. This visa category is reserved for foreign employees of “distinguished ability or merit” and “professionals.” In addition, a B.A. or B.S. degree from an accredited U.S. or foreign university is required to qualify for this visa. Also, the job position an employee will assume should be of the type which necessitates such a degree. The L-1 visa is available for business executives who are transferred to the United States, have continuously worked in an executive position for over a year, and will come to the United States to assume a similar position in the same company, subsidiary or affiliated branch. The L-1 Visa is also issued to personnel with specialized knowledge of firm operations. E-1 and E-2 visas require substantial investment or an import - export business with the alien’s home country.
United States Taxation
1. In Florida, individuals pay a 15% - 31% federal income tax on income (there is no state individual income tax) and corporations, whether foreign or domestic, pay a combined federal and state rate of approximately 40%. On the first $100,000.00 of corporate profits, there is a graduated rate which averages about 25%. Dividends by Florida corporations to foreign stockholders are taxed at 30%. However, in the case of a liquidation of a corporation held by a foreigner there is usually no dividend tax. Only the first $60,000.00 of a foreigner’s estate is exempt from federal estate taxes. Real property and shares of stock held in a foreigner’s own name as well as other personal assets are subject to federal estate taxes at an escalating rate.
Companies can reduce taxes in a number of ways: 1) paying their executives higher salaries and bonuses so that the tax is reduced from the corporate rate of 40% to the individual rate of 31%; 2) work done abroad for a company such as marketing can be paid for and deducted as an expense in the United States; and 3) trips for business are also deductible. Individuals can deduct from their personal income interest on home mortgages, charitable contributions, and a fixed sum for each dependent and medical cost, but receive relatively few other deductions.
2. Besides income taxes, there is a 6.2% tax for Social Security on the first $76,200.00 of wages and Medicare tax on all wages earned. The employee also pays a similar amount. There is an unemployment compensation tax of .001 times the total payroll. In addition to these expenses, workmen’s compensation insurance is required to reimburse for injury. For three or four employees this expense would probably not exceed $1,000 annually. Liability and casualty insurance (approximately $1,000 - $2,000 per annum) and health insurance (cost would depend on value or number of employees) are additional costs. Miami and Miami-Dade County have occupational license taxes which combined usually do not exceed $1,000.00. 3. Florida has a 6.5% sales tax on sales of merchandise at retail level. For shipments out of state or out of the United States, the tax is not collectable. Each state and city within the United State has its own sales tax laws. 4. Any person who spends 183 days in any year in the United States must pay U.S. taxes on worldwide income. Thus, interest earned in Switzerland, salary in Brazil, apartment rental income from Colombia and U.S. salary are added together to determine taxable income subject to a credit for taxes paid abroad on foreign income.Taxation is based on income not assets. Tax planning for individuals moving to the United States should be considered prior to a move, such as sale of a residence abroad or acceleration of bonuses prior to moving to the United States. Consider a purchase of a foreign home in 1980 for $100,000 which is sold after U.S. residency for $1,000,000. There would be a tax on $900,000 of income or approximately $300,000 of tax.
Other U.S. ConsiderationsMany persons desire anonymity in their United States operations. Thus, they use Americans as their corporate officers to avoid disclosure of their own names and hold the stock of their U.S. corporations in the name of foreign or offshore corporations.
Source: Freeman, Haber, Rojas and Stanham, LLP
