Tax Tips for Overseas Companies Operating in The U.S.

The US has one of the most complex tax systems in the world, with local, state, and federal-level obligations creating significant challenges for overseas companies. Making sense of the administrative process, navigating it, and mitigating the risks involved is a huge task in itself, and pitfalls can be difficult to foresee and hurdle even if you conduct due diligence.

Overseas company taxes in the US

*not a finance/legal advice

While tax is often confusing, it’s incredibly important in today’s business environment to have a mastery of the processes involved. Here are some tips for getting to grips with tax in the US.

Understanding state and local tax

Foreign enterprises operating in the US often fail to recognize the wide-reaching nature of taxing powers as business activity can trigger state-level and federal taxes, which they may not have much experience with. In terms of state taxation, non-US companies should understand aspects such as obligations for foreign-source income, each individual state’s power to tax, methods of filing, registration requirements, and considerations for transfer pricing adjustments.

Nexus

All US states adopt a different set of rules depending on whether it has tax jurisdiction to cover an enterprise, which depends on whether the company in question is deemed to have “sufficient physical presence” or the legal term for it, nexus. For example, if an enterprise sells goods or services in Los Angeles, then they must collect and pay California state taxes. The concept of nexus has been evolving for years and can cause confusion for senior management, so it’s important to clear up any issues so that tax affairs can be managed easily and effectively.

Federal corporate tax rates

A foreign enterprise engaged in trade in the US must pay the standard corporate tax rate, which starts at 15 percent for taxable income of between $0 to $50,000 and reaches a limit of 35 percent on excess for income over $18,333,333, though income bands in between these can have up to a 39 percent tax rate. Unlike many other countries, the US does not have a valued-added tax or federal sales tax. However, an alternative minimum tax (AMT) is imposed, which is a supplement income tax for corporations that have special circumstances or exemptions that enable them to pay lower rates of standard income tax. This is generally a flat rate on income above a certain threshold.

Intelligent investment advice

Tax in the US is a labyrinth of laws, regulations, and obligations, so you may want to engage with a leading tax and financial advisor company such as Forth Capital. The firm will be able to provide intelligent investment advice and outline your legal obligations. Forth Capital is 100 percent independent and specializes in international tax planning, which is ideal for new companies aiming to expand or operate in the US. The company can also help you to understand many of the incentives inherent to tax policies, which can be used to enhance after-tax results.

Taxes affecting employees

Payment for employment in the US is subject to federal income tax, Federal Unemployment (FUTA) tax, and Federal Insurance Contributions Act (FICA) taxes, which cover aspects such as Medicare. While customs duties/import tariffs is one of the few areas that doesn’t need special attention, foreign companies should also be well-versed in excise taxes, stamp taxes, capital gain taxes, accumulated earnings tax, and personal holding company tax.

US tax law can be a minefield, so you need to be aware of all the complexities of legal obligations and the consequences before you begin operating on US soil.

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