Entering the American Market. Stephanie L. Chapman, CPA Belfint, Lyons & Shuman, P.A.

Transcription

1 Entering the American Market Stephanie L. Chapman, CPA Belfint, Lyons & Shuman, P.A.

2 Look Before You Leap Location Matters Examples: Delaware, California, New York, Texas, Nevada, Florida Choice of Entity LLC (branch) Corporation Practical Issues Registrations Banking needs Advisors

3 State of Formation Commerce in the United States is regulated at the state level. The U.S. has 50 states plus its territories (Puerto Rico, Mariana Islands, Guam and U.S. Virgin Islands) Companies that operate in the U.S. are subject to state income taxes in addition to the Federal income tax Some states also assess franchise taxes, which are based on the value of the capital in a company, and not income Each state has its own legal framework that governs the companies that are formed or operate within their borders, unique tax obligations and definitions of nexus to their state Nexus is the taxable connection to a state. Possible generators of nexus include: owning inventory in a state, hiring employees, maintenance of a virtual office, or even sales to the state

4 State of Formation - Continued Where will your business be physically located? Some states are known for being business friendly factors considered in friendliness are the speed and ease of formation and dissolution, fairness of the court system and efficiency of government You may wish to form in a state but have no physical presence there (i.e., do business in another) For example, Delaware is a common favorite for formation. 50% of U.S. public companies and 64% of Fortune 500 companies are formed in Delaware. Most of these businesses operate elsewhere - New York City as a center of commerce, or California for tech companies

5 Comparison by State 2016 State Tax Rates * Texas imposes a Franchise Tax ( Margin Tax ) on certain entities at 0.75% (0.375% for retail/wholesale) **Delaware imposes a gross receipts tax in lieu of a sales tax

6 Choice of Entity: Limited Liability Company (LLC) Similar to: Argentinian SRL (Sociedad de Responsabilidad Limitada) Chilean EIRL (Empresa Individual de Responsabilidad Limitada) Colombian Ltds (Sociedad de Responsabilidad Limitada) Offers legal liability protection Lifetime is limited Used often for a branch office of a foreign corporation

7 Choice of Entity: Limited Liability Company (LLC) Continued Considered a pass-through entity for Federal income tax purposes (and most states). Owner is a member and must obtain a U.S. Taxpayer Identification Number (ITIN) Single-member is disregarded for income tax purposes (files on the tax return of the owner) Multi-member default status is a partnership Possible to elect corporate taxation Disadvantages: In countries that do not have a treaty with the U.S., the income is taxed at a flat 39.6% Some countries do not recognize the pass-through nature of a Single- Member LLC. In the U.S., the individual is considered the obligor for taxes but in these cases, the home country would recognize the company as the obligor. Tax credits are therefore trapped indefinitely

8 Choice of Entity: Corporation Similar to Sociedad Anónima (S.A.) Offers legal liability protection Unlimited (perpetual) life Taxation can be a disadvantage: Taxed on worldwide income Corporate tax rates may be higher at certain income levels There is no preferred tax rate on capital gains Dividends are non-deductible to corporation and taxable to recipient (resulting in a double tax) However: Corporation can pay the owner a salary (LLC cannot). The owner may then not need to file a U.S. Income Tax Return, depending on where the services are rendered Distribution of profits to an owner in a non-treaty country is efficiently taxed via withholding and no further filing is required by the owner

9 Practical Issues: Steps 1. Choose State in Which to Form 2. Form the Company Accountant Attorney Registered Agent 3. Obtain an Employer Identification Number (EIN) 4. Obtain State Tax Accounts income tax, sales tax, employment tax, etc. 5. Obtain an Individual Taxpayer Identification Number (ITIN), if applicable

10 Practical Issues: Steps - Continued 6. Obtain U.S. Bank Account This is typically the hardest part. The U.S. Patriot Act requires banks to Know Your Customer (KYC), part of which includes a face-to-face meeting with the banker in the U.S. 7. Consider Needs for State and Municipal Licenses 8. Engage Other Professional Advisors Commercial Realtor Payroll Processor Insurance Advisor (multiple)

11 Tax Obligations: Income Tax The United States taxes U.S. corporations, citizens and permanent residents ( Green Card holders) on their worldwide income. This is all income, regardless of where it is earned or where the individual lives. Foreign Tax Credit is available to U.S. persons to reduce double taxation Nonresidents are taxed on their U.S.-Sourced Income. There is no foreign tax credit in the U.S. permitted on this income (credit would be taken in the home country) In addition to the Federal income tax, taxpayers are also liable for state and municipal income taxes

12 Tax Obligations: Double-Tax Agreements (DTAs) Income Tax Treaties Define residency, dictate country entitled to tax Generally supersede Federal tax law U.S. states do not have to recognize Treaties! In Latin America and Caribbean: Barbados, Jamaica, Mexico, Trinidad and Venezuela Totalization Agreements Attempt to harmonize Social Security Tax systems Eliminate double Social Security Taxation and allow for cross-country credits for benefits. In Latin America and Caribbean: Chile

13 Tax Obligations: Transactional Tax United States has no IVA (VAT) tax. The transactional tax is a Sales and Use tax. Assessed at the state level Sales tax is collected by the seller from the buyer, and remitted to the State. Use tax is paid by the buyer directly to the state on taxable purchases in which no sales tax was paid (either in error, for purchases made in a state where there is no sales tax, etc.) Companies must first have physical presence in a state in order to be subject to sales tax in that state Usually tax is assessed only on the transfer of tangible personal property. Some services are taxable, though not many (depends on the state). The states decide what products or services are taxable Resellers provide exemption certificates to avoid paying (and only collect) sales tax Certain non-profit organizations are exempt from paying sales tax (churches, schools, hospitals, governments, etc.)

14 FATCA: Foreign Account Tax Compliance Act (1) DISCLOSURE U.S. persons (corporations, trusts, partnerships, individuals, estates, etc.) have for a long time been required to disclose all their foreign bank accounts U.S. individuals historically were the only filers who are subject to an additional disclosure of all foreign financial assets. Effective 2016, certain entities also will need to disclose these assets Account holders worldwide must attest as to whether they are U.S. persons or not

15 FATCA - Continued (2) ENFORCEMENT Countries enter into an Intergovernmental Agreement (IGA) with the U.S., whereby tax information on nonresident account holders is disclosed to the country of residence Model I - the country discloses to the U.S. (example: Mexico, Brazil, Colombia, Costa Rica) Model II - the financial institution discloses to the U.S. (example: Chile, Nicaragua)

16 FATCA - Continued (2) ENFORCEMENT - Continued U.S. customers are required to obtain certification from all service providers as to income tax withholding status Form W-8BEN or W-8BEN-E certifies: You are non-u.s., possibly exempt from income tax withholding under a tax treaty, and Your FATCA status (usually an Active or Passive Non-financial Foreign Entity) U.S. companies complete Form W-9 (and receive information reporting for income at year-end)

17 Taxation Example - Corporations U.S. Corporation (Brazilian owned) Federal income tax return filed, tax paid based on worldwide income. Foreign Tax Credit taken against U.S. taxes for tax paid to another country State (and local, if applicable) income taxes paid, based on apportioned income to each state where there is nexus Brazilian Corporation U.S. income tax return filed for U.S.-sourced income State (and local, if applicable) income taxes paid, based on apportioned income to each state where there is nexus

18 Taxation Example - LLCs Multi-member U.S. LLC Federal Information Return filed, reporting worldwide income but segregating between U.S.-source and foreign-source. State tax return filed for states in which there is nexus. Depending on the state, tax may be paid The mechanism for Federal payment is actually done via withholding at the LLC level, on behalf of the owners (and can be abated based on treaties) Owners receive a reporting statement of their ratable share of the LLC profits. U.S. income tax return filed personally based on the U.S.-source income and tax paid Single-member LLC Files Federal and state returns as an individual or corporation Treaty protection still available

19 Resources Stephanie L. Chapman, CPA Corporate & International Services Maria T. Hurd, CPA Accounting & Auditing Marcelo A. Morinigo Corporate & International Services BELFINT LYONS SHUMAN 1011 Centre Road Suite 310 Wilmington, DE Tel: Skype: Belfint.Lyons.Shuman

20 Resources - Continued Managing Director, Mexico Trade Office +52 (55) MdeRegil@razetc.com Trade Mission to Monterrey and Mexico City, Mexico May 22 27, 2016

21 Resources - Continued Global Delaware World Trade Center Delaware Delaware State Chamber of Commerce Delaware Economic Development Office