COMPLETE GUIDE TO USA INCORPORATION, TAXATION, AND BANKING

Transcription

1 COMPLETE GUIDE TO USA INCORPORATION, TAXATION, AND BANKING Are you ready to start a new business? Are you ready to Grow your existing company? FilingByCPA.com offers professional incorporation service worldwide (USA or Offshore). Our experienced incorporators will assist you to set up the most tax efficient business structure that will enable you to save on global taxes, protect your assets and keep unwanted competitors away.

2 Contents Why should I Incorporate?... 5 I have a foreign company; can I trade with it in the US?... 6 Who can own a US company?... 6 Can my foreign company own a US company?... 6 Can a Non US Person open a company in the US?... 6 Do I have to open the company in person?... 6 How long does it take to incorporate?... 7 What are the different steps in the incorporation process?... 7 Do I have to hire a lawyer to incorporate?... 7 Which documents will I have to provide for the incorporation?... 8 How does the online incorporation process work?... 8 What is a tax ID number Will I get it for my US Company?... 9 I am not a US resident and I do not have Social Security number. Can my company get tax ID number? Which documents will I get from you when the incorporation process is complete? What is Articles of Incorporation? What is Bylaws? What is an LLC Operating Agreement? What is Stock Certificate? Can I open a company in any US State? What is the best state to incorporate in? Why is Delaware so Popular for incorporation?... 12

3 What are the benefits of Florida Company? What are the benefits of Nevada Company? If I open a company one state, can I trade with other states? Can I open a US company with only one owner? I am under 21 years old, can I open a US company? What type of company can I open in the US? What is a Corporation? What is Limited Liability Company (LLC)? What is S Corporation? What is a Non Profit Organization? What is Series LLC? What is better for non US resident, Inc. or LLC? Do I need to have US address for my US Company? Are the any limitations on the name of the company? Which taxes will be subject to if I open LLC? Which taxes will be subject to if I open Inc? Which taxes will be subject to if I open S. Corporation? What are the tax rates for US corporations and LLC? I am not a US person; can I pay my tax in my home country and not in the US? I am not a US person; will I pay tax in the US and again in my home country? Will I pay Sales tax or VAT on my US income? Which reports would I be required to file for my LLC? Which reports would I be required to file for my Inc.? Which reports would I be required to file for my S. Corporation?... 23

4 Do I need to open bank account for My US Company? Can I open offshore bank account for my US Company? I am a non US resident; can I open US bank account for My US Company? I am a non US resident with no Social Security or U.S. Tax ID Number; can I open US bank account for My US Company? I live outside of the US, do I need to come to the US to open the bank account? Which documents do I need to provide to open the bank account? How long does it take to open bank account for the US Company? What are the fees charged by the bank to operate the account? Is there a minimum balance I need to deposit to open bank account? Will I be able to access my account from outside of the US? Will I get a check book for my bank account? Can I get a business credit card? What is payment gateway? I am a non US resident; can I open merchant account for My US Company? What are the transaction fees charged by the merchant provider?... 28

5 Why should I Incorporate? The chief reason to incorporate, is to separate yourself (as the owner of the company) from any legal dispute that the business may be involved with. For example, if you run an Unincorporated USA business (i.e. under your personal name) and one of your vendors / customers files a lawsuit against the business, the lawsuit is practically a claim against you, personally, and all of your assets. However, if you incorporate your business by creating a separate legal entity, such a lawsuit will be aimed against the company and not against yourself. The US law recognizes the separation between shareholders and the business they own and allows including shareholders in a lawsuit against the company only in rare cases where the shareholders acted fraudulently or negligently. Other reasons to incorporate include: Reliability, Tax Benefits and Anonymity. The majority of the best known businesses in the US (and in the world) are incorporated businesses (Microsoft, Google, IBM, General Electric and more). In reality, unincorporated businesses are smaller and preserved as less reliable than incorporated businesses. So, by creating a US company (as appose to doing business under your personal name) you boost the image of that business and gives it more reliability. This is especially true, if your business relies on American Customers, who naturally feel more comfortable doing business with American Companies, rather than working with unknown foreign businesses. The US law offers various tax benefits and tax breaks to incorporated businesses such as, lower tax rates on dividend from US companies, Research tax credit, Deferred taxes and more (for more information on tax benefits for US corporation please go to: Big-Corporate-Tax-Breaks.aspx#page1 ). Operating in the US as a company will help you to minimize your taxes and benefit from the most tax efficient structure. When you operate your US business under your personal name, you are practically broadcasting to the entire world that you own and operate a US business. The information that you own and operate the US business will be in the public domain sooner rather than later. In contrast, an incorporated business does not have to disclose its shareholder information thus this data remains confidential and managed internally by the company itself. So, if anonymity is something you wish to protect, setting up a US company allows you to do that.

6 I have a foreign company; can I trade with it in the US? Yes, the US laws allow Foreign Corporations to do business in the US after proper registration which includes; obtaining Certificate of Authority to operate in a specific US state and registration for tax purposes with the internal Revenue Service (i.e. apply for Employer Identification Number) and with the State Tax Agency where the company is registered. By doing so, the Foreign Corporation subjects itself to the US Federal law and the applicable State law which means that all the business activities conducted by the Foreign Corporation could be exposed to US taxation (e ven the non US portion). In addition the tax filing requirements for Foreign Corporation are much more complex than for a US corporation, thus significantly increases the cost of complying with legal and tax filing. Because of these reasons it is more advisable to use a US Company to do business in the US rather than using a Foreign Company to do so. Who can own a US company? Any person can be the legal owner of a US company including non US resident. There however sanctions on various countries as explained by the US Treasury Department, The Office of Foreign Assets Control administers and enforces economic sanctions ( Any person from countries not included in the OFAC list of sanctioned countries, is allowed by law to form, open, incorporate or own a US company. Can my foreign company own a US company? Yes, a foreign company from countries not included in the US Treasury Department, The Office of Foreign Assets Control administers and enforces economic sanctions s list of sanctioned countries, is allowed by law to become the owner of a US Company. This business structure is called Parent / Sub, as the Foreign Corporation is the Parent company while the US business becomes the Subsidiary of the Foreign Corporation. Can a Non US Person open a company in the US? Absolutely. Any Non US Person (also known as Non Resident Alien, NRA) from countries n ot included in the OFAC list of sanctioned countries is allowed by law to form, open, incorporate or own a US company. For more information on sanctioned countries please visit the US Treasury Department, The Office of Foreign Assets Control administers and enforces economic sanctions ( Do I have to open the company in person? No, most US States allow you to open a US company by an Incorporator, which acts as your agent in the process of forming the new entity. The Incorporator will take the necessary steps, complete the applicable paperwork and submit the required applications so the company will be opened under your

7 name. In some cases, the Incorporator will form the company under his/her name and later on will sign a letter of resignation to allow you to become the lawful owner and director of the newly formed company. How long does it take to incorporate? Short answer if you elect the expedite service, in most U.S. States your company can be formed in 2-3 business days. But, because the US has 50 different States, and each State has its own corporation laws, there is no one simple answer to this question. Most States offer two ways to form a new company; Normal processing and Expedite processing. Normal processing means that your application for a new entity goes into the regular pipeline, and will be reviewed based on first come first served mechanism. In many States it means turnaround time of approximately 30 business days. Some States has a longer waiting period, for example in California the normal processing time exceeds 6 weeks. Most States offer Expedite Service to allow for Rush company formation. Expedite Service incurs additional fees and can be completed between few hours to 7 business days (varies by State). Contact us for exact processing time in each State What are the different steps in the incorporation process? The incorporation starts with the submission of the Articles of Formation to the state in which you wish to register the company. The Articles must comply with the State s corporate laws and to lists the proposed company name, the company s resident agent, type and number of shares the company is authorized to issue and additional information as required by law. Once the State approves the name and the Articles, the company is legally formed. This step can be done in one business day if you go with expedite service or can take up to 8 weeks if you go with normal processing (contact us for exact processing time in each State). The next step will then be to register the newly opened company with the Internal Revenue Service to obtain Tax Identification Number (also known as EIN, Employer Identification number). This step requires the incorporator to identify the person who is legally responsible for the company s taxes. Obtaining EIN can take hours if done properly by an experienced tax advisor or CPA. Once the company is formed and EIN has been assigned to it by the IRS, all company s incorporation documents can be issued: Certified Articles of Formation, Bylaws or LLC Operating Agreement, Stock Certificates or LLC Membership Certificates, Stock Ledger or LLC membership Ledger, EIN Confirmation letter and more. This ends the incorporation process and now, the newly formed company is active and ready to start trading. Do I have to hire a lawyer to incorporate? No, you can hire professional incorporator such as FilingbyCPA.com to help you open your US Company, but the law does not require you to hire a lawyer for the same. Normally using a lawyer to incorporate

8 your US business will result in much higher cost as legal fees payable to the attorney could be significant. Using an experienced professional incorporator that helps thousands of business people such as yourself assures that you receive the at most efficient service that covers all angels of the incorporation process not just the legal portion. Which documents will I have to provide for the incorporation? Under various US laws, we will ask you to provide us with two forms of Identification that may include: For US resident: Copy of valid Driver License or State issued Photo ID. For non US residents: Copy of Valid Passport and Copy of Valid State issued Identification Card with your photo (i.e. driver license). If you do not have a passport we will require an alternate documents that show your full legal name, country of citizenship and photo ID. These documents can be ed to us as PDFs or faxed to us. How does the online incorporation process work? We have developed a complete online incorporation process that al lows our clients to open their US company from the convenience of their office or home and without the need to travel to the US. 100% of the process is done online, via our secured website, our secured system and secured faxes. The online process we use, not only allow you to incorporate in the US anytime, day or night, it also guarantee that the process is completed in record time as we practically eliminate postage time, commuting time and any time spent on travel. The process is designed so that you, the customer, login to our website, obtain all the necessary information about the various steps of the incorporation procedure and when ready, submit the order online in less than 10 minutes. Once the order is submitted, our incorporation team process es it and makes sure that the order details are correct (i.e. comply with various laws). Once the order is approved, we will send you a confirmation acknowledging the order and asking you to sign an invoice which clearly lists the features and services you have ordered from us. The purpose of this step is to guarantee that there are no surprises, no hidden fees and that both you and us agree and understand the process in its entirety. Once the order is signed by you, we will send you another with e-copies of the formation documents we need you sign as the company s officer and authorized person. After receiving the signed documents from you, again, as PDFs via , we will submit all the various applications to the different agencies and have your company opened, approved and with the appropriate registrations. After this is done, we will you again, this time with complete e -package that contains Certified Articles of Formation, Bylaws or LLC Operating Agreement, Stock Certificates or LLC Membership Certificates, Stock Ledger or LLC membership Ledger, EIN Confirmation letter and more.

9 What is a tax ID number Will I get it for my US Company? An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and i s used to identify a business entity. Generally, businesses need an EIN if you meet one of the following: if you operate your business as a corporation, partnership or LLC, If you have employees,, if you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms, if you withhold taxes on income, other than wages, paid to a non-resident alien. All EIN applications (mail, fax, phone, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the responsible party, controls, manages, or directs the applicant entity and the disposition of its funds and assets. If there is more than one responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party. According to the Instructions for the current revision of the application, the responsible party is defined as follows: For entities with shares or interests traded on a public exchange, or which are registered with the Securities and Exchange Commission, responsible party is (a) the principal officer, if the business is a corporation, (b) a general partner, if a partnership, (c) the owner of an entity that is disregarded as separate from its owner (disregarded entities owned by a corporation enter the corporation s name and EIN), or (d) a grantor, owner, or trustor if a trust. For all other entities, responsible party is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets. The ability to fund the entity or the entitlement to the property of the entity alone, however, without any corresponding authority to control, manage, or direct the entity (such as in the case of a minor child beneficiary), does not cause the individual to be a responsible party. Nominees; A nominee is someone who is given limited authority to act on behalf of an entity, usually for a limited period of time, and usually during the formation of the entity. The principal officer, general partner, etc., as defined by the IRS, is the true responsible party for the entity, instead of a nominee. The responsible party is the individual or entity that controls, manages, or directs the entity and the disposition of the entity s funds and assets, unlike a nominee, who is given little or no authority over the entity s assets. The Internal Revenue Service has become aware that nominee individuals are being listed as principal officers, general partners, grantors, owners, and trustors in the Employer Identif ication Number (EIN) application process. A nominee is not one of these people. Rather, nominees are temporarily authorized to act on behalf of entities during the formation process. The use of nominees in the EIN application process prevents the IRS from gathering appropriate information on entity ownership, and has been found to facilitate tax non-compliance by entities and their owners.

10 The IRS does not authorize the use of nominees to obtain EINs. All EIN applications (mail, fax, phone, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the responsible party, controls, manages, or directs the applicant entity and the disposition of its funds and assets. To properly submit a Form SS-4, the form and authorization should include the name, Taxpayer Identification Number and signature of the responsible party. Third party designees filing online applications are reminded of their obligation to retain a complete signed copy of the paper Form SS -4 and signed authorization statement for each entity application filed with the IRS. Nominees do not have the authority to authorize third party designees to file Forms SS-4, and should not be listed on the Form SS-4. If a nominee is used in the state formation process and the true responsible party has not yet been identified, the entity must identify that individual before applying for an EIN. The IRS will continue to pursue enforcement actions to prevent the misuse of EIN applications. I am not a US resident and I do not have Social Security number. Can my company get tax ID number? Yes, US Company can be assigned with a Tax ID Number (also known as Employ er ID Number, EIN) even though the company s owner / officer or directors do not have US Social Security Number. Which documents will I get from you when the incorporation process is complete? Once the incorporation process is complete, we will complete e-package that contains Certified Articles of Formation, Bylaws or LLC Operating Agreement, Stock Certificates or LLC Membership Certificates, Stock Ledger or LLC membership Ledger, EIN Confirmation letter and more. What is Articles of Incorporation? The Articles of Incorporation is the document with which one form a company, i t is a legal document that is filed with the state to create a corporation. The Articles must comply with the State s corporate laws and to lists the proposed company name, the company s resident agent, type and number of shares the company is authorized to issue and additional information as required by law. What is Bylaws? Bylaws are sets of articles packaged in a legal document and created by the organization's founders or directors during the incorporation process to include the rules that govern the internal management of an organization such as; how directors are elected, how meetings of directors are conducted, and

11 what officers the organization will have and their duties. The requirements for bylaws are set by the state in which the organization incorporates. What is an LLC Operating Agreement? An LLC operating agreement is a legal document formally establishes details of the LLC s operations and internal management. In absence of an operating agreement, disputes relating to the LLC would be resolved based on the laws and rules of the state of incorporation and may involved the LLC in lengthy and costly litigation. The document should address the following topics: voting p owers, profit (and loss) sharing, management structure and company dissolution. What is Stock Certificate? Stock Certificate is a legal document evidencing ownership in a company. It includes information such as the number of shares owned, the date, an identification number, usually a corporate seal, and signatures. The Certificate can be issued by the company incorporator or the company s authorized person (director or officer) and becomes effective upon signing by the applicable person. The Certificate can be assigned to a third party unless specifically prohibited by the company Bylaws or other shareholders agreement. Can I open a company in any US State? Yes, you can open a US company in any of the 50 US States and the District of Columbia. Here is a complete list of available States: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming. What is the best state to incorporate in? This is one question with no clear and cut answer. Deciding which state is the best state to incorporate your business in, you must estimate the cost of qualifying as a foreign corporation (i.e. for example if a company was formed in Delaware and then open an office in New York, it must qualify itself in New York) in the state of operation versus the amount that will be saved by incorporating a b usiness in another state. In most cases, a business that incorporate outside of their state of operation are usually required to pay corporate taxes in both the state of foreign operation and the state of incorporation. Although there are states that offer huge incentives, the best state to incorporate your business in many cases, is your own state (if you are a US resident) or the state where you will be operating the business. There are advantages to incorporating in different states with regard to corporate laws and tax structure.

12 Delaware is by far the most popular state for incorporation. Most of the fortune 500 companies are incorporated in Delaware. Some of the most attractive features of incorporating in Delaware include: Lack of corporate income tax for corporations incorporated in Delaware but not transacting business in the state, Delaware has a separate corporate law system that uses judges appointed for their knowledge of corporate law as opposed to juries, whose knowledge of corporate law is limited at best, Shares of stock owned by persons outside of Delaware are not subject to Delaware taxes. Why is Delaware so Popular for incorporation? Delaware is, by far, the most popular incorporation state in the United States. As of 2011, more than half a million business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500. Businesses choose Delaware because we provide a complete package of incorporation services including modern and flexible corporate laws, our highly-respected Court of Chancery, a business-friendly State Government, and the customer service oriented Staff of the Delaware Division of Corporations. The features that attract so many businesses to Delaware are: 1. Advanced and Stable Legal System. Delaware s General Corporation Law is the most advanced and flexible business formation statute in the United States. It is designed to provide maximum flexibility in the structuring of business entities and the allocation of rights and duties among founders and shareholders. In addition, Delaware s Court of Chancery uses judges instead of juries, which means professional litigators get to decide your case, not untrained juries. 2. Low cost. Delaware State fee to incorporate are cheaper than most of the other states. 3. Privacy. Delaware does not require director or officer names to be listed in the formation documents. Thus, Delaware protects the anonymity of the company s ownership. What are the benefits of Florida Company? Florida is one of the most popular State for business incorporation and t he primary reason for that is that there is no personal income tax in Florida. If you incorporate and operate your business in Florida business and choose the "S" status, you will not have to pay the average corporation tax of 5.5%. Florida "S" corporations are not taxable entities. This means they're not required to file state income tax returns after the first year resulting in saved tax dollars. This only applies to US residents, because non US resident can choose the S Status for their US business. Florida is also popular as incorporation state because it doesn't have minimum capital requirements for incorporating your business. Some states require a minimum of $1,000 capital to start your business but Florida does not.

13 In addition, Florida law allows for the director and officers of a newly formed company to be the same person. For example, the Director, President, Secretary and Treasurer can be one person. This makes Florida incorporation simple than other states. Lastly, Florida is a "business friendly" state with some of the lowest annual fees and fewest corporate reporting requirements. What are the benefits of Nevada Company? Nevada offers many benefits for business incorporating under the State s law and that is the reason it is considered as one of the leading incorporation jurisdiction in the US. Stockholders, directors and officers need not live or hold meetings in Nevada, or even be U.S. Citizens. Some of the benefi ts of a Nevada company are: Directors need not be stockholders, Nevada corporations may purchase, hold, sell or transfer shares of their own stock, One person can hold all positions in a corporation or Nevada LLC. Stock can be issued for cash, property or services at the complete discretion of the board of directors, which again, can be just you. Directors and shareholders can hold meetings anywhere. Tax Savings For Nevada LLC or Nevada Corporations: No Corporate Tax, No Personal Income Tax, No Franchise Ta x on Income, No Inheritance or Gift Tax, No Admissions Tax, No Unitary Tax. If I open a company one state, can I trade with other states? Yes, when you open a US company in any of the 50 US states or the District of Columbia you are creating a legal entity that can trade with customers, vendors or any third party anywhere of the United States. However, if you open a company in one state, and then, you open an office / shop / warehouse in another state, you must register your company again with the additional state. The additional registration is designed to obtain legal status for the company in the new state of operation. Can I open a US company with only one owner? Yes, most US States (and especially the most popular ones) allow businesses to incorporate w ith only one owner. Furthermore, many state allow for the Owner, Director, Officer and Secretary to be the same person, which means you do not need anyone else to form your US company beside yourself. I am under 21 years old, can I open a US company? A person at any age including a minor can own a US Company. However, A minor in most states, a minor is considered to lack the legal capacity to enter into a contract and lacks the capacity to sue or be sued. A minor could not legally sign anything on behalf of a corporation, so a minor would not be qualified to serve as an officer of a corporation.

14 What type of company can I open in the US? There are several types of US Company that can be selected, some are only available for US residents and others can be used by non residents as well. The following is a list of company types available in most US States: Corporation (Inc.), Limited Liability Company (LLC), S. Corporation, Non Profit Organization, Series LLC. What is a Corporation? A Corporation is an entity with legal rights and obligation as prescribed by the corporation law of the jurisdiction under which the entity was formed. Corporation is an entity separated from its owners, thus, providing a limited protection to the actual people involved in the busine ss of the corporation. This limitation of liability is one of the many advantages to incorporation, and is a major draw for smaller businesses to incorporate; particularly those involved in highly litigated trade. A corporation can issue stock (privately or publicly) to its shareholders (owners) and governed by its board of directors which makes all major decisions for the corporation, in theory serving the best interests of the individual shareholders. In the United States there are three major types of corporations: Close, C, and S. What is Limited Liability Company (LLC)? LLCs are of the youngest form of legal entities. As a corporation, LLC is a legal entity, separated from its owners (called Members), thus providing them with limited liability. This means that the members aren't personally responsible for the actions or debts of the company. However, unlike Corporations, LLCs do not pay income tax on their profits. The Members are responsible to pay tax on their respective portion of the LLC profit. This is called Pass Through (or Disregarded) entity for tax purposes because the LLC passes through the profits (or losses) to its members, and they have to pay the applicable income tax. LLC Members must report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. What is S Corporation? S corporations are regular corporations that for tax purposes choose to pass corporate income, losses, deductions and credit through to their shareholders (similar to LLC). S corporations Shareholders need to report their flow-through income (or losses) on their personal tax returns. This feature of the S. Corporation, helps the company owners to avoid double taxation on the corporate income. To qualify for S corporation status, the corporation must meet the following requirements: Be a domestic corporation, have only allowable shareholders (including individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders), have no more than 100

15 shareholders, have one class of stock, not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations). What is a Non Profit Organization? Non Profit Organization is a corporation which exists to support educational or charitable cause, and from which its shareholders or trustees do not benefit financially. Funds generated by the Organization must be used for its own expenses, operations, and programs and cannot be distributed to its owners as profits. In addition, it s common for a non-profit organization to seek tax exempt status which if granted, provides the organization with tax exemption and the ability to issue tax deductible receipts f or donations received. This is a separate process and it is done after the organization is formed (the status also known as 501(c)(3) exempt status). Some US States also exempt Non-Profits from local taxes including sales taxes or property taxes. What is Series LLC? Series LLC was created by the State of Delaware in the 20 th century and has been adopted since by other US States. The series LLC serves as a holding company, a single umbrella entity that has the ability to partition its assets and liabilities among various sub-llcs or series. Each sub-llc may have different assets, economic structures, members, and managers. The profits, losses, and liabilities of each series are legally separate from the other series, thereby creating a firewall between each series. In addition, it eliminates the administrative burden and expense of forming multiple LLCs. The structure is very similar to a parent corporation with subsidiaries only without the expense, formalities, and heavy taxation. What is better for non US resident, Inc. or LLC? Because each case is different, there is no one simple answer to this question. Many non US residents that operate online businesses and have no US office, hire no US employees and have no US physical presence what so ever (i.e. the business is managed and run 100% from outside of the United States) elect LLC for entity type. They do so, mainly because LLC is a Pass through Entity and does not pay income tax. Because of that, in cases where the LLC has no US presence it may be that th e profits generated by the LLC will not be considered US income, thus will not be taxable by the US at all. This means that member of the LLC, the Non Resident, will be tax free in the U.S. on any profits generated by the company. In other cases, where a Foreign Corporation wants to set up a U.S. subsidiary, it may choose to open a U.S. corporation and by that, make sure that any tax due on profits generated by the U.S. operation, are the responsibility of the U.S. company and it does not flow through to th e Foreign Entity. It is highly recommended to discuss your specific case and situation with an experienced CPA (Certified Public Accountant) to explore all the options and make an educated decision based on the facts and the applicable laws.

16 Do I need to have US address for my US Company? Yes, the law requires any U.S. company to have a legal address in the state of incorporation. This address will be the company s official address for any legal proceedings and when the company is served with legal documents at that address, it will be deemed as received by the company and its officers. This is also called Resident Agent. The company can have more than one address, and can maintain additional address or addresses in other locations for mailing purposes. This means that a U.S. company must have at least one address to serve as Resident Agent and can have multiple addresses (for example, one address for general mailing, another address for receiving payments from customers and fourth address for vendors invoices. Are the any limitations on the name of the company? Yes, first of all, you can t select a name that is already used by another company or too similar to an existing company name. In addition the name must not be misleading, deceiving or in any wa y create false representation of the company. Which taxes will be subject to if I open LLC? There are several types of taxes that your LLC may be subject to: Income tax, Sales tax and Franchise tax or Property tax.. Income tax is a tax imposed on the company s earnings (profits or taxable net income). Income tax: In the U.S. there are two tax systems running in parallel. The first one is the Federal system, managed and executed by the Internal Revenue Service (the IRS, and the second one is the State system (i.e. each US State has its own income tax law, some States do not impose income tax at all). Because the LLC is a disregarded entity (also known as Pass Through entity) the income tax on the company s profits is the responsibility of the LLC s members (owners). When the LLC members are non - US-residents (some or all) the LLC may have to withhold income tax from the members profits and send the funds to the IRS /State on behalf of the member. Each member then must file a personal tax return, report his/her portion of the LLC s profits and calculate the actual tax on it and deduct from his tax liability the tax that was already withheld by the LLC on his/her behalf. If any tax is due, the member must pay it, otherwise if there is an overpayment of tax, a refund to the member will be due. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Sales tax Sales tax is imposed on each taxable sale transaction (similar to Value Added Tax, VAT). Each US State has its own sales tax law and some States do not sales tax at all. In most states, Sales tax is imposed on a company if it has Nexus in that State. Nexus means that the company has business presence in the state, in shape of employees, offices, representatives, warehouse, or other for of activities. If indeed the company is deemed to have Nexus in a specific State, than sales to end -users (i.e.

17 customers who do not buy the products to resell it) located in that state will be taxable for Sales tax purposes. Sales to resellers located in the State or sales to any customer located outside of the State. An LLC can have Nexus in more than just one State, and then, it will be subject to the sales tax of each Nexus State. To make sure your LLC is in compliance with all various tax laws, please refer to a CPA. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Franchise tax or Property tax Many States impose franchise or Property tax on the company s Gross Revenue, Capital or Assets used in the State. This tax is designed to allow the LLC to keep its legal status and continue to do business within the State s borders. In most States this tax is due once a year and is calculated as a percentage of the base (Gross Revenue, Capital or Assets used in the State). Which taxes will be subject to if I open Inc? There are several types of taxes that your Corporation may be subject to: Income tax, Sales tax and Franchise tax or Property tax. Income tax is a tax imposed on the company s earnings (profits or taxable net income). Income tax: In the U.S. there are two tax systems running in parallel. The first one is the Feder al system, managed and executed by the Internal Revenue Service (the IRS, and the second one is the State system (i.e. each US State has its own income tax law, some States do not impose income tax at all). In addition to the income tax paid by the corporation on its profits, each Shareholder is subject to additional income tax, on any funds he/she receives from the corporation as dividend distribution. When the shareholders are non-us-residents (some or all) the corproation may have to withhold income tax from the shareholders dividends and send the funds to the IRS /State on behalf of the member. Each shareholder then must file a personal tax return, report his/her portion of the Corporation s Dividends and calculate the actual tax on it and deduct from his tax liability the tax that was already withheld by the company on his/her behalf. If any tax is due, the shareholder must pay it, otherwise if there is an overpayment of tax, a refund to the member will be due. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Sales tax Sales tax is imposed on each taxable sale transaction (similar to Value Added Tax, VAT). Each US State has its own sales tax law and some States do not sales tax at all. In most states, Sales tax is imposed on a company if it has Nexus in that State. Nexus means that the company has business presence in the state, in shape of employees, offices, representatives, warehouse, or other for of activities. If indeed the company is deemed to have Nexus in a specific State, than sales to end -users (i.e. customers who do not buy the products to resell it) located in that state will be taxable for Sales tax

18 purposes. Sales to resellers located in the State or sales to any customer located outside of the State. An Corporation can have Nexus in more than just one State, and then, it will be subject to the sales tax of each Nexus State. To make sure your Corporation is in compliance with all various tax laws, please refer to a CPA. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Franchise tax or Property tax Many States impose franchise or Property tax on the company s Gross Revenue, Capital or Assets used in the State. This tax is designed to allow the Corporation to keep its legal status and continue to do business within the State s borders. In most States this tax is due once a year and is calculated as a percentage of the base (Gross Revenue, Capital or Assets used in the State). Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S related penalties. Which taxes will be subject to if I open S. Corporation? There are several types of taxes that your S. Corporation may be subject to: Income tax, Sales tax and Franchise tax or Property tax.. Income tax is a tax imposed on the company s earnings (profits or taxable net income). Income tax: In the U.S. there are two tax systems running in parallel. The first one is the Federal system, managed and executed by the Internal Revenue Service (the IRS, and the second one is the State system (i.e. each US State has its own income tax law, some States do not impose income tax at all). Because the S. Corporation is a disregarded entity (also known as Pass Through entity) the income tax on the company s profits is the responsibility of the S. Corporation s Shareholders (owners). When the S. Corporation members are non-us-residents (some or all) the S. Corporation may have to withhold income tax from the shareholders profits and send the funds to the IRS /State on behalf of the member. Each shareholder then must file a personal tax return, report his/her portion of the S. Corporation s profits and calculate the actual tax on it and deduct from his tax liability the tax that was already withheld by the S. Corporation on his/her behalf. If any tax is due, the shareholder must pay it, otherwise if there is an overpayment of tax, a refund to the member will be due. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Sales tax Sales tax is imposed on each taxable sale transaction (similar to Value Added Tax, VAT). Each US State has its own sales tax law and some States do not sales tax at all. In most states, Sales tax is imposed on a company if it has Nexus in that State. Nexus means that the company has business

19 presence in the state, in shape of employees, offices, representatives, warehouse, or other for of activities. If indeed the company is deemed to have Nexus in a specific State, than sales to end -users (i.e. customers who do not buy the products to resell it) located in that state will be taxable for Sales tax purposes. Sales to resellers located in the State or sales to any customer located outside of the State. An S. Corporation can have Nexus in more than just one State, and then, it will be subject to the sales tax of each Nexus State. To make sure your S. Corporation is in compliance with all various tax laws, please refer to a CPA. Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Franchise tax or Property tax Many States impose franchise or Property tax on the company s Gross Revenue, Capital or Assets used in the State. This tax is designed to allow the S. Corporation to keep its legal status and continue to do business within the State s borders. In most States this tax is due once a year and is calculated as a percentage of the base (Gross Revenue, Capital or Assets used in the State). What are the tax rates for US corporations and LLCs? Please note that this is not a tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with us of any of the matters addressed herein or for the purpose of avoiding U.S. tax related penalties. Corporate Income Tax Rates Taxable income over Not over Tax rate $ 0 $ 50,000 15% 50,000 75,000 25% 75, ,000 34% 100, ,000 39% 335,000 10,000,000 34% 10,000,000 15,000,000 35% 15,000,000 18,333,333 38% 18,333, % Personal Service Corporations Personal service corporations are subject to a flat tax of 35% regardless of their income. Personal Holding Company Personal holding companies are subject to an additional tax at 15% (higher in 2002 and prior years) on any undistributed personal holding company income. (Code Sec. 541)

20 Accumulated Earnings Tax In addition to the regular tax, a corporation may be liable for an additional tax at 15% (higher in 2002 and prior years) on accumulated taxable income in excess of $250,000 ($150,000 for personal service corporations). (Code Sec. 531) Tax Rate Single and Non-US-Resident Taxpayers Taxable income: Tax: Over But not over Tax +% On amount over $ 0 $ 8,700 $ $ 0 8,700 35, ,700 35,350 85,650 4, ,350 85, ,650 17, , , ,350 43, , , , ,350 Tax Rates--Married Individuals Filing Joint and Surviving Spouses Taxable income: Tax: Over But not over Tax +% On amount over $ 0 $ 17,400 $ $ 0 17,400 70,700 1, ,400 70, ,700 9, , , ,450 27, , , ,350 48, , , , ,350 Tax Rates--Married Individuals Filing Separate Taxable income: Tax: Over But not over Tax +% On amount over $ 0 $ 8,700 $ $ 0 8,700 35, ,700 35,350 71,350 4, ,350 71, ,725 13, , , ,175 24, , , , ,175

21 Tax Rates--Heads Of Households Taxable income: Tax: Over But not over Tax +% On amount over $ 0 $ 12,400 $ $ 0 12,400 47,350 1, ,400 47, ,300 6, , , ,050 25, , , ,350 46, , , , ,350 Tax Rates--Estates And Trusts Taxable income: Tax: Over But not over Tax +% On amount over $ 0 $2, $ 0 2,400 5,600 $ ,400 5,600 8,500 1, ,600 8,500 11,650 1, ,500 11, , ,650 Long-Term Capital Gains and Qualifying Dividends For taxpayers in the 10% or 15% bracket--0% For taxpayers in higher brackets--15% Tax on unrecaptured Sec gain--25% Capital gain rate on collectibles--28% I am not a US person; can I pay my tax in my home country and not in the US? If your company generates profits from U.S. source, it will be subject to U.S. tax (Federal and / or State). The law defines what is U.S. source income, but in general, if the company you are running has U.S. employees, U.S. office, U.S. warehouse, U.S. sales agent and representatives, and if you solicit orders in