If you are in the process of making the decision to expand the operations of your Asian company into the US, being equipped with the knowledge to start your US-based company correctly is extremely important. While international expansion of Asian companies is becoming more common, it involves risk. Foreign companies have to face unfamiliar state and federal laws, regulations, rules and business culture and practices. Understanding the analyzing the challenges of doing business in the US will increase chances for success.
The following considerations represent some of the best-practice techniques to reduce the time and effort to adhere to the legal considerations of doing business in the US market and mitigate the risk of variations in business culture:
Reporting and registration requirements
The United States has certain reporting requirements for foreign companies expanding to the US, and failure to comply with these requirements can lead to significant penalties. The reporting requirements depend on the level of investment, but some forms need to be filled and submitted within 45 days after making the initial expansion investment. The Federal Income Tax Return could also have reporting requirements of its own.
Local, state and federal registrations will be required once operations begin. Among these, local and state regulations are unique to respective jurisdictions, so it will be crucial to have knowledge about the requirements of the jurisdiction in the location where you plan to start your business. Certain documentary evidence is required to support business registration.
Corporate and employee taxation
The type of entity an Asian business selects to operate business in the US will determine tax considerations. The most common entities include S-corporation, C-corporation, limited partnership and limited liability company (LLC). Taxes are levied locally by the state, federally by the US Department of Treasury and, sometimes, by the town or city municipality. Corporations such as LLC are treated as tax residents of the country and are subject to state and federal taxes.
When it comes to employees, it is important to understand the payroll taxes in the US tax system. Medicare and Social Security taxes are divided between the employee and employer, but the employee may be able to consider the US Social system if the work terms are temporary: less than 5 years. Foreign employers can reduce some of the complications by going with the option of software that handles complex, multi-jurisdictional payroll taxes on its own. Some software even provide a fully compliant system that adheres to the legal requirements in the US and makes payroll tax processing accurate, easy and quick. ADP.com says this kind of software provides agency approved returns and coupons for over 10,000 thousands of taxing jurisdictions.
Accounting and tax identification numbers
The entity will require an accounting system to maintain its records and books in the US. The nature and scope of the business in the US will determine the needs of the legal software. If the company is expecting fast growth in a short span of time, it would be a good idea to invest in a system from the first business day that can grow with the company, and this will also avoid the cost of retraining employees on new software.
The new business will also need to file paperwork with the IRS to obtain a Tax Identification Number, which will need to be done before a bank account is opened in the US, and payroll is set up.
Written by Jane Brown
