Non-Resident Aliens and Foreign Citizens face three critical issues when they form a business entity in the United States.
1) The Taxation of the Profits from the Business Entity by the U.S. Government.
a. Regardless of the types of Business Entities that can be formed, the U.S. Tax Code poses traps for the not so savvy foreign citizen or non-resident alien business owner. Not only do you have income tax on the profits, which can be as high as 39% in some cases, but you also have Withholding Rules that can cause the business entity to withhold and send to the IRS over 20% of any distributions to its owners.
2) The Potential Taxation of Monies Received from a U.S Business Entity by the Foreign Government where the Foreign Citizen or Non-Resident Alien lives.
a. Every Foreign Country’s Department of Revenue or equivalent Agency looks to tax money on its citizens and residents when possible. If you live outside of the United States, and you receive money from the U.S., it is often subject to the Tax of that county. It can be even worse when you have a Pass-Thru Entity, where the Profit is deemed to be passed to you, but you don’t get the actual cash. Getting taxed on that is really not something you want to have happen to you.
3) Control of the Entity in the United States and Authority to do Business.
a. In a Business Entity, There has to be a person or people who are eligible to make decisions, and sign paperwork. It is all very well to be in another country and be able to make that decision, but who signs the paperwork? How quickly does something have to be done?, and what happens if the Foreign Department of Revenue believes that since you are doing all this work in that country, that the income becomes taxable automatic? Finally what happens if you need to transfer funds and you can’t do it by phone?
All of these are concerns that the Law Offices of Marc J. Miles can help you prevent or avoid with proper planning and management.