Even if your business is not incorporated in the US and does not have a branch operating there, you may have ECI if you’re using a US agent to sell products or services in the US. If this applies to you, you should review the arrangements you have in place with the agent in order to determine whether the ECI criteria is met and the tax returns have to be filed.
Before you do anything, and especially before you start generating revenue, you should consider what the optimal entity classification is for your business. The default categorisation of your business for US tax purposes may be different from the categorisation in the jurisdiction where your business is established. For example, a Limited Liability Partnership outside the US, may be treated by default as a Corporation in the US.
Understanding what the default treatment is for your business will enable you to opt to elect a different classification, if it’s beneficial for you to do tax-wise. This can be done by completing a form on which a box is checked to indicate the entity classification being elected (the so called, ‘Check-The-Box’ election). You should also be aware of the time-limits for making an entity classification election as there can be some negative consequences if an election is made at the wrong time.
As well as getting everything set up correctly, you’ll also need to take care of your annual US tax filings. Non-compliance can be costly in terms of penalties for failure to file or for filing inaccurate tax returns. Sometimes the forms filed to disclose the value of a foreign entity can attract heavier penalties than the tax returns themselves. You should deal with any historic compliance failures as soon as possible and try to stay on top of your annual filing requirements as best you can.
If you’re a US citizen, Green Card holder or a US corporation owning a foreign (non-US) business, the profits of the business may be reportable to the IRS even if all of the business is conducted outside the US, and there may be some tax to pay. We can support you with the often complex tax calculations and help you identify any elections you can make to reduce or eliminate your US tax exposure.
Our US tax experts can advise you and your business on the most tax efficient way to operate in the US, including identifying the optimal entity classification for your business, support with deciding if a Check-The-Box election is right for you and completing your annual US tax filings.
If you’re looking for US tax advice to help meet your business compliance obligations, please fill out the form below and one of our experts will be in touch to discuss your requirements.