By Cliff Ennico
“Hello. I am a permanent resident in Slovenia and I have been a loyal follower of your column and your YouTube channel. I want to set up a Web-based service business but I will need a U.S. company and address for payments and correspondence. What is the best way to do this legally?”
Setting up a business in the U.S. requires several steps when you are not a U.S. citizen or “green card” holder. Here is what most foreign residents need to do to operate legally here:
First, Get an ITIN. An Individual Tax Identification Number (ITIN) is an identification number, similar to a Social Security Number, for people outside the U.S. who for one reason or another need to pay federal income taxes here. This number will be issued to you individually, not to your company.
There are two ways to obtain an ITIN. The easiest way is to visit the nearest U.S. Consulate in your home country and apply for the ITIN in person. You will need to bring with you a copy of your passport or another identification card with your photo on it, and the Consulate officials will need to make photocopies of that document. You should receive your ITIN within two to three weeks.
The other way is to fill out IRS Form W-7 (available as a download from www.irs.gov), and mail it to the IRS along with a photocopy of your passport. The form is a tricky one, as it sometimes requires you to include a copy of the tax return you need to file. Since you are not currently in business in the U.S., you are not required to file a tax return here as yet and will have to explain in detail why you need an ITIN. Even if the application is properly filled out, you may have to wait two to three months to get the ITIN.
Choose a State for Your Business Location. In most countries, forming a corporation or business entity is simple: you register with the national Companies Registry, which is usually located in your nation’s capital city, and then can operate your company anywhere in your home country.
In the United States, corporations are formed at the state level, not the national level. You will have to form your corporation in a particular state, and then register in additional states if and when your corporation opens branch offices there. Choose a state with low taxes. For a list of states showing the corporate income tax rates they charge, go to http://taxfoundation.org/article/state-corporate-income-tax-rates-and-brackets-2016. Keep in mind also that many states also charge sales taxes when you sell goods or services to residents of that state.
Find a Local Accountant or Lawyer. You should hire the services of an accountant or lawyer in the state where you will set up your company. For a directory of accountants you can search by ZipCode, go to www.accountantsworld.com/directory-list. A similar directory for lawyers can be found at www.findlaw.com or www.martindale.com.
The accountant or lawyer you choose should be familiar with setting up corporations and complying with state tax laws.
Establish a Business Address. You have several options here. Your accountant or lawyer may be willing to let you use his or her address as your business address in the U.S., or may appoint a corporate “registered agent” service to receive and forward to you any mail they receive from U.S. government agencies.
You can also rent a post box from the U.S. Postal Service (www.usps.com/manage/po-boxes.htm) or a “private mail box” at one of the many UPS Stores around the country (www.theupsstore.com). Your accountant or lawyer should have access to this box so they can forward mail to you as necessary.
Form a Corporation. It is recommended that you form a regular corporation (sometimes called a “C” corporation) for your U.S.-based business. There are other ways to incorporate in the U.S., but they are merely “pass throughs” for tax purposes and may require that taxes be withheld when the company makes distributions of profit to you. Some, like the “S corporation,” are not available for foreign ownership.
Because C Corporation profits and losses do not flow through to its owners, foreign owners will not need to file U.S. personal income tax returns.
Register for Federal and State Taxes. Once the corporation is formed, your accountant or lawyer will register the entity for federal, state and local taxes. Your ITIN will need to appear on all registration forms, along with a separate EIN (Employer Identification Number) which your accountant or lawyer will obtain for your corporation.
One last thing: if you are planning to become a U.S. citizen or “green card” holder at some point, show this column to a lawyer specializing in immigration matters (for a directory, go to www.ailalawyer.com) and let them set up your company to comply with the rules governing the type of immigrant visa you will be applying for.
Cliff Ennico (firstname.lastname@example.org) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2016 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Follow him at @cliffennico.