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How to incorporate a US Corporation from outside the USA?

blog.freshdesk.com

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Re: How to incorporate a US Corporation from outside the USA?

#31

Post by nikcub »

skyhook_mockups wrote: post #25
inopinatus wrote: post #18

This is a lot of effort to go to just gain the ability to handling recurring payments in USD[1]. I considered a similar path, since here in Australia we are very similarly constrained[2]. However I was not willing to accept the risk and complexity of incorporating in an unfamiliar legal/financial jurisdiction and I really don't feel the OP has made me any more comfortable although they seem flush about it. Since I ha…

I'm also from Australia and have recently gone through the process of getting a merchant account (from St.George bank). From stories I heard in the past, I was expecting a horrible experience (banks not being able to grok the concept of digital goods etc). Turns out that either the stories were a furphy or banks have gotten a lot better. Here's the process I went through. 1. Application 2. Set up a single page websit…

Things have certainly improved in Australia. When I first applied for a merchant account for a startup over 10 years ago the guys at ANZ sent out a sales person to our office who bought along a range of EFTPOS (debit card) terminals to demo.

When we clarified that we required online payments, he chuckled and said 'oh, no way we do that, it is far too dangerous'.

He then proposed a compromise solution where we collect credit card numbers and then punch them manually into the terminal to process payments.

We ended up incorporating in the USA.

Re: How to incorporate a US Corporation from outside the USA?

#32

Post by yashchandra »

yashchandra wrote: post #3

One thing to note. The blog writer Girish already had lived in the US before and had a social security number without which I do not think you can get a federal EIN. So if you have never been to the USA, you cannot have a social security number and which means you cannot incorporate? I will stand corrected if someone has better information.

Ok thanks all. So you can possibly get an EIN using an agent. But I am sure that you cannot incorporate certain entities such as S-corp (which I own btw). But good learning otherwise.

Re: How to incorporate a US Corporation from outside the USA?

#33

Post by robryan »

skyhook_mockups wrote: post #29
robryan wrote: post #27

Earlier quoted context omitted.

As long as you can get away without multi currency transactions. We had a founder in the US so made it easier to incorporate there and get a multi currency merchant account. Only issue is the fees, which are driving us to incorporate in the UK to get a decent GBP rate. Stripe/ Pin are great but still don't solve multi currency, Pin is offering USD and AUD, haven't seen any rates from them yet though.

Are multi-currency payments an issue when selling abroad? I'm totally new to receiving online payments and am genuinely curious about the issues surrounding accepting only a single currency. As an Australian consumer I'm used to paying in USD and simply seeing a slightly different amount show up on my transaction history (AUD being generally at parity with USD) Is having multi-currency support important? Does it impa…

To an extent you are right, you can probably get away without it.

I think it helps with localised branding. Sure we are really just one website, with one shipping location (and we aren't hiding this fact). But displaying GBP prices and charging people exactly that price, in the currency they are used to, without any international transaction fee popping up makes a difference.

This, along with creating a local phone number and physical address, gives the customers a better feeling that you are localised to their country.

Of course we haven't actually tested this both ways to see what the difference would be.

Re: How to incorporate a US Corporation from outside the USA?

#35

Post by rprasad »

yashchandra wrote: post #32
yashchandra wrote: post #3

One thing to note. The blog writer Girish already had lived in the US before and had a social security number without which I do not think you can get a federal EIN. So if you have never been to the USA, you cannot have a social security number and which means you cannot incorporate? I will stand corrected if someone has better information.

Ok thanks all. So you can possibly get an EIN using an agent. But I am sure that you cannot incorporate certain entities such as S-corp (which I own btw). But good learning otherwise.

You cannot incorporate an S-Corporation if you are not a U.S. individual taxpayer (i.e., a flesh-and-blood person who is a citizen or permanent resident of the U.S.).

Re: How to incorporate a US Corporation from outside the USA?

#36

Post by rprasad »

Just a few thoughts on the tax consequences based on a cursory look at the OP's post...

- It appears that the OP will be subject to at least a 15% withholding rate on dividends paid from the US Corp to the Indian parent in addition to the U.S. corporate income taxes paid.

- All IP and IP rights are owned by the U.S. corporation, which will make a future IP migration offshore very expensive. As in, minimum six-figures expensive (possibly even into 9 figures). This could be a serious deterrent to foreign acquirers. IP should be held offshore to the extent possible. Note that holding the IP in the U.S. also has implications for future expansion, as it prevents the use of the most cost-favorable transfer pricing arrangements.

- Worldwide income is subject to U.S. taxation. Their costs will not scale with their income, which will make this very expensive. (U.S. income taxation is preferrable to foreign jurisdictions only if costs scale with expenses, because special deductions or credits in the U.S. tax code can lower the effective tax rate below 10% or even 0%).

Incorporating in the U.S. is easy. The hard part is getting a tax-efficient structure. The OP's structure is not tax-efficient. This will not matter as long as they do not have profits, but it will haunt them once they start having serious earnings or start receiving serious acquisition offers.

Re: How to incorporate a US Corporation from outside the USA?

#37

Post by rprasad »

Negitivefrags wrote: post #16
andycroll wrote: post #2

I'm not super clear on the tax implications of this and they aren't mentioned... any insights?

If you only have a US company, then it can pay salary to workers in other countries and have those workers pay local tax. I think that your country has to have a Double Tax Agreement for that to work. The US company pays US corporate tax. If you want the money to be funnelled to a company in your local country then you need a set up a Transfer Pricing Agreement. This basically means that your local company charges th…

Transfer pricing requires you to pay market-based rates for services actually rendered by foreign related companies. This generally means the foreign company's costs in performing the service plus a profit percentage.

The percentage is determined based on a "Transfer Pricing Study" of related service companies in the foreign jurisdiction (or region, depending on the industry).

Tax authorities are very quick to challenge transfer pricing arrangements, especially those arrangements lacking documentation of how the percentage was selected. (The agreement will do nothing to help you in this regard. The % is what matters in proving that the relationship could have been formed between unrelated companies.) If the TP arrangement is disregarded, the money paid to the foreign company will be recharacterized. The danger is that the income will be treated as passive dividend income, rather than as "active" income. The distinction between active and passive can affect applicable tax rates, offsets, and other tax consequences.

Many accounting firms and even some law firms will provide transfer pricing studies for relatively low cost, but expect to pay low-to-mid 5 figures.

Re: How to incorporate a US Corporation from outside the USA?

#38

Post by rprasad »

Negitivefrags wrote: post #16
andycroll wrote: post #2

I'm not super clear on the tax implications of this and they aren't mentioned... any insights?

If you only have a US company, then it can pay salary to workers in other countries and have those workers pay local tax. I think that your country has to have a Double Tax Agreement for that to work. The US company pays US corporate tax. If you want the money to be funnelled to a company in your local country then you need a set up a Transfer Pricing Agreement. This basically means that your local company charges th…

Also: Negativefrag's structure has two companies: a New Zealand parent which owns a U.S. subsidiary. Presumably, the IP is held in the NZ company rather than the U.S. subsidiary.

In the OP's post, Freshdesk only has a single company, located in the U.S. It will be (relatively) expensive for Freshdesk to transition to a multi-entity structure that can take advantage of transfer pricing in the way that Negativefrag's company has.

Re: How to incorporate a US Corporation from outside the USA?

#39

Post by inopinatus »

skyhook_mockups wrote: post #25
inopinatus wrote: post #18

This is a lot of effort to go to just gain the ability to handling recurring payments in USD[1]. I considered a similar path, since here in Australia we are very similarly constrained[2]. However I was not willing to accept the risk and complexity of incorporating in an unfamiliar legal/financial jurisdiction and I really don't feel the OP has made me any more comfortable although they seem flush about it. Since I ha…

I'm also from Australia and have recently gone through the process of getting a merchant account (from St.George bank). From stories I heard in the past, I was expecting a horrible experience (banks not being able to grok the concept of digital goods etc). Turns out that either the stories were a furphy or banks have gotten a lot better. Here's the process I went through. 1. Application 2. Set up a single page websit…

Ok, but to the topic at hand - are you able to bill directly in USD with St George without the buyer wearing the exchange risk and overseas transaction fee?

I ask because merchant accounts denominated in AUD are widely available, but for USD it still appears that only the NAB have multi-currency support.

Re: How to incorporate a US Corporation from outside the USA?

#40

Post by inopinatus »

skyhook_mockups wrote: post #29
robryan wrote: post #27

Earlier quoted context omitted.

As long as you can get away without multi currency transactions. We had a founder in the US so made it easier to incorporate there and get a multi currency merchant account. Only issue is the fees, which are driving us to incorporate in the UK to get a decent GBP rate. Stripe/ Pin are great but still don't solve multi currency, Pin is offering USD and AUD, haven't seen any rates from them yet though.

Are multi-currency payments an issue when selling abroad? I'm totally new to receiving online payments and am genuinely curious about the issues surrounding accepting only a single currency. As an Australian consumer I'm used to paying in USD and simply seeing a slightly different amount show up on my transaction history (AUD being generally at parity with USD) Is having multi-currency support important? Does it impa…

To put it simply, yes. Americans will run a mile if you're billing in currency other than USD. You're looking ca. 80% drop in conversion rate. Approximation is not an option, it's all about perception.

Whereas the ROTW is pretty much accustomed to being billed in USD online and the impact is far lower.

For me, for my market, AUD+USD are mandatory and optionally GBP/EUR are a strong plus.

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