Do you want to start a business in USA as a foreigner? If YES, here are the legal requirements for starting a business in USA successfully for non-citizens. The United States is the world’s main national economy and second largest economy in the world. This is based on the purchasing power parity (PPP), signifying 22% of nominal global GDP and 17% of gross world product (GWP).
Experts have estimated The United State GDP to be $17.914 trillion. Also, the U.S. dollar is the currency most used in international dealings and is the world’s leading reserve currency. There are countless people who throng the United States every year to do business.
Furthermore, numerous countries of the world use it as their official currency, whilst for others it is the defacto currency. Yet another reason why you should consider doing business in the united states is the fact that there is the existence of a mixed economy that has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment.
Conversely, there are countless business ideas that you can act on in order to make good money from this country. Every day more than ever before, millionaires are being made. A tiny though that has been developed into a business idea have gone ahead to make people popular and well known all around the world. You too can become that millionaire if you start a trade.
How to Start a Profitable Business in USA as a Foreigner
Table of Content
- 1. Decide which business type is right for you
- 2. Decide where to form your business
- Top 5 Cities to Do Business
- 3. Get a Registered Agent
- 4. Register your LLC or S-Corporation
- List of Legal Documents You Need
- 5. Get an EIN
- 6. Get a US mailing address
- 7. Open a US business bank account
- 8. Open a business merchant account to accept payment from customers
- 9. Get business insurance
- 10. Get an ITIN
- 11. Understand your tax responsibilities and file your taxes
- 12. Keep your business and personal bank accounts separate
- 13. Maintain company and pay annual fees on time
- 14. Make sure you’re complying with city or county requirements
1. Decide which business type is right for you
Before you can start your business, you have to first of all decide what type of business would suit you better considering your conditions. This decision is important because the kind of business you choose influences everything you do, from day-to-day operations to taxes, to how much of your personal assets are at risk and lots more. The business types you can choose are as follows, LLC, C-Corporation, sole proprietorship, S-Corporation etc.
An LLC is the most common (and typically most recommended) business type in United States (especially if you’re a non-US resident). The LLC protects your personal assets from business debts and lawsuits. LLC also has a pass-through taxation which means your earnings just pass through to your personal income taxes. This means that accountants don’t have to file a separate tax form for the company, which saves on costs.
C-Corporation is another business type you can form. If you’re a US resident, you should definitely not do a C-Corporation, instead you should select S-Corporation. However, if you’re a non-US resident, you should consider forming a C-Corporation. Corporations are better for investors because investors can passively hold shares without having to worry about tax consequences until they sell them again sometime down the road.
Sole proprietorship is the simplest business type and it does not require any formal filings. This is usually suitable for small businesses but the drawback is that you will take personal liability for all your business matters if you’re a sole proprietorship.
2. Decide where to form your business
If you are a United States citizen, it goes without saying that you should form your LLC or Corporation in the state where you are located.
Top 5 Cities to Do Business
Whilst it is okay to do business generally in the United States of America, there are however some cities and states that have an edge over others because of the very favorable conditions they offer. Different businesses have gone ahead to be borne here and they have birthed other businesses as well. Here is a list of top 5 best cities to do business in America;
- Columbus, Ohio
- Denver, Colorado
- Des Moines, Iowa
- Salt Lake city – Utah
But if you are a non-US resident and you do not plan to have physical presence in the US, then you are free to start your business in any state you like, but it is most recommended that you start your business in Wyoming, as it is said to be the best and most business-friendly state for non-US residents.
The top 5 reasons why Wyoming is the best for non-US residents are:
- No US citizenship requirements (you can be a non-US citizen and form your LLC in Wyoming)
- Cheaper annual report fee ($50/year in Wyoming vs $300 in Delaware)
- More privacy (members nor managers are not listed with the state)
- No state, personal, corporate, or capital gains taxes
- More foreigner-friendly laws
If you have a Wyoming LLC, you can operate your business and live anywhere in the world; you also do not have to be a US citizen to incorporate in Wyoming.
You should equally note that if your non-US company operates in more than one US state, you may have to incorporate in any of these states, but you must also register to do business in the other states through a process called Foreign Qualification.
3. Get a Registered Agent
LLCs and Corporations are required to have a Registered Agent with a physical address during normal business hours to receive important documents on behalf of the business. This agent must be located in the state where you register, and he is to receive official documents on behalf of your company. Many business owners prefer to use a registered agent service rather than do this role themselves as it saves them a lot of inconvenience.
4. Register your LLC or S-Corporation
After you’ve decided which business type is right for you, and after you’ve decided in which state you should form your business in, then you should look to register your LLC or S-Corporation by filing the necessary documents.
How long it takes to register your LLC or Corporation depends on which state you are doing business in, and this process can take anywhere from 1 business days to 4 weeks, depending on which state you form your business entity in and how long the Secretary of State takes.
List of Legal Documents You Need
- Certificate of Incorporation
- Business Plan
- Non-Disclosure Agreement (NDA)
- Insurance Policy
- Contract documents
- Patent or Copyright registration
- Operating Agreement
- Business License
5. Get an EIN
EIN is a Tax ID number issued by the U.S. Internal Revenue Service (IRS) to identify a business. Your business EIN is very important as it can help you to do the following;
- Open a U.S. business bank account
- Start a business
- Apply for business permits and licenses
- Hire employees
- File taxes
If you are a US citizen and you have a Social Security Number (SSN), you may apply for your EIN using IRS’s online website. But if you are not a US citizen, it is recommended that you get a business lawyer to act as your third-party designee and apply for your EIN on your behalf.
6. Get a US mailing address
Most U.S. banks also require a mailing address or residential address for opening a bank account. You can provide your business address if you have a business address in United States. But if you don’t have a U.S. address, there are some companies that can help you get a business address in the United States. They include;
- Sasquatchmail.com (from $29/month)
iPostal1.com (from $10/month)
USAMail1.com (from $10/month)
PhysicalAddress.com (from $8/month)
TravelingMailBox.com (from $15/month)
EarthClassMail.com (from $69/month)
These companies scan your mails and send you an email. You can either view your mails online or forward those mails to any other international address no matter where you live. Please note that before you can use their service or forward mail in your mailbox, you may need to submit Form 1583 from the United States Postal Service (USPS) to authorize these services to open your mails on your behalf.
7. Open a US business bank account
Up till recently, businesses have been allowed to open a business bank account from any part of the world, but that fact is no more obtainable now. You have to come to United States and visit the bank in person to open a bank account today. You can start processing your business bank account once you have gotten your EIN.
You are advised seriously that you should never allow anybody to open a business bank account on your behalf. If you find someone or a company offering this service, be aware that you could be victim of fraud. Here are some of the documents you need to present before you can open a business bank account in the United States;
- EIN letter from the IRS
- Copy of Articles of Organization
- Ownership Agreements (Operating Agreement if it’s an LLC)
8. Open a business merchant account to accept payment from customers
Merchant services accounts allow you to accept credit and debit card transactions from your customers. The most popular options for opening up a merchant account are:
- Stripe.com (does not require a SSN, all you need is an EIN )
Payoneer.com (great for non-US residents)
Paypal.com (requires SSN which most non-US citizens do not have)
9. Get business insurance
Another area you need to look at when opening a business in the United States is business insurance. Business insurance protects you from the unexpected costs of running a business. You have to speak to insurance agents to find out what kinds of coverage makes sense for your business, and compare terms and prices to find the best deal for you.
Some of the business insurance that you have to look out for include; General Liability Insurance, product liability insurance, professional liability insurance, commercial property insurance, home-based business insurance, and business owner’s policy.
Note that you may not need all these insurance policies and you may equally need more than these. This is why you need to get an insurance consultant to help you check the variables at hand. Again, you may have to shop around a bit for you to get the best deals in the market.
10. Get an ITIN
ITIN stands for Individual Tax Identification Number, and you need to get this if you are a non-US citizen without a social security number (SSN). ITIN is a personal tax ID number issued by the IRS to individuals who are required to have a U.S. taxpayer identification number but who do not have a Social Security number (SSN).
You need an ITIN to:
- Open a U.S. bank account (Personal and Business) (all U.S. banks require SSN or ITIN to open a bank account)
- File tax return if you owe taxes
- Comply with any U.S. federal tax withholding requirements if you’ve earned income in the U.S.
- Provide it to an employer to help get a job
- Apply for a mortgage loan and finance a car
- Apply for an apartment rental
- Open a Paypal or Stripe account which require an ITIN to accept payments
With an ITIN you will be able to open a U.S. bank account, file tax returns, and comply with the IRS if you don’t have an SSN.
11. Understand your tax responsibilities and file your taxes
For you to run a successful business in the United States, you have to comply with your taxes and make sure you file them on time. It is strongly recommended that you consult with an accountant to ensure that you file your taxes on time and to set up payroll, if needed.
Previously, foreign-owned single-member LLCs enjoyed an exemption from US tax reporting requirements. However, starting with the 2017 tax year, LLCs that are wholly owned by foreign persons and did not elect to be treated as corporations for tax purposes, are subject to new IRS reporting requirements.
All foreigners who own a US LLC must file a 5472 US tax return with the IRS for disclosure purposes even if they do not owe tax in the US. The deadline is April 15 for LLCs that use the calendar year.
12. Keep your business and personal bank accounts separate
If you do form an LLC or S-Corporation, you must make sure to keep your business and personal accounts separate. Keeping your business assets separate from your personal assets can help ensure that your LLC or Corporation is solely liable for its debts and liabilities, and that you and other members are protected.
If you don’t maintain this financial separation, you risk losing the liability protection that your LLC or Corporation provides. This is why this step has been provided as one of the steps to set up a business in the United States.
13. Maintain company and pay annual fees on time
If you do not maintain your LLC or Corporation according to U.S. law, and pay your annual fees, you risk having your personal liability protection pierced, putting your personal assets at risk.
For non-U.S. residents trying to find out how to start a business in USA, compliance with the law is absolutely essential to avoid visa, immigration and tax problems. Most states have some form of an ongoing cost for having an LLC or Corporation, so make sure you understand these fees and dues and pay them on time.
14. Make sure you’re complying with city or county requirements
Even though you have complied with state laws to form your LLC or Corporation, you need to also contact the city or county where your LLC is located to determine if you need any business license or permit.
You should understand that if your business is an LLC or Corporation, you might need to file for licenses and permits from the county or city. Some counties and cities also require you to register your DBA — a trade name or a fictitious name — if you use one.
Local governments determine registration, licensing, and permitting requirements, so visit local government websites to find out what you need to do. Also, you may need to get a federal license or permit if your business activities are regulated by a federal agency. All these processes should be taken seriously when setting up your business in the United States, to ensure you do not run into problems when you finally set up the business.
Possible Threats and Challenges You Will Face in USA
- Low context culture
- Complex Tax system
- Legal complexities of international business
- Cultural Barriers
- Difference in Marketing Styles
Business Licenses and Permits You Need
For you to start a business in America, .you will need federal and state business licenses and permits. However, there are basic and most common licenses and permits that all businesses need. Without these licenses you risk being clamped down on by the authorities involved in the execution of business laws in America. They include the following;
Fire department permit
You should get a permit from your fire department if your business uses any flammable materials or if your premises will be open to the public
Air and water control permit
Check with the state environmental protection agency regarding federal or state regulations that may apply to your business.
Check regulations and secure the written approval of your landlord, before dabbling into having a sign designed and installed.
County governments frequently need the same types of permits and licenses as cities. As such, if your business is outside any city or town’s jurisdiction, these permits apply to you
Sales taxes differ by state and are compulsory at the retail level. It’s vital to know the rules in the states and localities where you operate your business because if you’re a retailer, you must collect state sales tax on each sale you make.
This costs around $25 and differs depending on the size of the business and the amount and type of equipment you have. The health department will want to inspect your facilities before issuing the permit.
List of Government Agencies That are In-charge of Registering Businesses and Issuing Licenses and Permits
In different countries of the world, there are various licensing bodies. The United States of America has its own bodies that are saddled with the affairs of business permits and licensing. They see to it that before a business fully commences trade, they have to be well licensed.
Here is a brief list;
Farm Service Agency (FSA)
This is a United States Department of Agriculture agency and it was merged with numerous forerunner agencies, including the Agricultural Stabilization and Conservation Service (ASCS). The ASCS was, as the FSA is now, mainly saddled with the application of farm conservation and regulation laws around the country. The Administrator of FSA reports to the Under Secretary of Agriculture for Farm and Foreign Agricultural Services.
The Food Safety and Inspection Service (FSIS)
This body is an agency of the United States Department of Agriculture (USDA). It is the public health regulatory agency accountable for safeguarding that United States’ commercial supply of meat, poultry, and egg products is safe, wholesome, and correctly labeled and packaged. It is also accountable for the safety of public food-related establishments as well as business investigation.
The SBA is a body that is saddled with the responsibility of bringing together innovative entrepreneurs, corporations, universities, foundations, and others to increase the prevalence and success of America’s entrepreneurs.
The Food and Drug Administration (FDA)
This body is a federal agency of the United States Department of Health and Human Services. The FDA is in charge of protecting and endorsing public health through the regulation and supervision of food safety, tobacco products, dietary supplements, prescription and over-the-counter pharmaceutical drugs (medications), vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devices (ERED), cosmetics, animal foods & feed, as well as veterinary products
Inland Revenue Service (IRS)
The Inland Revenue service is a very important parastatal of the United States federal government. The government agency is a bureau of the Department of the Treasury, and is lower than the immediate direction of the Commissioner of Internal Revenue. The IRS is answerable for collecting taxes and the administration of the Internal Revenue Code. It has also overseen various benefit programs, and enforces portions of the Affordable Care Act.
Lists of 10 Well Known Foreign Brands Doing Business
- Lucky Strike Cigarettes – England
- Budweiser – Germany
- Vaseline – England
- Good Humor – England
- Hellmann – Germany
- Purina – Switzerland
- French’s – France
- Frigidaire – Sweden
- Popsicle – England
- 7-Eleven – Japan
- Samsung – Japan
List of 10 Well Known Indigenous Brands Doing Business
- Google Incorporated
- United Parcel Service
- American india Movement Portland Chapter
- Apache Services Incorporated
- Blue head Tequila LLC
List of 10 Most Popular Entrepreneurs
- Steve Jobs – Apple
- Mark Zuckerberg – Facebook
- Larry Page – Alphabet, Google Incorporated
- Henry Ford – Ford Motor Company
- Larry Ellison – Oracle
- Donald Trump – Trump Organization
- Robert Kiyosaki – The Rich Dad Company
- Sam Walton – Wal-Mart
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