Many international entrepreneurs see incorporating in the USA as a big challenge. In fact, incorporating in the USA is not that difficult – actually, it’s a pretty simple and straightforward process. The fact that you’re foreigner does not have an effect on the incorporation process – incorporating for a USA resident is the same as it is for you. The fees for incorporating in the US are not that high either; it shouldn’t cost you more than few hundred dollars to incorporate (this largely depends upon the state in which you decide to incorporate). You also may need a bank account, virtual office and mail forwarding address.
Part of the incorporation process in India is obtaining a Digital Signature Certificate – there’s no such thing in the USA. You do not have to prove your identity in any way – this is often surprising to international entrepreneurs, but this is how it works in the USA.
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Deciding which state to form your company in
USA has 50 states and each state can decide what their fees for incorporation will be, what documents they require, or what and how high the state taxes they set up are. You have probably heard about Wyoming, Delaware or Nevada before. These 3 states are considered to be the most friendly states not only for incorporation, but for doing business in as well. Fees for incorporation are very low as well in Wyoming and Delaware. Unfortunately, Nevada may have believed that its fees were too low when the state increased these fees drastically.
Let’s discuss these 3 states briefly so you’ve got better idea of what they offer.
Wyoming
Incorporation in Wyoming is the cheapest and easiest option. It has no corporate income tax for companies, no franchise tax and also very low yearly fees. Along with Delaware this is the best choice for international entrepreneurs.
Delaware
Delaware is very popular for startups that are seeking venture capital because of great corporate structures, a court that specializes in corporate affairs and other advantages this state offers. It has a franchise tax and is slightly more expensive than Wyoming. More than a half of all Fortune 500 companies are incorporated in Delaware.
Nevada
Nevada has no franchise tax or state corporate income tax. However, as we mentioned earlier, Nevada recently drastically increased its fees for incorporating. For example, this state requires that you obtain a State Business License – something that doesn’t even exist in DE or WY. The fee for this is $500 for C-Corporations and $200 for LLCs. Nevada, however, still maintains its position as business friendly state and, if you don’t mind higher fees, it is a good choice for incorporating as well.
Taxes
Companies in the USA have to pay taxes both on the federal and state level. These taxes are are not significant while your income remains low (under $100.000). Federal taxes are same for all 50 states and they vary from 15% -39% depending on your income. The state taxes, however, are under the control of each state. Some states have very high corporate income taxes and some states, like Wyoming, have no corporate income taxes at all.
C-Corporation or LLC and EIN
Most common company types in the US are C-Corporation and LLCs. The biggest difference between them is the way they are taxed. You can have LLC taxed as a C-corporation and vice versa – you choose these options when asking for EIN (Employer Identification Number) which is used for tax purposes. LLCs are pass-through entities – income is passed to its owners who are taxed on their individual income taxes, however, there are no taxes at the corporate level. There are also differences in the documents that they must complete to effectuate formation. You may also heard about S-Corporations – this type of company requires its shareholders to be US-residents.
US Bank account
Your company will also need a bank account. Opening a bank account in the US from abroad is difficult and often requires good contacts in banks. The best solution is to travel to the US and open a bank account for your company in person – just don’t forget to bring stuff like the Articles of Incorporation with you. It’s a good idea to get in touch with a bank representative before your journey so that you travel to the US fully prepared.
Registered agent
A registered agent costs around $100 a year. This is where the court will send documents in the instance that you are sued. Your registered agent will forward these documents to you. Don’t worry, nobody is expecting you to be sued, however, each company must have a registered agent.
Virtual office & mail forwarding
You will need to have an address in the US and mail forwarding or virtual office are the right choices. Your mail forwarding provider, like poboxzone.com which provides this service in the 3 most popular states – Wyoming, Nevada and Delaware will collect your mail, scan it, and upload it to your account so that you can view your mails wherever you are. Plans start at $99 a year. Having virtual office pays off when opening a bank account as banks want you to provide a more stable address than a PO BOX. Virtual office can cost you around $500 a year. When using virtual office, you should get a lease agreement, which is often enough for banks to allow you to open a bank account.
Conclusion
Now you have a pretty good understanding of how incorporation in the US works. If you have any questions or you decided to from a US company, contact IncParadise which specializes in incorporating US companies. We have experience forming companies, even for foreign residents, and understand what is important when it comes to incorporating as well as problems that may occur.
Disclaimer: This informative article has been bought to you in partnership with IncParadise, a company that helps in company incorporation in the US
