Foreign companies regularly invest in the U.S.  It is a complex transaction, yet well worth it. The U.S. has the largest consumer market in the world with over 333 million residents and a robust economy.  It has a gross domestic product (GDP) of $25 trillion and as such is an excellent option for foreign direct investment.1 There is no doubt that the U.S. is open for business.  It is an excellent location to expand operations. Depending on the part of the country one selects, foreign entrepreneurs may benefit from legal protections and lower tax rates when they bring their companies to the U.S.  There are many other reasons as well.

A. The American Advantage: Key Reasons Foreign Companies Invest in the U.S.

Foreign companies invest in the U.S market for a myriad of reasons. Each reason offers its own unique advantage for business growth and global expansion. Some of the main reasons include:

1.  Access to a Large Market:  As noted above, the United States has one of the largest consumer markets in the world. By establishing operations in the U.S., foreign companies can access a vast customer base and tap into the purchasing power of American consumers that have a considerable range of spending power.
2. Business-friendly Environment: The U.S. is known for its business-friendly policies, including a relatively stable regulatory environment, strong legal protections, and respect for intellectual property rights. These factors create a favorable climate for foreign investment and business operations.
3. Innovation and Technology: The U.S. is a global leader in innovation and technology across various industries. Foreign companies may move their operations to the U.S. to be at the forefront of technological advancements and benefit from the expertise and research conducted in the country.
4. Skilled Workforce: The U.S. boasts a highly skilled and diverse workforce, attracting companies seeking qualified professionals in various fields. The availability of talent in sectors such as technology, finance, healthcare, and engineering can be a significant draw for foreign companies.
5. Access to Capital and Investment Opportunities: The U.S. has well-developed financial markets and a robust venture capital ecosystem, providing foreign companies with opportunities to secure funding and invest in further growth.

   World Bank national accounts data, United States Data (last visited July 26, 2023), https://data.worldbank.org/country/US.

6. Infrastructure and Logistics: The country’s extensive infrastructure network, including transportation and communication systems, facilitates efficient supply chain management and distribution, making it easier for companies to operate smoothly.
7. Research and Development: The U.S. hosts many prestigious research institutions and universities, fostering a culture of innovation and offering foreign companies access to cutting-edge research and development opportunities.
8. Political Stability: The U.S. has a stable political system and a long history of respecting the rule of law, which can provide foreign companies with a sense of security and predictability for their long-term investments.
9. Tax Incentives and Benefits: Some states and regions in the U.S. offer tax incentives, grants, and other benefits to attract foreign investment and encourage job creation, making the U.S. an appealing destination for expanding businesses.
10. Global Expansion: For companies looking to expand their operations globally, establishing a presence in the U.S. can serve as a strategic gateway to North and South American markets.

It’s essential to remember that the decision to move operations to the U.S. is influenced by a combination of these factors, and each company’s unique goals and industry-specific requirements will play a significant role in determining the final choice. Additionally, the business landscape is constantly evolving, so it’s crucial for foreign companies to conduct thorough research and seek professional advice before making such a significant decision.

B. Location, Location, Location: Selecting a U.S State for Your Company

The primary question most foreign companies have when they come to the U.S. is what is the most tax advantageous state for them?  Historically, there are several U.S. states that have been known to offer attractive tax breaks and incentives to foreign companies to encourage investment in their economies. However, it’s important to note that state tax policies can change over time due to various economic and political factors. Therefore, be sure to verify if there are any additional changes with each state’s official economic development agency or consult with a tax professional. Here are some states that have historically given favorable tax treatment to foreign investment:

1. Texas: Texas is known for its business-friendly environment, and it does not have a state income tax. Additionally, it offers various tax incentives and abatements for foreign companies looking to invest in industries such as manufacturing, renewable energy, and technology.
2. Florida: Florida has no state income tax, making it an attractive destination for businesses. It also offers incentives in sectors including aerospace, biotechnology, and clean energy.
   
   Texas Taxes & Incentives (last visited July 26, 2023), https://businessintexas.com/why-texas/taxes-incentives/
   Florida Dept. of Revenue, Florida Tax Incentives for Businesses (last visited July 26, 2023), https://floridarevenue.com/taxes/taxesfees/Pages/tax_incentives.aspx.

3. Nevada: Nevada is another state that does not impose state income tax, making it appealing to businesses. It also provides tax abatements and credits to encourage investment in certain industries.
4. Tennessee: Tennessee offers tax credits for businesses creating jobs and investing in the state. It has been particularly attractive to foreign companies in the automotive and advanced manufacturing sectors.
5. Georgia: Georgia provides various tax credits for job creation, investment in research and development, and investment in certain industries like film production and manufacturing.
6. North Carolina: North Carolina offers tax credits, grants, and other incentives for businesses involved in research, development, and certain industries such as biotechnology and aerospace.
7. Utah: Utah offers tax credits and incentives for businesses investing in various industries, including aerospace, defense, and renewable energy.
8. New York: New York provides a range of tax incentives and credits for businesses, particularly in high-tech industries and designated economic development zones.
9. Louisiana: Louisiana offers tax credits, abatements, and exemptions for businesses investing in industries such as manufacturing, digital media, and technology.
10. South Carolina: South Carolina has various tax incentives and credits for businesses investing in research and development, manufacturing, and renewable energy.

While tax breaks and incentives are important considerations, there are other factors to weigh when deciding on a location for foreign direct investment. These include workforce availability, infrastructure, industry clusters, market access, and overall business climate. It’s essential to conduct thorough research and seek advice from experts to make an informed decision.

Governor’s Office of Economic Development, Nevada Incentives (last visited July 26, 2023), https://goed.nv.gov/programs-incentives/incentives/

Transparent Tennessee, Tax Incentives (last visited July 26, 2023), https://www.tn.gov/transparenttn/state-financial-overview/open-ecd/openecd/openecd-tax-incentives.html

Georgia Department of Economic Development, Tax Credits (last visited July 26, 2023), https://www.georgia.org/competitive-advantages/incentives/tax-credits

NC Department. of Commerce, Grants & Incentives (last visited July 26, 2023), https://www.commerce.nc.gov/grants-incentives.
Governor’s Office of Economic Opportunity, Business Incentives (last visited July 26, 2023), https://business.utah.gov/business-incentives/.

Empire State Development, Tax-Based Incentives (last visited July 26, 2023), https://esd.ny.gov/tax-based-incentives
Louisiana Economic Development, Business Incentives (last visited July 26, 2023), https://www.opportunitylouisiana.gov/business-incentives

SC Department of Commerce, Incentives & Taxes (last visited July 26, 2023), https://www.sccommerce.com/why-sc/incentives-taxes

C. Bringing a Business to the U.S.

The United States is the world’s leading recipient of foreign direct investment. As noted above, the U.S. market is highly competitive. When a business moves its activities to the U.S., it will have some key areas to address. It will need to research, select, and register the business, set up bank accounts, appoint a registered agent, and manage immigration issues.

The Business Formation Process

Foreign entrepreneurs have several options for their business structures. There are about 17 different entity structures from which to choose, regardless of the state selected. The most common entity structures are C-corporations, S-Corporations, and limited liability companies (LLCs). Both structures create separate legal entities and protect the owners’ personal assets from any business liabilities. There are some key differences between these three:

1. C-corporations (C-Corp): This is a business structure in which owners or shareholders, are taxed separately from the entity. A C-Corp is a legal structure in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation. C-corps can accept investor funding and be traded publicly. A C corporation may be a good option if the business plans to accept foreign investment or other funds. However, C corporations are subject to corporate taxes and shareholder taxes on dividend income.
2. S-Corporation: An S corp or S corporation is a business structure that is permitted under the tax code to pass its taxable income, credits, deductions, and losses directly to its shareholders. That gives it certain advantages over the more common C corp, The S corp is available only to small businesses with 100 or fewer shareholders, and is an alternative to the limited liability company (LLC).
3. A Limited Liability Company:  A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.

While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of a partnership rather than a corporation. LLCs offer comparable liability protection but have looser compliance rules. With an LLC, a company can opt to pass-through profits and losses or be taxed as a C corporation.

After deciding on a business structure, the business must designate a registered agent, attain a taxpayer identification number, and open company bank accounts.

Registered Agents

The business then needs to select a registered agent or partner with a registered agent services company to open the business in the U.S.

The state where you form your business must recognize your registered agent, who will handle correspondence if and when you live outside the country. 

Paying Taxes and Opening Bank Accounts

Foreign entrepreneurs do not have U.S. social security numbers, so they must apply for individual taxpayer identification numbers (ITINs) to conduct business and pay taxes.12 You will need your ITIN, passport, company formation documents, and physical business address to set up a business bank account. If you do not have an ITIN, a helpful alternative is to work in conjunction with a U.S. citizen who is also an owner or trusted manager in the company.  That trusted individual or owner could provide their social security number to open the company.  Working with a U.S. corporate lawyer is helpful in following federal and state requirements.

After meeting all these requirements, you can legally conduct business in the United States.  Next, you will want to consider the ways you can enter the country.  When you are a foreign investor that wants to come to the U.S. for longer periods, you must also consult immigration counsel to determine which investor visa is the best fit for your situation and business expansion plans.

In conclusion, the U.S. market offers numerous opportunities to increase the profitability of your company. If you want to bring your business to the  U.S. or learn more about foreign investment, contact our attorneys at Gonzalo Law LLC. We would be happy to answer your questions.

IRS.gov, Individual Taxpayer Identification Number (08-Mar-2023), https://www.irs.gov/individuals/individual-taxpayer-identification-number.