How to Start a Business in the USA as a Foreigner

The United States, holding 13.5% of the global GDP, ranks second only to China in its share of global revenue. This, coupled with its robust economy, makes the U.S. a prime destination for foreigners seeking to capture the elusive “American dream” often portrayed in the media.

It’s no surprise that many foreign entrepreneurs aspire to USA company formation. However, the country’s strong economy and high market demand are just the beginning. Non-residents who establish businesses in the U.S. can not only tap into this lucrative market but also benefit from favorable tax rates and enhanced legal protections.

The good news is that neither citizenship nor residency is required to start a small business in the United States, and the formation process is simpler than you might think. Here’s a step-by-step guide to help you get started.

1. Choose Your Business Structure

As a non-resident, you primarily have two options for your business structure: the C Corporation and the Limited Liability Company (LLC). Both offer unique advantages, so let’s explore these options to help you decide which one suits your needs.

C Corporations
A C Corporation is a separate legal entity from its owners and shareholders, which means that personal assets are protected from the company’s liabilities. Profits and losses are also confined to the corporation itself. Moreover, you can sell an unlimited amount of stock or shares and even take the company public if desired. This structure is particularly attractive to investors, making it a strong choice if you plan to expand and need outside funding.

However, C Corporations come with some drawbacks, including more paperwork, additional compliance requirements, and the possibility of double taxation—where both the corporation and its shareholders are taxed on profits.

Limited Liability Companies (LLCs)
LLCs provide similar liability protection to that of a C Corporation but with fewer compliance burdens. Owners, known as members, have the flexibility to choose how they want the LLC to be taxed, either as a corporation or by passing profits and losses directly to the owners.

2. Choose the State for Formation

As a non-resident, you have the freedom to form your business in any U.S. state. Popular choices include California, Delaware, Nevada, Texas, and Wyoming.

To make an informed decision, consider factors such as the state’s business environment, access to resources, and the cost of doing business. Some states have high tax rates, while others offer tax incentives to attract new businesses. Research thoroughly to find the best location for your venture.

3. Obtain a Registered Agent

A registered agent is an individual or company authorized by the state to receive legal documents on behalf of your business. This agent must reside in the state where your business is formed and must be available during normal business hours to receive important notices and official correspondence.

As a non-resident, having a registered agent within the U.S. is crucial to ensure that your business remains compliant with state regulations and that you don’t miss any important deadlines.

4. Obtain a Taxpayer Identification Number

Every U.S. business must have a Taxpayer Identification Number (TIN), which is used by the Internal Revenue Service (IRS) for tax purposes. As a foreign entrepreneur without a Social Security number, you’ll need to apply for an Individual Taxpayer Identification Number (ITIN) instead.

To obtain an ITIN, you must complete IRS Form W-7 and provide documentation to prove your foreign status and true identity.

5. Set Up a Business Bank Account

Managing your business effectively in the U.S. requires a U.S.-based bank account. While opening a bank account as a foreigner has become more challenging due to regulations like the USA Patriot Act, it is still possible with the right documentation. Typically, you’ll need your official business formation documents, an ITIN, and a passport.

Although visiting a bank in person is the preferred method for opening an account, you may also explore options with banks that have branches in your home country or consider online services offered by global banks.

6. Maintain Business Compliance

Once your business is up and running, ongoing compliance is key. Both C Corporations and LLC company registration in USA are required to file an annual report to keep the state updated on key information such as your business address, registered agent, and shareholders. Even if there are no changes from the previous year, this report must be submitted annually.

As a non-resident business owner, you will also be required to pay taxes on any income earned in the U.S., and some states may impose an annual fee for maintaining your business entity.

7. Moving to the U.S. to Manage Your Business

If you decide that relocating to the U.S. is necessary to properly manage your business, there are visa options available. The E-2 and EB-5 visas are two popular choices for foreign entrepreneurs.

The EB-5 visa is available to those who invest at least $1 million (or $500,000 in targeted employment areas) and create 10 new jobs. The E-2 visa is available for business owners from treaty countries and has fewer requirements in terms of job creation and investment.

To qualify for the E-2 visa, you must demonstrate legitimate control and possession of funds, oversee the business directly, and make a substantial investment.

Conclusion

Starting a business in the United States as a foreigner offers numerous opportunities but requires careful planning and a clear understanding of the legal and regulatory landscape. From choosing the right business structure to navigating compliance requirements, each step is crucial to your success. By thoroughly researching your options, staying informed about U.S. regulations, and seeking professional advice when necessary, you can establish a strong foundation for your business and position it for growth in one of the world’s most dynamic markets.