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Are You Thinking of Doing Business in the US?

April 13, 2016

Real Estate Advisor    

This is a guest blog developed by Kingston Smith’s Monika Gajek. Gajek serves the UK-based accounting firm as an International Business Development Executive with a focus on the transatlantic corridor.

For many individuals, entrepreneurs and companies it’s about achieving and living the ‘American dream’. Being successful in the US is well on the way to being successful globally. To what extent is this true, and how easy is it to ‘crack’ America?

On 9 March, Kingston Smith hosted a seminar on doing business in the US in collaboration with Marks Paneth, Select USA and AnalogFolk, where we talked about the tax and law implications, shared experiences and learnt more about the opportunities there are in the US.

First and foremost, as a UK company, you really need to think about the time and cost of opening your operations in the US, and when is the right time for this. For many companies they see that they need to be close to their customers in order to be successful in the US – the time zone isn’t the only challenge.

If you are pitching for that ‘big’ contract with global brands, and you are not in the US it will be very tough to win. The US is the biggest local market; with that comes many competitors, all vying for the same work. So it is important to know exactly what you want to achieve before you even consider setting up in the US.

A common misconception is that the UK-US business culture is similar. Aside from a small variation of the English language they are actually very different. This isn’t just true for the US as whole, as the jurisdiction in each state is very different. It is important to understand the local market you are targeting, and adjust your marketing, website, approach, price and pitch accordingly.

Okay, so let’s say you want to take the plunge and go for it, then what next? As a UK company you really need to understand the US taxation system. The US doesn’t follow one single taxation model like the UK – 20% corporation tax across the UK. Instead, each state will have their own state tax and sales and use tax as well as federal taxes, making it a very important to know where in the US you want to do business.

Having the right business structure is also vital to your success, and there are many options to consider such as LLCs, C corporations, LLPs and many more. Choosing the right structure will have many implications for the tax you pay, your shareholders and your investors – especially if you are looking to raise finance in the US.

This right structure isn’t just important for your initial entry, but also on how you plan to grow (organically, through acquisition, or a combination?) and even exit the country.

One of the things that I haven’t touched on yet is employment. The employment culture and laws are very different in the US vs. in the UK.  Particular care is required if you wish to engage contractors rather than employees.   There are upsides to having contractors but make sure you don’t fall into the trap…as many of the big brands have done so recently.

Getting these points right the first time will save you a lot money, time and effort in the long run. As a result, it is imperative for your legal and financial/tax advisers in the US and UK to work together – remember, you as the UK owner must remain in control.

As AnalogFolk mentioned in their presentation, it took them three years to really be operational and up and running in the States but when you get there it is worth it. They now have offices in New York, Portland, Sydney and Hong Kong – they truly are a global company and the hard work seems to have paid off. They certainly think that opening in the US was worth it.

 

Monica

Monika Gajek is an International Business Development Executive at Kingston Smith with specific responsibility for growing business on the North America – UK business corridor. Monika is responsible for identifying and guiding North American based-companies looking to expand their business footprints in the UK market. She can be reached at mgajek@kingstonsmith.co.uk.
Posted in Global Start-Ups: Unique Tax IssuesTagged emerging growth companies, Global Start-up Companies, Marks Paneth, tax planningLeave a comment    
NY State QETC: Tax Savings Opportunity for Emerging Tech Sector Investors.
Posted on April 1, 2016    
Screen Shot 2016-04-01 at 1.21.23 PM    

For investors looking at emerging tech sector companies based / doing business in New York State there are four letters that can spell potential tax savings: QETC. This stands for Qualified Emerging Technology Companies.

However these emerging technology companies must first be certified as a QETC by the NY State Department of Taxation and Finance – before the tax credits can be claimed by investors; and that qualification process can be complicated.

Screen Shot 2016-04-01 at 1.12.52 PMStarting back in 1998 NY State began to offer business tax credits to help attract and encourage the development of business in the Empire State, including investments in next-generation technology companies.

WHAT’S AVAILABLE:

    The credit is available for investors (a corporation, individual, partnerships, etc.) in QETC qualified companies who own 10% or less of the QETC can be eligible for a capital credit (reduction of tax) amounting to:

10% of a qualified investment if the investor certifies that the QETC is to be held for more than 4 years, and not to exceed $150,000.

20% of a qualified investment if the investor certifies that the QETC is to be held for more than 9 years, and not to exceed $300,000.

    Qualified investments do not include investments made by or on behalf of an owner of the QETC, including, but not limited to a stockholder, partner, sole proprietor, or any related person as defined in section 465(b)(3)(C) of the Internal Revenue Code.

    An owner of the qualified emerging technology company means an entity that owns more than a 10% interest in a QETC.

The percent ownership in a certified QETC is determined based on the following:

    The number of share of stock issues and outstanding.
    The contribution of property to a partnership, or
    Similar contributions in the case of a business entity not in corporate or partnership form.

There is also a employment tax credit component of the QETC tax laws for emerging tech companies. It is worth $1,000 for each new full-time job, over and above a three-year employment base (average) available for qualifying QETC companies. This tax credit is available for up to three years.

NY State Department of Taxation and Finance

WHICH EMERGING TECH COMPANIES CAN QUALIFY FOR QETC STATUS?

The first step: Emerging Tech Company QETC Qualification.

    In order for the investor to file for / obtain the QETC Capital Credit – the company itself must first be certified as a Qualified Emerging Technology Company by the Commissioner of the NYS Dept. of Taxation and Finance (Form DTF-620) and meet the following criteria:

    The QETC Company must own or rent real property in New York State used for its product and services, and

    Must have annual product sales of $10 million or less, and

    Qualify under category 1 or 2 as follows:

    A QETC is defined as an Emerging Technologies company whose primary products or services are classified as emerging technologies including, but not limited to the following:

    Advance materials and processing technologies.
    Engineering, production or defense technologies.
    Electronic and photonic devices and components.
    Information and communication technologies, equipment and systems that involve software and hardware, visualization technologies and human interface technologies.
    Bio-Technologies.
    Re-manufacturing Technologies.

OR

    It has research and development (R&D) activities in New York State and its ratio of R&D funds to net sales equals or exceeds the average ratio for all surveyed companies as determined by the NYS Tax Department.

Note the second type of qualification is used less frequently among emerging technology companies in New York State.

HOW DO INVESTORS / EMERGING TECH COMPANIES GET THE QETC TAX CREDIT?

For the capital tax credit, investors should file Form DTF-622 (Claim for QETC Capital Tax Credit) with the New York State Department of Taxation and Finance.

For the employment tax credit, emerging tech companies should file Form DTF-621 (Claim for QETC Employment Tax Credit) with the New York State Department of Taxation and Finance.

NY STATE QETC INVESTOR TAX SAVINGS OPPORTUNITY ADVICE:Screen Shot 2016-04-01 at 1.24.46 PM

Seek out a qualified NY State-based CPA to make sure all the QETC criteria are met, the tax credits are properly calculated, and that all the the correct NYS tax forms are filed in a timely basis.