Start-ups Coming to the US

November 12, 2015 | Download PDF

Testing the Waters in the US -- Taxable Presence or Not?

Emerging companies coming to the US are faced with myriad of tax and reporting obligations that carry substantial penalties for noncompliance. This checklist covers the issues and helps you prepare for the tax requirements your startup will encounter.

• I travel everywhere what is my tax status in the US and why is it important?

• My home country has a tax treaty with the US. What activities are my UK-based company allowed to perform in the US without becoming subject to federal tax?

• How about state tax?

• How about indirect state tax?

Be careful, because…

• A change from US non-resident status to US resident status subject you to potentially significant additional taxes and carries substantial information filing requirements.

• A non-US enterprise that has a PE and does not file a federal return will lose the right to take deductions and credits against income effectively connected with US trade or business.

• Filings are required to claim the benefit of treaties.

• $10,000 penalties are imposed for each failure to file a number of information returns, even if no tax needs to be paid.

• Books and records of the non-U.S. enterprise may be subject to inspection at the federal or state level.

• Failure to collect state sales tax may carry with it “personal liability” for the responsible party.

Establishing a US Corporation:

• Which company shall be the parent and which shall be the subsidiary?

• Which company(ies) should own my intellectual property?

• Should a fee be charged for transactions occurring between/among the related companies in the group, i.e. parent and subsidiary?

• What type of revenue streams are generated by the business model?

• Will there be double tax on income

• How is the subsidiary capitalized? Debt and/or Equity?  

• Will we hire employees?

Be careful, because…

• Intellectual property in the US cannot be transferred to a non-US entity without tax costs.

• If the transfer pricing methodology is not developed in an advanced and documented contemporaneously:

• Penalties exist for substantial valuation misstatements (20% of tax) and for gross valuation misstatements (40% of tax).

• Penalties are readily given for companies who mislabel employees as independent contractors

Operations – Managing Tax Requirements in a US Corporation:

• What is required for both the company and the employees if stock options are used as compensation?

• How do I handle my tax planning/filing/compliance obligations?

  • How do I avoid unlimited future tax risks?

  • How do I avoid paying other people’s taxes?

  • How do I avoid paying tax twice on the same income?

  • How do I avoid the tax traps?

  • How do I avoid raising red flags?

  • Are there tax benefits that I can obtain?

How Do I Handle?

• Daily Operations:

  • Payroll, unemployment taxes, withholding and benefits.

  • Bookkeeping, accounting, budgets and management reporting.

  • Sales use tax and personal property tax filing.

• When do I need a Compilation, Review or Audit?

IRS Circular 230 Disclosure:

Treasury Regulations require us to inform you that any Federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

FOR MORE INFORMATION

If you have questions, please contact Jeanne Goulet, Senior Consultant, by phone at (212) 710-1816 or by email at jgoulet@markspaneth.com.