The U.S. prides itself on being a nation born of immigrants and entrepreneurs. Opening its doors to foreign nationals seeking to live the American dream is something that continues to this day.
But if you’re looking to start a business in the U.S. as a foreign national or alien, you’ll no doubt have questions. What are the immigration requirements? How do you get started? What tax obligations must you adhere to? Can you get financing from U.S. banks?
While it’s advisable to get the help from trusted experts including lawyers and accountants, here are some basic considerations to get you started.
Can I Start a Business in the U.S. as a Foreign National?
Aside from U.S. citizens or naturalized citizens, individuals with the following immigration status can start a business in this country:
Green Card Holders – Also known as “permanent residents”, green card holders can work, live and study in the U.S. while maintaining their foreign citizenship. They can also join the armed forces and start a business.
EB-5 Investor Green Cards – The EB-5 Immigrant Investor Program is administered by the U.S. Citizenship and Immigration Services (USACE) and enables entrepreneurs, their spouses, and unmarried children under 21 to apply for a green card. Up to 10,000 visas are issued each year. Applicants have to meet very specific criteria including making an investment in a commercial enterprise in the U.S. ($1,000,000, or at least $500,000 in a targeted employment area (high unemployment or rural area) and plan to create or preserve 10 permanent full-time jobs. The process is fraught with pros and cons. Consult an immigration lawyer to understand the full implications of an EB-5 green card. Learn more about getting a green card through investment.
Other Immigrant and Non-Immigrants Visas – The USCIS’s Entrepreneur Visa Guide provides a menu of possible visa pathways for foreign entrepreneurs. Whether you are looking to explore or start a business, or are already in business and want to immigrate permanently, your options are extensive.
Once you’ve found the right visa pathway there are a number of steps to setting up a business in the U.S. If you’re a green card holder, you’ll take the same steps that an American citizen would (check out SBA’s Starting a Business Guide and don’t miss these 10 Steps to Starting a Business).
For everyone else, there are a number of key considerations you should be aware of:
Structuring your U.S. Business
One very important step in getting started is determining how to structure your business. You can choose to operate your business as a sole proprietorship, LLC, Corporation, partnership, or S Corporation.
While the process of incorporation is the same as it is for U.S. citizens and is handled at the state, not federal level, it’s important to understand and get advice about the ownership status and tax ramifications of your chosen entity. For example, an S Corporation is an increasingly popular choice for entrepreneurs, but its shares can only be held by U.S. citizens and resident aliens, while an LLC or C Corporation has no restrictions on non-U.S. citizen owners. This guide offers more insight into the main business entities operated in the U.S. and how to apply.
Establishing a U.S. Business Bank Account
Another key consideration is establishing a U.S. bank account. First and foremost, banks require valid ID. For a U.S. person that’s typically your social security number, driver’s license, passport, etc. For a non-U.S. national you’ll need a tax identification number (more on that below) and a government-issued document bearing a photograph. For a business account, you may also need to produce your articles of incorporation, U.S. business address, and more. Check with your bank to find out more as requirements vary.
Establishing an Online Retail Presence
Establishing an online retail presence in the U.S. is a popular choice for many foreign business owners. U.S. consumers are more likely to purchase from a U.S. ecommerce site than one that’s based overseas. You can read more about general resources for online businesses, including privacy and advertising regulations here, along with specific information on international sales.
Understanding U.S. Taxes
This is where you should most definitely get the advice on a tax practitioner who understands business tax law. Here’s a high level view of your key obligations:
Business Tax Filing and Payments – All non-resident aliens must file and pay state and federal taxes on business income. You will be taxed at regular U.S. corporate rates but only on income from U.S. sources that is connected with that business, and at 30% on income not connected with that business (sourceDownload Adobe Reader to read this link content). Much depends on the extent of the non-U.S. person’s presence in the U.S. The U.S. tax system is complex, so please consult an expert to determine your obligations.
Depending on the nature of your business, you are also obliged to pay sales tax, self-employment, social security, and Medicare taxes, make estimated tax payments, pay excise duties, etc.
The Internal Revenue Service (IRS) guide to Business Taxes can help introduce you to each of these. Check with your state and local government with regards your business tax obligations at that level, including sales tax, income tax, property tax, etc.
Apply for a Tax Identification Number – Most U.S. business (including permanent residents or resident aliens) require an employer identification number (EIN) from the IRS to support tax filing and reporting. This identifies the business entity (think of it as the business equivalent of a social security number). For non-resident aliens, an Individual Taxpayer Identification Number (ITIN) will suffice. The IRS issues these 9-digit tax processing numbers to individuals who are required to pay U.S. taxes but who are ineligible for a SSN, including non-resident aliens.
Getting Access to Financing
Access to capital is essential for small business growth, regardless of the nationality or immigration status of the owner(s). Being a non-U.S. citizen doesn’t preclude anyone from getting capital, although banks may enforce more stringent eligibility requirements so they can be assured you are not a flight risk!
In fact, the SBA oversees a number of small business loan programs that alien-owned U.S. businesses may qualify for, most notably its most popular program – the 7(a) loan program. During the application process, legal permanent residents must evidence their immigration status (usually your valid card) and majority ownership; while non-immigrant aliens or foreign nationals, need to pass more requirements. This includes providing evidence that they have been in business for 12 months prior to submitting the application, assuring an eligible manager will be in place indefinitely, providing a personal guaranty, and sufficiently pledging U.S.-based collateral to ensure that the total value of the loan can be paid back in the event of liquidation for the life of the loan.
Disclaimer: None of the above constitutes legal or tax advice and is not guaranteed. Readers are cautioned not to rely on this information. Please consult a professional for the latest information on immigration, business, and tax law.