In today’s global economy, there may be compelling business reasons for a small business based outside the United States (for example, a company formed under the laws of Germany, France, or Dubai) to establish a U.S. presence.
There are several ways to proceed. For example, the overseas company’s may be able to simply establish a branch office in the U.S. under its own name. Or, it could form a U.S. subsidiary to run its U.S. operations. More exotically, an overseas company may even be able to pull up stakes and transplant itself from its original jurisdiction to the U.S. by “domesticating” as a U.S. entity such as a Delaware or California corporation.
In any situation involving international tax, it is essential to proceed with care by analyzing each alternative carefully. One size definitely does not fit all. While a smaller business may not have the revenue to set up and maintain an “inversion”—i.e., the type of structure used by many Fortune 500 companies to defer tax by establishing an affiliate in a low-tax country—the tax and non-tax consequences of each alternative can be far-reaching.
To a great extent, the tax consequences will depend on the specific terms of the tax treaty between the U.S. and the country in which the company is incorporated. The United States maintains tax treaties with many of its trading partners. These treaties are generally designed to prevent double-taxation by defining each government’s tax policies. However, it is important not to let the tax considerations obscure the big picture of what an overseas company wishes to accomplish.
My practice focuses on the tax consequences to all the above options. If you would like to talk with me more about this topic, please feel free to call me at (925) 217-3255 or email me at jcw@eastbaybusinesslawyer.com. This is just a basic overview and is not legal advice specific to your situation.
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