Doing Business in the U.S. Part 2

If you are doing a substantial amount of business in the U.S., and Permanent Establishment, or Nexus applies to you, then you must carefully consider the best entity to use to do the U.S. business.  There are typically 4 Structures used in the U.S. to do business:

          1. C-Corporations

          2. S-Corporations

          3. Limited Liability Corporations (LLC's)
          4.Trusts

Here are some basic points on each:

C-Corps:

•          Taxed similar to Canadian Corps except dividends are treated different. (no gross up or dividend tax credit)

•          Anyone can own a C-Corp.

S-Corps:

•          You typically have to be a U.S. Citizen or Resident (U.S. Person) to own an S-Corp.

•          With S-Corps there can be no Corporate tax.

LLC's

• These are not advisable for Canadians as there may be a possibility of double taxation

Trusts:

•          Typically are only used by U.S. persons.

•          Trusts can be effective when partnering with a U.S. person

There are more options than what I’ve listed here and there is much to know about each.  You should also consider where to incorporate.  The decision on where to incorporate generally depends on where the corporation does/will do business. If the company is primarily doing business in one state, it is generally recommended that the incorporation should be done in that state. If the company is doing business in several states, you can incorporate in Delaware and file to qualify to do business in the other states the company conducts business in. The company only pays tax in Delaware if it actually is doing business there (there is a nominal annual fee paid to Delaware). The company files tax returns in each state it is doing business generally using the allocation method in which profit is allocated to an individual state based on property, payroll and sales factors.  For companies with no presence in any state, the Delaware Corporation is typically recommended, however it is not the only option. 

This now wraps up our series on Cross Border.  If you have any questions or comments on the blogs, please let me know.  We work closely with Cross Border experts so if we can’t answer your question, they will. In my next blogs we will get back to Canada which is more my expertise.