The Foreign Citizen’s Guide to Starting a Business in the US

The United States doesn’t bar foreign citizens from establishing businesses in the US. In fact, at first glance, it may seem easy for a foreign citizen to do so – in general they need merely follow the same procedure as a US citizen.

However, there are a myriad of factors that can stymie a foreign business owner. There are issues of immigration visas, international tax issues, and the decision of where would be the best place to establish your enterprise. Once you have a handle on these three, you can begin the process of establishing your business in the United States.

Immigration Visa

When people hear the word “immigration” they frequently think of permanent residence or new citizenship. This is not the case. Immigration also refers to short to long term “passes” for foreign citizens, which may come with single to multiple entries.

Many foreign investors wish to retain the citizenship of their own country but still be permitted to regularly visit or stay for long periods of time in the United States while overseeing their business.

However, the United States has a complicated immigration process. In fact, many attorneys in the United States who practice immigration law only practice immigration because of how deeply specialized and nuanced it can be. Because of this, it is wise to seek consultation from a US immigration attorney to who can establish what visa will work best for you and guide you through the process.

As a foreign business owner you will likely apply for a B-1 visa (short term business visa).

Taxation

Even though you may not be a citizen of the US if you’re involved in a business you’ll still be taxed like one.

The Internal Revenue Service is the US government entity that oversees taxation. The IRS has stated that a nonresident alien who is engaged in a trade or business in the US during the year must file a tax return. Beyond this, you may still owe taxes under international tax regulations or to your country of citizenship.

Location

In the United States, location matters. The US is governed by two sets of law, federal and state. And State law significantly influences business incorporation and management. Beyond this, the statistics of a city should be carefully analyzed for potential growth and opportunities as well as obstacles. It can be difficult for new business owners to find the ideal location for their business or branch because of just how varied states are from one another, and the problem becomes even more complex when cities are taken into consideration.

Below are three examples of cities in three different states, all of which are great candidates to start a new business or branch, but vary in desirability based on industry.

Seattle, Washington, for example, has become a hub for tech-based businesses (including Microsoft) and it has no shortage of educated, skilled, and innovative potential-employees. However, Seattle is approximately 25% more expensive than the average US city and minimum employee salaries are $13 per hour, with a rise to $15 expected in 2021.

For those seeking to create a business that is rooted in education, arts, tourism, or financial services then Sarasota, Florida may be the ideal city. The cultural industry drew revenue of $2.6 billion USD in 2015 and the cost of living is a little lower than average. The city is also anticipated to become a growing hub for e-commerce.

Charlotte, North Carolina, however, is perhaps the ideal state for those seeking to get involved in health-care, banking, or retailing. The city is also notable for having a nonprofit called Business Innovation and Growth Council, which seeks to support entrepreneurship by helping small businesses connect with resources in order to foster growth.

Because of the nuance involved it is key to carefully research the location of your new enterprise.

Establish your business

With these three major obstacles out of the way, the next matter is how can you actually create your business?

The process is not dissimilar from a US citizens and, in fact, it’s a process that shares many similarities with establishing a business in China.

The first question to ask is what type of corporate entity you want to establish. The two major types are corporations and limited liability companies.

What type of business entity?

A corporation is an independent legal entity owned by shareholders and is generally suggested for established, larger companies with multiple employees. If you are seeking to establish a branch of your firm, for example, a corporation may be ideal. The corporation model shields it shareholders from business debts and the actions of the corporation, as corporations may be sued. However, the tradeoff is that the corporation is an entity that is double taxed. First at the entity level and then at the shareholder level. In terms of tax, the IRS considers global income, not just US revenue.

The second entity discussed here is the limited liability company. An LLC, as it’s known, is a hybrid entity that provides certain features of a corporation and a partnership, another form of business entity. An LLC can be preferable because investors may only lose as much as they invested (and no more), but the business entity doesn’t receive the double taxation that a corporation does.

 

What state will you incorporate in?

As discussed above, your location matters. Not only because of opportunities and obstacles but because you will need to incorporate in that state and follow that state’s process. To incorporate in the state of California, for example, you will need to mail all relevant paperwork to the Secretary of State.

What industry will you you be working in?

Your industry can influence the type of licenses and permits the state you incorporate in requires. For example, a law firm would need a license to practice law, among a myriad of other permits and licesnes which are required by nearly all businesses. Such as a land use permit and a business license.

Other considerations

It is important to note that in order to open a bank account, secure a business license, obtain loans, hire employees, and pay taxes you will need an Employer Identification Number. An EIN must be applied for through the IRS.

Starting Your Business in China: The Essentials

Starting a business in China can be a difficult task, filled with nuance and knots, which can be a culture shock for US citizens who might be used to the more straightforward process of business formation. For that reason, it’s always best to go in prepared for the opportunities and obstacles, preferably with an agent who knows the legal and cultural hurdles that are unique to China.

Beyond that, a bare bone checklist for someone starting a business in China should be: industry, city, renting an office, business entity, your five-year plan, documents for registration, registering your intellectual property, getting a bank, and finally hiring staff in China.

Industry

Right off the bat, you should be aware that China is one of the more restrictive countries to do business in. Certain industries, like forestry and financial services, are more protected than others, as was discussed in this article.

For that reason, you have a better opportunity to best position your business for success by checking out the Chinese government’s Five-Year Plan to see what sort of industries the Chinese government is seeking to promote. The Chinese government is also seeking to open the market and certain industries to more foreign investors under its Third Plenum Decision, which will hopefully have gone into full effect by 2020.

The vast majority of industries still remain open to foreign investors and business owners.

City

One of the most important (and necessary) considerations for your business is where it will be.

Additionally, geological positioning is of utmost importance. China has three major political and industrial centers: Shanghai, Beijing, and Guangzhou. Depending on your industry, some of these cities are better than others. Shanghai is well known for its manufacturing of communication equipment, automobiles, electronics, steel products, petrochemicals, and biomedicine. Beijing is well known for its pharmaceuticals and electronic industries, and is one of the leaders in bio-engineering and information technology. Guangzhou, which has been ranked as the best city to begin a business in mainland China, manufactures all sorts of items, from car parts to toys.

Renting an office

Once you’ve establish the type of business you’ll be setting up, and the city, you will need to rent an office. An office address is essential element when registering your business. But be cautious and ensure that the space your renting in is zoned for the type of business you are planning.

Business entity

Next, before beginning the registration process, you will need to consider what sort of business entity to register under. Similar to business incorporation in the United States, China has certain categories businesses may fall under. In China, the entity types a foreign business owner may register under are: joint ventures, representative offices, and wholly foreign owned enterprises.

The differences between these entity types, with their pros and cons, could easily occupy their own article. For this reason, only a short comparison will be provided.

A joint venture is typically regarded as the best business entity to register under, and the one most likely to be approved. However, it requires a partnership between your foreign business and a Chinese citizen. However, many business owners fail to carefully vet their Chinese business partners, to ensure similar values and long term plans, which can lead to significant hardship down the road. And because the Chinese business owner is on his “home turf”, so to speak, it’s more likely that if a case between the two should ever be litigated the Chinese business arises the Chinese partner will win.

Representative offices are a low-cost, generally entity but come with the handicap of significantly limiting what sort of industries you can be in and what sort of business actions you can take. A representative office exists essentially to do as its name suggests – to represent your foreign business in China. Thus, you can’t provide services or products, or generate revenue.

The wholly foreign owned enterprise (WFOE) comprises the majority of foreign businesses in China and makes up 75% of American investment in China. However, though it may be commonplace, WFOE are very complicated to set up, more likely to be closely scrutinized by the Chinese government, and requires a minimal capital investment that must be put into a Chinese bank. This amount will vary depending on the industry your business is in and the city where it will be located.

What’s your five-year plan?

Once you’ve determined what sort of entity you’ll attempt to register your business under, you will need a five-year plan. It’s essential that you approach this plan carefully because once it’s approved you are only allowed to work within the guidelines of that plan. If you deviate from it, for example by trying to offer a service or product that’s not within the plan, you can be shut down. For this reason, broad strokes may be better, but the safest road is to get receive professional consultation as the government still expects a level of specificity. A professional can help ensure that you’re hitting the spot just right.

Documents for registration

Next, you’ll need to get the necessary documents in place. The documents you’ll need will vary depending on what sort of entity you’re registering as, and where you’ll be registering. However, be prepared to be flexible. There are countless stories of foreign business owners who brought in the proper documents but are then asked to produce other information, ranging from how businesses might work in the United States or to provide proof that you really have the knowledge to produce a good or provide a service. It is always better to just do as the government official asks. There is little to be gained in trying to tell them it is not necessary.

Intellectual Property

Now that you’ve registered your business, one of your next biggest concerns should be your intellectual property. Intellectual property law is still a sector of law that is in a state of great flux in China but there have been many cases within recent years which have showcased how difficult it can be for even the largest foreign businesses to protect their well-known intellectual property.

Your bank

You will also need a bank now that you have a business registered in China. There plenty of reputable banks, including Bank of America if you’re looking for a familiar face. As a US business owner, you may find that you it is more beneficial for you to choose a bank that already has established ties with the United States, as it grants easier tracking of your money and overall transparency.

Hiring staff in China

Eventually, you will want to start hiring staff. Chinese labor laws are distinct from US laws and should be considered carefully before rushing into any major decisions when it comes to employees. This ranges from hiring, to employee contracts, to termination. An employee contract and employee mutual are essential for hiring in China.