We are a Russian company who wants to start business in the USA. We would like to open a subsidiary (or probably a representative office... which is more convenient?) in one of the states (Washington, Alaska, Oregon), the subsidiary will operate (trading) in the state of Washington. Please, advise us steps to be taken, documents required and recommendations with respect to taxation issue. Can we form an LLC (two members)?
If the detailed reply is not possible, please, let us have the links that might help us.
Thank you very much for your assistance!
Alaska has no state income tax and that is somewhat attractive, however Alaska would be a problem for sales as shipping to the lower 48 states would be prohibitive.
There are other factors suchas having employees on the ground.
However, the biggest factor may be your federal reporting of overseas bank accounts, and other foreign "assets" that the local company might avail itself of.
Repatriation of cash is another issue as there is a withholding tax rule.
The new rules on 6038D are being first reported with this year's tax return date and are much more drastic.
Two member LLC is possible providing that the state does not restrict it for "that type" of business.
The whole question on subsidiary or branch is important in terms of whether you want your home corporation records opened to state taxing authorities. If you want isolation, a fresh start entity funded with a loan from overseas might be the most private option.
sequence might be:
1. select state
2. check LLC applicability there with regard to "trading" or use S-corp if you require more focus on the corporate level. (try to isolate / limit overseas financial connection)
3. Look at shipping and importation (cost issue)
4. Look at transfer pricing (big tax issue) between home country entity and U.S. entity.
5. create expansive operating agreement where 2 members may or may not agree on future events (really expansive agreement for stability in case one of two members wants out)
6. Start the tax reporting (Fbar and 6038D)
7. Get other permits as necessary to fit in.
8. Note that Delaware has an anonymous LLC
9. Think about distribution, consider the level of involvement you will have in the other states (shipping versus actual business within the state) Multi-state tax entanglements will raise the level of cost.
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I do a great deal of work with foreign companies seeking to do business in the United States. First, as to the structure, you can only operate an LLC or a C corporation. As foreign nationals you can hold the equity in either entity.
Second, how will you run the company? Do you envision hiring American employees or will members of the company travel here which, of course, raises issues of visas.
As to taxation, money earned in the U.S. is taxed here. All earnings from an LLC are considered ordinary earned income and taxed accordingly. If there is a tax treaty between the U.S. and Russia, there are some provisions to avoid double taxation. Hopefully Steve Fromm, a tax lawyer who frequently contributes to Avvo, will add some more light on that subject.
We represent businesses throughout the U.S. and would be happy to speak with you. Depending on your long term goals, you may wish to consider organizing in a neutral state like Delaware. On the other hand, the question is how localized will your work be? That is, the decision where to organize should consider factors in addition to the closest venue.
There are numerous other questions to be answered, including the nature of the business of the company. Are you importing goods from Russia or exporting to Russia or elsewhere? What are long term plans, etc.
If you wish I am happy to provide an initial consultation without cost or obligation. If helpful, I also have a lawyer who works with me from time to time currently in Moscow who speaks Russian, should that resource be necessary at any time..
The two previous attorneys gave excellent and detailed replies. I won't repeat the issues that they covered but would like to add:
If you are planning for your subsidiary to trade in Washington state, you should open your subsidiary in Washington state. You will find that simpler than being required to meet requirements in two states. Washington also has no state income tax for individuals, and takes considerable steps to be business-friendly and FDI-friendly. The ports are good, as are the transport links to the rest of the US. I am a Washington state international business attorney, so I am admittedly biased toward my state. (It is hard not to be when Microsoft, Amazon, and Starbucks got their start here, and stayed.)
You asked if you could form an LLC. You can, and here is the link to learn more about it and also to form one online if you would like:
Please feel free to contact me if you need help with establishing your subsidiary.
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