Starting a business in the U.S. as a non-citizen

In this article, we delve into the essential considerations and challenges faced by non-U.S. citizen entrepreneurs aiming to start a business in the U.S.

Let’s start by answering the question we raised earlier. Can a non-U.S. citizen start a business in the United States? The short answer is yes! As per a report by the U.S. Small Business Administration Office of Advocacy, in 2022, immigrant-owned businesses were found in nearly every sector of the United States economy. Roughly 18% of businesses with employees and 23% of businesses without employees in the U.S. are immigrant-owned. So, if a non-U.S. citizen entrepreneur is considering the possibility of establishing their business in the United States, they certainly can. In fact, a 2022 report found that 43.8%, or 219 companies, in that year’s Fortune 500 list were founded by immigrants or their children.

Navigating tax compliance can be a challenge for any business, and violations can significantly impact its success. Noncompliance can lead to business disruption and penalties, which can dent profit margins as well as an organisation’s credibility.

Taxation for immigrant-owned businesses

When it comes to tax compliance, non-U.S. citizen entrepreneurs need to be well informed about their obligations and potential benefits. Here are the key compliance considerations for immigrant-owned businesses:

Federal tax obligations

Like U.S. citizens, non-U.S. citizen entrepreneurs are subject to federal income tax on their business profits. The IRS requires reporting all income, regardless of citizenship status. It’s essential to understand the tax classification of a business entity as it will impact how a business’s income is taxed.

Self-employment tax

A self-employed non-U.S. citizen entrepreneur may be subject to self-employment tax, which covers Social Security and Medicare contributions. This tax applies to net earnings from self-employment.

Tax treaties

Some countries have tax treaties with the U.S. that can affect a business’s tax liability. These treaties may provide certain exemptions, credits, or reduced tax rates. It’s important to check if the non-U.S. citizen’s resident country has such an agreement with the U.S.

Individual taxpayer identification number (ITIN)

Non-U.S. citizen entrepreneurs who don’t have a Social Security Number (SSN) need to obtain an Individual Taxpayer Identification Number to file taxes and meet other tax-related requirements.

Employer identification number (EIN)

If an immigrant-owned business has employees, the business will need an Employer Identification Number for payroll taxes and other employer-related tax obligations.

Record-keeping and compliance

Maintaining detailed financial records and complying with IRS guidelines for record retention is recommended. This will help in the event of audits or inquiries.

State tax obligations

In addition to federal taxes, non-U.S. citizen entrepreneurs must consider state and local tax obligations. Regulations can vary by state, so it’s crucial to understand the tax laws of the states where your business operates.

U.S. sales tax

If a business involves selling products or services subject to U.S. sales tax, it’s important to ensure that the business owner complies with U.S. sales tax regulations in that state. U.S. sales tax rates and rules can vary owing to the fact that the U.S. has over 13,000 U.S. sales tax jurisdictions. However, Avalara offers a single solution to calculate U.S. sales tax rates, prepare returns, and manage U.S. sales tax-related documents, allowing immigrant-owned businesses to file their U.S. sales tax returns with ease.

Seek tax credits and deductions

Immigrant-owned businesses can explore potential tax credits and deductions that may be available to their business. These can include research and development credits, energy efficiency incentives, and small business deductions.

Before establishing an immigrant-owned business, a non-U.S. citizen might also want to consider other compliance requirements like legal business structure and visa laws.

Choosing the right legal business structure for immigrant-owned businesses

Starting a business in the U.S. requires choosing the right legal structure, and this choice is crucial for non-U.S. citizen entrepreneurs as it can have significant tax and compliance implications.

Sole proprietorship

A sole proprietorship is the simplest form of business ownership. It’s an attractive option for many non-U.S. citizen entrepreneurs, especially while establishing a small business. As a sole proprietor, a non-U.S. citizen will have complete control over the business. That said, they will also bear full personal liability for any debts and obligations that arise along the way.

Limited liability company (LLC)

An LLC provides a flexible and tax-efficient way to structure an immigrant-owned business. Non-U.S. citizen entrepreneurs often choose this option as it offers a degree of personal liability protection while still allowing for pass-through taxation. However, non-U.S. citizens will need to check the feasibility of establishing an LLC as it depends on their visa status.

Corporation

A corporation can provide additional liability protection and allow for various ownership structures. However, non-U.S. citizen entrepreneurs may face certain restrictions related to their immigration status, so it’s important to consult with legal and tax professionals before forming a corporation.

Partnership

Establishing a business in collaboration with one or more partners comes with its own set of compliance requirements and tax structures, as partnerships can be further categorized into general and limited partnerships.

Nonprofit organizations

If a business has a charitable or nonprofit mission, a non-U.S. citizen can consider forming a nonprofit organisation. This structure allows the business owner to apply for tax-exempt status. However, a not-for-profit organisation is also subject to specific compliance requirements.

It’s important to note that each legal structure comes with its own tax implications, including income tax, self-employment tax, and employment tax. Non-U.S. citizen entrepreneurs need to be aware of the tax obligations associated with their chosen structure. Additionally, visa status can also impact the types of businesses non-U.S. citizens are allowed to own and operate.

Visa and immigration considerations

For non-U.S. citizen entrepreneurs looking to undertake business ownership in the U.S., understanding the visa and immigration landscape is crucial. Here are key considerations to keep in mind:

Visa categories

Several visa categories may be relevant for non-U.S. citizen entrepreneurs. Some of the common options include:

E-2 Investor Visa: This visa is specifically designed for investors looking to develop and direct a business in the United States. It requires a substantial investment and a treaty with the U.S.

L-1 Visa: L-1 visas are for intracompany transferees. They allow international companies to transfer employees to the U.S. to establish a new office or manage an existing one.

H-1B Visa: While primarily for skilled workers, H-1B visas can be used by entrepreneurs if they meet the requirements.

Eligibility and requirements

Each visa category has specific eligibility criteria and requirements. For example, the E-2 visa often requires a significant financial investment, while the L-1 visa mandates that the entrepreneur has worked for the overseas company for a specific duration.

Maintaining legal status

It is crucial to maintain legal immigration status while running a business in the U.S. Non-U.S citizens must comply with visa regulations, renew visas as needed, and adhere to all U.S. immigration laws.

Changing visa status

Some non-U.S. citizen entrepreneurs may need to change their visa status to pursue business ownership. This process can be complex and may require legal assistance.

Considering the complications of U.S. immigration law, seeking advice from an experienced immigration attorney is highly recommended. 

Business ownership as a non-U.S. citizen requires understanding the right legal structure, visa and immigration considerations, and tax obligations. While business structures and visa considerations can be easily dealt with, tax and compliance requirements can be complicated. Avalara offers a comprehensive solution to calculate U.S. sales tax rates, prepare returns, and manage U.S. sales tax-related documents like exemption certificates, allowing immigrant-owned businesses to navigate their sales tax obligations in the U.S.

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