Frequently Asked Questions

Common Questions about Establishing a U.S. Operation

A U.S. entity must apply to the Internal Revenue Service for an Employer Identification Number (EIN) to file federal income tax forms and, where applicable, federal income taxes. In addition, any entity conducting business in a particular state must register with that state’s tax department and pay all state taxes that may apply to such business. Taxes for U.S. businesses will include:

1. Income Tax. The net income generated by a corporate U.S. subsidiary of a foreign business will be subject to taxation in the United States. This tax is assessed at the federal and state levels. The net income of a limited liability company (LLC) is not taxed in the United States. However, the foreign parent company of the LLC will be required to file and pay taxes on the net income which flows to the foreign entity from the U.S. operations of the LLC.
   
   Federal Tax. Federal income tax rates are set depending upon many factors. Federal corporate tax rates range between 15% and 39%; the average tax rate is typically 35% on profits exceeding $50,000.
   
   State Tax. State income tax rates are set forth on a state by state basis. The current rates for corporate income tax are 6% in Virginia, 8.84% in California and 7.5%-9% in New York.
2. Sales Tax. In many states, retail sales and leases of tangible personal property such as computers are subject to sales taxes. A typical sale tax rate can be anywhere from 4% to 6%. The seller or lessor collects most sales taxes and remits them to the state department of taxation at the time of the transaction. Many exemptions from sales taxes exist, such as those for the purchase of property for resale and purchases of manufacturing equipment. Unlike in most European countries, there is no federal sales tax or value added tax (VAT) in the United States.
3. Other Taxes. Other taxes—such as real property taxes, personal property/use taxes, etc.—may apply to business operations, depending upon the nature of the business, state of operation and other factors. Some county or city governments also impose taxes in addition to those imposed by the state and federal governments. Consult your accountant or tax attorney to evaluate the tax advantages and disadvantages of establishing operations in a particular state, city or county.

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