Choosing the home state of the United States of America for your new company is an important issue. The Doing Business 2020 rating puts the USA at the sixth place for the ease of doing business in the country and it is not surprising that many foreign entrepreneurs want to set up companies in the country. However, you have to take into account that fact that the USA is a federation of states, each of which has its own taxation, legal, and corporate policies. Thus, if you would like to start a business company in the country, you have to choose the state that suits your business purposes better than others do.
Registering a company in the USA: some crude facts about the country
The USA is a federation that comprises fifty states. In addition, there are several territories associated with the USA. These include Puerto Rico, American Virgin Islands, Guam, Northern Mariana Islands, and American Samoa. As you can see, some of these jurisdictions are found in the offshore zone list.
The USA has the third largest population in the world and has the largest nominal GDP. The country is the home for most transatlantic corporations and the majority of the richest people of the world from the Forbes list live there. Thanks to the achievements in economy, science, and cultural life, the USA is the only remaining superpower in the world.
The business opportunities that the United States offers attract entrepreneurs of all levels to the country. All of them, however, need to find the answer to this question: which of the states is the best for their businesses?
There are no tax-free states in the USA as there are federal taxes that apply to all. For instance, the federal corporate tax is 21%. At the same time, local taxes differ greatly from one state to another, which plays an important role in choosing the state where you would like to register your US company. Different states offer different tax incentives and you have to deeply analyze the tax legislation of the particular state that you are considering as a possible home for your prospective company.
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Registering a company in the USA: the 2020 State Business Tax Climate Index
There are various rating lists that help business people determine what state of the USA is the best for setting up a company there. One of such rating lists is that compiled by the Tax Foundation. The Foundation does comprehensive research of multiple business factors including the compilation of a Business Tax Climate Index that ranks each state by the attractiveness of the tax conditions. Please see the table below.
|State Name||Overall Rank||Corporate Tax Rank||Individual Income Tax Rank||Sales Tax Rank||Property Tax Rank||Unemployment Insurance Tax Rank|
It has to be noted that Wyoming and South Dakota have been at the top of the list since 2014. Moreover, the top ten states have been very much the same over the last six years which is indicative of the stability of their taxation systems in general.
One common characteristic that the top ten states share is the absence of many taxes. In particular, there is neither corporate tax nor personal income tax in Wyoming, Nevada, and South Dakota, which makes these states attractive for registering LLCs there. At the same time, there is a net sales tax in Nevada. There is neither individual income tax nor sales tax in Alaska and there is no sales tax in New Hampshire, Montana, and Oregon.
However, not all states with low taxes make it to the top ten. In addition to the fiscal burden, other financial obligations can be imposed by state authorities on business owners and this can make the low tax burden insufficient for establishing a company in a particular state. Thus, you have to see the big picture when choosing the state where your prospective company should be domiciled. For instance, Utah and Indiana are among the leading states notwithstanding the fact that all major taxes are levied there. The matter is that their rates are comparatively low.
Clearly, the taxation issue is an important factor to consider when thinking about setting up a company in the USA but it is certainly not the only factor to account for. Access to raw materials, qualified workforce, the infrastructure, the living conditions, and so on also play important roles in the decision making process.
Registering a company in the USA: what state to choose if you are not a US citizen?
Of course, you are free to choose any state that you like and much will depend on what type of business you are going to engage in. The State Business Tax Climate Index is not the only index to go by, without doubt. However, we would like to draw your attention to two states, namely, Delaware and Wyoming as they look especially inviting to foreigners in particular.
Why you should consider registering a company in Delaware
Delaware is the second smallest state in the United States but it is attractive for business people. 65% of the Fortune 500 companies are registered in this state. Besides, more than a half American companies are also registered there and headquarters of a number of large international corporations can be found in Delaware. These include, for example, Facebook, Yelp, Twitter, and Google. The economy of Delaware is based on two pillars: chemical production and the financial and insurance sphere.
Main advantages of registering a company in Delaware
- Favorable legislation – if an LLC or a corporation is registered in Delaware, its activities are regulated solely by the laws of this state including the disputes between the owners and the managers of the company. Besides, a Delaware-registered company has access to Delaware Court of Chancery that is an internationally recognized court of justice for business disputes.
- Highly qualified corporate lawyers — Delaware Court of Chancery is where the best American corporate attorneys work. They will provide for the most effective protection of personal assets from creditors.
- The ease of establishing an LLC – Delaware is one of the best states where you can register a business entity for a reasonable price. It ranks 14th for the state duty and 17th for the registration fee.
- High level of asset protection – the laws and the law courts effectively protect the property of LLCs and corporations registered in Delaware. Besides, the ‘business judgment rule’ is applied in the state that allows the top managers of the company to make high-risk decisions to obtain a large profit without facing personal penalties if the deal fails.
- The ease of business operation – when the company is registered in Delaware, it can perform business activities anywhere in the world. You do not even have to have an office nor a bank account in the state. Besides, it is quite possible to set up a company in Delaware by completing an online form. You will have to submit the following information there: the name of the company, your contact details, the names of the company directors and shareholders, and the number of shares each of them holds.
- The simplicity of the corporate structure – in Delaware, you can have an LLC whose founder, director, president, and secretary is one and the same person.
- The high speed of company registration — you can register a company with the Delaware Division of Corporations within 30 minutes. The Division is open twice the amount of usual office hours to provide for the rapid company registration.
- The high level of personal information confidentiality – in Delaware, you do not have to publicly disclose the names of the company directors.
And the low taxes should top the cake!
Important!!! If a Delaware-registered company makes profits outside of the state, the profit tax is not payable in Delaware but a franchise tax is due.
The taxes levied in Delaware in 2020:
- Personal income tax – 6.6%;
- Corporate profit tax – 8.7%;
- Sales tax – 0%;
- Property tax – 0.58%.
Low taxes, the ease and the high speed of company registration, the effective protection of personal assets, among other factors, make Delaware a very nice state where your USA-based company can be domiciled. US News 2019 report ranks Delaware 8th among other states for doing business. Forbes’ “Best States for Business” report ranks Delaware 23rd, but it is the second best state of the United States for business expenditures.
Why you should consider registering a company in Wyoming
Unlike Delaware, Wyoming is a large state located in the western part of the United States. The state’s economy is based on mining of mineral resources and tourism.
Wyoming has been at the top of the Tax Foundation rating list for years. According to the statistics, 81.66% of the startups that opened there continued working after one year of operations. This shows how favorable the business environment is in Wyoming.
Main advantages of registering a company in Wyoming:
- No local taxes – Wyoming is one of two states where there is no corporate profit tax nor net sales tax.
- Efficient protection of personal assets – The owners of a Wyoming-registered LLC can be perfectly sure that their liability is limited by the company assets. Their personal assets are absolutely safe.
- High level of information confidentiality – Public registers do not have to names of company founders nor directors. The reporting requirements are also quite lax in Wyoming: you have to submit a tax report once a year only.
- No restrictions for foreigners – You do not have to be a citizen of the United States if you want to register a company in Wyoming.
- Timeless company existence and flexibility in company use – many LLCs in the USA close when the founder dies. A corporate entity registered in Wyoming can continue functioning after the death of its founder. The LLC ownership share can be sold, given as a gift, or left to the heirs.
- There are no restrictions as to the number of company owners.
- Vast opportunities to raise funds – an LLC in Wyoming is entitled to give out loans, borrow money, or issue shares to raise funds. These opportunities attract many investors who like putting money in LLCs due to the limited liability of the company and the simplicity of the procedure. In addition, there are no minimum requirements to the investment amount in Wyoming.
- Low costs of company registration and maintenance – The registration fee is payable only 12 months after the company has been registered. No business license is required either.
- The possibility to register a company via an online application.
Tax rates in Wyoming in 2020:
- Personal income tax – 0%;
- Corporate profit tax – 0%;
- Sales tax – 4%;
- Property tax – 0.55%.
The absence of taxes and the high level of personal asset protection are the main factors that make registering a company in Wyoming so attractive.
Registering a company in the USA: ten states with the lowest taxes
Below please find the Tax Foundation report on the American states that have the lowest tax rates in the country:
|Name of State||Personal income tax||Corporate profit tax||Sales tax||Property tax|
When choosing the American state where you would like to register a foreign company, taking the taxation system into account is very important indeed as tax rates differ greatly across the United States. This is not the only factor to think of, however, as there are other potential risks as well as different kinds of advantages. For instance, Alaska has the third lowest fiscal burden in the USA but the infrastructure there is far from perfect and reaching Alaska is not easy either. Nevada is a popular place for company registration but the vast number of gambling houses in the state has had a bearing on the local law firms’ reputation. Now companies domiciled in Nevada have to undergo especially stringent due diligence checks when trying to open bank accounts. The bankers want to make absolutely sure that the company is not engaged in money laundering or other criminal activities.
It is not easy to decide which state of the United States of America you should choose for your foreign company. Very much will depend upon your business goals and the prospective types of business activities. We will be happy to consult you on this matter as our specialists have been working in the area for years and years and we have helped clients set up companies in a large number of national states all around the globe. Please contact us if you are considering registering a company in the USA.
Where should I register a company in the USA?
If you would like to register a corporation, the best choices would be Wyoming and Delaware. If you would like to open an LLC, you can also consider Florida and South Dakota. Much depends on what kind of business you are going to be engaged in.
What makes Delaware attractive for business people?
Registering a company in Delaware, you will provide for the most secure protection of your personal assets from any lawsuits. The registration procedure is fast and simple there, the taxes are low, and the bureaucracy is negligent.
What are Wyoming’s advantages over Delaware?
There is no income tax in Wyoming nor property tax.