Incorporation in the U.S.A.
In the U.S., just as in Europe and other parts of the world, a business can be structured to limit the liability of its owners and operators. There are Limited Partnerships, LLCs – Limited Liability Companies (the widespread story that an LLC is tax-free for foreigners or for income earned abroad, is a fairy tale) and there are Corporations. Of these business entities the Corporation offers the greatest protection and the most benefits for Europeans and other foreigners. Here are the top benefits for foreign-owners of U.S. based corporations:
As an owner or director of a U.S. corporation, you cannot be held personally liable for its business obligations and activities (We surely need not point out how such protection from liability can be a lifesaver under certain economic circumstances.) Although the liability protection of a European corporation is very similar, setting up a European corporation is quite expensive and requires a substantial amount of paid-in capital (for example, Germany requires a minimum cash capital of 100,000 DM, and during the two-month set-up process the incorporator is personally liable with all of his assets). Since the shareholders and directors of a U.S. corporation enjoy much higher liability protection than in a European corporation, a U.S. corporation is to be recommended even for businessmen who have no intention of being active in international business.
It is not generally known that since the federal tax reform of 1986 (and in spite of President Clinton), the U.S. has virtually become a corporate tax haven. Consider this: The federal income tax is only 15% on corporate net-profits of up to $50,000. The tax then increases in small increments, but stops at 36% (and only if you make over $10 million per year in net profits). Nevertheless, it should be noted that this tax structure applies only to the federal income tax, and that many U.S. states have individual tax structures that can be most unfavorable for the conduct of corporate business. However, most of the states recommended by us have no corporate income, sales, value-added or inventory taxes. When you consider that a corporation in Germany, for example, must pay an income tax of over 50% plus a hefty franchise tax, then our tax rates should sound pretty attractive. For instance, if a German corporation has a net profit of DM 100,000, then the German tax officials kindly permit it to keep nearly DM 30,000. If you were to pay taxes on the same DM 100,000 through your U.S. corporation, the corporation could keep over DM 80,000 in its own pocket.
How can a European save on taxes with a U.S. corporation?
Since we cannot condone illegal activities, our recommendations should not serve the illegal evasion of taxes but rather the legal avoidance of taxes. For this, it is necessary that the U.S. corporation be a legally established company, properly registered with the state of domicile with a U.S. tax number, U.S. telephone number, U.S. street address (not P.O. Box), U.S. bank account and a U.S. board of directors. If these conditions exist, there are many interesting possibilities for tax sheltering.
If the U.S. Corporation were to own all or parts of your overseas business, the appropriate profits could be channeled through a U.S. bank and would be subject only to the lesser U.S. tax. To allow funds to flow back into your own pockets, you could pay yourself a salary or borrow money from the U.S. corporation and -since you?re certainly well acquainted with the owner- pay it back at highly favorable rates and terms.
If you already own, or wish to purchase, property like aircraft, yachts, machinery, real estate, etc., but do not wish to pay large sales or VAT taxes, or wish to remain anonymous, the corporation can serve as the purchaser and owner of these objects. If any of these items need to be registered -such as aircraft or yachts- we could register them under an additional address in a state without sales or use taxes.
If you buy and sell real estate, there is the possibility of avoiding the capital gains tax (tax on profits in the sale of real estate) and property transfer tax. For this, one sets up a U.S. holding company, i.e. a parent company, and a separate subsidiary corporation for each piece of property. The property one buys is registered in the name of the subsidiary corporation. (This is possible in Europe, even in Germany where the tax authorities, after collecting the property transfer tax, have to issue a clearance certificate (cf. BHF, decision of June 12, 1995 = RIW 1996, pp. 88.) allowing the property to be registered in the name of the corporation.) Later, when a buyer is found for the property, nothing happens in the registry at the time of the resale, since not the property, but the corporation is sold. Thus, the transaction is not subject to transfer or capital gains taxes.
Assuming that your country allows the depreciation of certain business property (machinery, cars, buildings, etc.), that property can be sold to your U.S. corporation at the depreciated price. Your U.S. corporation may then lease the objects back to you at a substantially higher price. Naturally, the corporate profits are subject to U.S. federal income tax (albeit modest), but it is also possible to depreciate these items again, while you deduct your full lease payment from your own taxes overseas.
Another possibility for shifting the tax liability to your U.S. Corporation exists by using the U.S. corporation as a supplier of your merchandise. Here you would have the corporation buy the merchandise from your regular suppliers and then sell it to your company or store at such high prices that you would make little or no profit in your domestic company and thereby avoid a good portion of the taxes in your own country. Naturally, your U.S. corporation will have to pay taxes on the profits it makes, but it will be at the much lower U.S. tax rate.
Please take note that none of the above will work, if the U.S. corporation was not set up properly for your purposes. It is not enough to simply order a corporate shell from one of the many off-shore or Delaware incorporation mills. These folks have little or no knowledge of U.S. or European law. For instance, it is not widely known that under EU law, a company is taxed at the locale where the critical business decisions are reached, regardless of where the company is registered. Since the bylaws of a regular U.S. corporation do not ordinarily reflect a mandatory geographical limitation as to where the business decisions have to be made, our competitors? customers have to pay European taxes sooner or later. This does not happen to our clients, since the corporate documents prepared by our attorneys specifically state that the critical decisions for the activities of the corporation have to be reached within the geographical confines of the U.S. This naturally presupposes that the corporation has its company address and telephone in the U.S. If not, there might be unpleasant consequences. For example, for the German owner of a Delaware corporation, the D?seldorf Appellate Court recently refused to recognize the corporate protection (analogous to paragraph 11, sec. 3, GmbHG, and sec.1, clause 2, AktG) and held him personally liable for activities of the corporation, because his corporation had no telephone number or address in a U.S. telephone book (OLG D?seldorf, decision of December 15, 1994, ? 6U 59/94). Such difficulties can be avoided through our telephone/fax service. As you can see, there are endless possibilities of how one may benefit tax wise from the ownership of a U.S. corporation, as long as it is set up properly. In case one also wants to avoid U.S. taxation, there is even a possibility for this by using an Antigua holding corporation (more about this interesting alternative on our brochure). Nevertheless, for any in-depth tax advice for your own particular situation, it is important that you consult with a tax attorney in your country as well as in the U.S.
This should not be regarded as a call for tax evasion or other criminal activities. But there are many other good reasons for which one may wish to remain anonymous. In the states recommended by us, the owner (i.e. the shareholder) of a corporation does not need to be registered. Only the founder (i.e. we) and the directors and officers are registered with the state. You yourself can remain completely anonymous by appointing others to be directors and officers.
If you want protection against threatening creditors, tax officials, or an angry spouse, the corporation can be the owner of your valuable objects, such as boats, airplanes, real estate, or bank accounts. All title documents can be kept in the corporation?s bank safe-deposit box. In order to use these objects, you can lease them from the corporation under favorable conditions. In precisely the same way, your corporation can also appear as the owner of your domestic company, permitting you to remain anonymous as the real owner. Another advantage is that in the USA, a U.S. corporation is free of the withholding tax that is normally collected from foreigners in sales of real estate.
Elimination of Inheritance Tax
Inheritance taxes can be avoided by distributing your stock to your heirs during your lifetime (however, in order to avoid the problems described in “Can your corporation be taken over by the other shareholders?” you might consider the issuance of ?preferred stock.?) Since a corporation is not dissolved in the case of the death of the owner, it can continue to be operated without interruption. Also, your heirs would have access to the corporate bank safe-deposit box, which in case of your death would not be locked and could not be accessed by creditors or officials. At present, inheritance taxes in the US start with estates in excess of $675,000. This will be raised to $1 million by 2004. However, the Bush administration is planning to eliminate it altogether.
Unless one is qualified for an H, O, or P visa (famous scientist, athlete, artist, etc.), at this time only two categories effectively permit problem-free immigration to the USA:
• You marry a U.S. citizen.
• You invest $1million under public law 101-649 by starting a business in the U.S. which provides at least 10 new jobs to Americans.
However, in case you don’t happen to have a spare million or if your current spouse might possibly object to your taking another spouse in the USA, the chances for immigration are very limited. Only by establishing a corporation would it still be within the realm of possibility to immigrate, and then, not in a single step.
One starts by applying for a time-limited residence permit for business purposes as the owner of a corporation. This involves the B1 visa which is relatively simple to obtain, and with which one can obtain residence permits for from six to twelve months. As soon as the corporation is active, i.e. at least has a real office, an L visa can be applied for. For this, residence permits of up to seven years are possible. With this visa, an applicant’s spouse and children can also qualify as non-immigrants in order to accompany or follow him to the USA. The principal applicant must be able to demonstrate that he or she is can support his family financially in the USA. (Obviously; the corporation must be successful.) Although the limited-time visa categories do not automatically lead to U.S. citizenship, they can be quite beneficial for immigrants who do not qualify for the other categories. One has the opportunity to stay in the USA long enough to become adjusted to American life and meet American sponsors (perhaps even an American spouse) and a chance to build up his corporation to a work force of ten or more U.S. employees and thus qualify for the investor category even without $1 million in cash.
If you are the owner of a U.S. corporation formed by us, our attorneys will be glad to assist you with the formalities for a business related immigration to the United States.
Unfortunately, time does not permit us to engage in immigration matters for non-corporate clients.
A New Start
Anyone who at any time has had a business failure, knows well how difficult it is to get on one?s feet again because of the negative information provided by credit bureaus. With a U.S. corporation, one can start afresh with a new name and still remain anonymous. The corporation can also bear the name of a person, such as Sir Lancelot, Inc., and have a bank account and a U.S. tax number in this name. (If you are interested in having your name changed officially by an American court, our attorneys can be of assistance.) We can also provide you with a Visa card in your new name and the name of your corporation.
a) Capitalization through selling shares
A U.S. corporation can pledge its shares, which represent a mathematically precise proportion of the company, as security for loans or sell them as investment objects. (In comparison with this, a limited liability Company such as a GmbH cannot issue shares and is difficult to capitalize.) A U.S. corporation can sell its shares to investors throughout the world, although for sales within the USA there are certain restrictions imposed by the Securities & Exchange Commission (SEC) and state agencies.
b) Capitalization through bank loans
Not counting branch offices, there are a total of 24,437 U.S. banks with capital in excess of 50 trillion dollars. (There are less than half as many banks in all the rest of the world.) With such competition between money lenders, it is understandable that the credit climate in the USA is significantly more favorable than anywhere else in the world.
c) Capitalization through venture capital
Venture capitalists control billions of dollars of investment capital. Since a venture capitalist participates in the profits of the capitalized venture, he is naturally much more risk-friendly than U.S. banks which are forbidden to participate in the financial success of an enterprise. Thus, if a corporation cannot offer sufficient security for a bank loan or afford the expense of going public, a connection with a venture-capital company is the most promising path to capitalization.
Unlimited Business Activities
In the states recommended by us, our attorneys are in a position to formulate the articles of incorporation in such a way that the business activities are not restricted to any particular purpose, but that the corporation may engage in any business or activity not forbidden by law. Thus, the corporation does not need to be re-organized in case it wishes to engage in a different business enterprise.
No Need for Paid In Capital
In many U.S. states – just as in European countries – a certain amount of capital is required for the formation of a corporation. Accordingly, we only incorporate in states without compulsory capital requirement, or where the start-up costs equal the required amount of capital. Thus, your U.S. corporation can be registered in European commercial registers without providing proof of paid-in capital.