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Please note: Our multi lingual staff specializes in serving
the corporate needs of international clients. However,
if you are a U.S. resident, we recommend that you simply
contact your own local lawyer to incorporate your U.S.
business. |
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:
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Benefits of a Foreign-Owned Corporation |
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Liability Protection |
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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.
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Tax Reduction |
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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.
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Anonymity |
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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.
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Asset Protection |
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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.
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Elimination of Inheritance
Tax |
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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.
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U.S. Immigration |
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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.
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A
New Start |
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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.
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Capitalization |
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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.
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Unlimited Business
Activities |
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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.
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No Need for Paid In Capital |
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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.
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