The U.S. business environment offers a favorable climate for foreign companies and individuals seeking to achieve positive results for their trade and investment activities. When assessing potential business opportunities in the U.S., it is essential for such foreign parties to carefully prepare a detailed plan which takes into consideration prevailing U.S. legal, tax and cultural aspects.
The points described in this article summarize some of the most important topics that foreign businesses and investors should understand before doing business in the U.S. Experience has shown that successful projects require foreign businesses to assemble a team of legal, financial and tax advisers who are able to advise the business as it undertakes a particular trade or investment project in the state of Texas, or throughout the U.S. generally. Below are several of the most important matters for foreign businesses to consider.
1. Based on the applicable formula established in U.S. tax law, if an inbound foreign investor establishes residency anywhere in the United States and abandons his or her foreign homestead, such investor will likely become a U.S. tax resident and be responsible for declaring income generated on a worldwide basis for U.S. income tax purposes.
2. When selling real property located in the U.S., non-resident aliens (NRAs) will have tax from any such sale withheld from the sales proceeds, according to special tax rules that apply to such sales in the U.S.
3. Tax residence in the U.S. (those who remain for any part of 183 days or more during a 12 consecutive month period, as further defined in the U.S. tax code) is different from resident status for immigration purposes. Someone can be a U.S. tax resident without being a U.S. permanent resident.
4. A third type of “residency” under U.S. law is residency for U.S. estate tax purposes. Estate tax residence is a fact-based determination that can have a tremendous impact on an individual’s estate. This is because U.S. residents receive a substantially larger estate tax exemption than non-U.S. residents. Under applicable U.S. tax law, foreign taxpayers receive an estate tax exemption of only $60,000, while individuals who reside in the U.S. for estate tax purposes receive an exemption of $11,700,000 for 2021. The difference is striking and can lead to negative results for foreign individuals who fail to make necessary plans.
5. The United States levies an estate tax on all non-cash equivalent U.S.-based assets at rates as high as 40%.
6. School age children attending public schools in the U.S. with tourist (B2) visas are at potential risk under U.S. immigration laws for attending school without the proper immigration authorization.
7. U.S. corporations owned by Mexican corporations may be able to, after paying U.S. corporate income tax, distribute dividends to their Mexican parent corporations at reduced rates under the U.S.-Mexico Tax Treaty.
8. A U.S. corporation may not elect “S” small business status (S Corp status) if such corporation has any percentage of non-U.S. resident alien ownership.
9. Texas may impose a 1% franchise (margin) tax on entities doing business in Texas. If inbound businesses and investors do not establish a taxable business presence in Texas, it may be possible to minimize applicable state income or franchise tax by operating through an entity formed in another jurisdiction such as Delaware or Nevada.
10. The U.S.-Mexico Tax Treaty seeks to avoid double taxation on binational business and investment activities. The Tax Treaty may have an impact on Mexican businesses and investors in the U.S., and such should be consulted when reviewing binational tax and financial planning and business activities generally.
Please contact the following for additional information or for a consultation with respect to your particular U.S. legal matter:
Contact Information:
Daniel Cavazos | dcavazos@ccn-law.com
Robert Barnett | rbarnett@ccn-law.com
Marissa S. Rodriguez | msandoval@ccn-law.com
Natalie Cerón-Cuellar | nceron@ccn-law.com
Carrie Osman | cosman@ccn-law.com.mx
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