Starting a business in the USA can be a daunting task, but it’s not impossible for non-residents. There are some basic steps that need to be taken in order to make this happen, but with the right planning and advice it can be a smooth process for any entrepreneur.
This article will outline the basics of what you need to do in order to get your business up and running in the US.
Select Your Business Type
The first step in starting a small business in the US is to select your business structure. There are several different types of businesses, each with their own set of requirements. The most common types of businesses are:
- sole proprietorships
- limited liability company (LLCs)
- C corporations / c corp
Once you have selected your business type, you will need to obtain the necessary licenses and permits. The requirements for this will vary depending on your business type and location.
Choose a Location to Register Your US Business
The second step is to choose a location to register your new business. This can be the US state in which you will be physically located, or it could be a state that has more favorable tax laws. Once you have chosen a state, you will need to register your business with the Secretary of State’s office.
You will also need to obtain a Federal Tax ID number, also known as an Employer Identification Number (EIN). This number can also act as your Individual Taxpayer Identification Number (ITIN). This can be done online through the IRS website.
The state in which you register your LLC doesn’t matter all that much as a non-US resident unless your product appeals to a particular audience that resides in specific areas of the USA. For example, selling lawn flamingos will most likely appeal to people in Florida. Or farming equipment would appeal to the midwest.
The two lowest-cost jurisdictions are Delaware and Nevada. In contract, the highest cost is California and New York.
You MUST have a physical address to register your business.
This one is tough. As a non-resident, you don’t have an address in the states.
Luckily, there are companies that can take care of this for you. They will provide you with a US business address and handle your mail for a monthly fee.
There are other companies that provide even more services called registered agents. They take care of everything related to your e-commerce business locally, acting as a representative that can sign any legal documents, handle mail, and do some accounting.
Services like these are available in every state. Pick a place and start looking up business registration or incorporation services. Otherwise, if you have any friends or family, you can use their address (with their permission) to run your online business. That person will also have to act as a registered agent/representative of your US company.
None of these people have to be a business owner or employee. They just need to be the signed representative with physical presence, permanent residency, and social security number (SSN) that tells the state doing business here is legal.
Open a US Bank Account
The next step is to open a US bank account. This can be done at most major banks, and you will need to have your EIN number in order to do so. But don’t just go to any bank and ask for an account. What you want is a US merchant account.
Merchant accounts are business bank accounts that let you process payments from credit cards and more.
You’ll have to use your registered agent, called a resident director in the case of merchant accounts, to sign documents and legally identify as a director of your company. Don’t worry, this person doesn’t need to have any stock or ownership in the company in order to be a director.
Part of this application includes providing personal information like credit checks. Not from you, but from your director. Make sure you choose someone with a solid financial history.
To be approved, you need to provide:
- Registration documents
- Physical address for business and director
- Business overview
ALTERNATIVE: Open a European Merchant Account in USD
If you’re not a fan of using a US bank, or if you don’t have anyone in the US that can act as your director, there are other options.
You can open a merchant account with a European bank, and they will hold your USD in an account for you. You’ll be able to process payments and withdraw funds just like a normal US bank account, but from Europe.
The downside is that you’ll be dealing with two different currencies, so there will be conversion fees. But if it’s worth it to avoid using a US bank, this could be the route for you.
Organize and File Taxes Correctly
Many foreign business owners suffer from double taxation: taxed by the US, and again by their home country. There are a couple of ways to avoid this, and it starts during business formation.
As a business operating solely in the US (assuming you will only be selling to US residents), you will obviously need to pay taxes in the US. But different types of business entities can completely avoid any other taxation. Namely, an LLC taxed as partnership avoids double taxation on the business, but subjects the non-US citizen owner to paying US income tax.
You registered agent will help you with any Internal Revenue Service (IRS) documentation regarding your US tax. Foreign citizens should look at how taxation works in their country to see the best way to avoid double taxation regarding owning a foreign company.
Need help getting your US business prepped for profitability as a non-resident?
You know how to find a registered agent service now, or at least how to register your business in the states alone. But do you know how to pick a good payment processor?
Sure, there are easy options like Stripe and PayPal. But these will only hinder your progress as a growing business. You need a processor that supports scalability. One that supports your business model.
Contact us here at DirectPayNet to speak with an expert merchant services representative. We’ll connect you with a processor and merchant account that both support your full business. We may even be able to negotiate your processing rates.