How to start a US-based business as a foreign national
A practical guide for entrepreneurs who don’t live in the US
For many people around the globe, the United States, with its historically strong market and stable legal system, is an attractive place to open and build a business. Is it possible for a nonresident foreign national to start a business in the US? Yes – and while the process of becoming a US citizen can be complex and drawn out, opening a business is a relatively simple undertaking – even for foreign nationals. In fact, for foreign entrepreneurs with legal resident status (i.e., green card holders), the process is essentially the same as for any other US citizen. This article focuses on foreigners who aren’t currently US residents and lists the essential steps needed to become a business owner in America.
1. Choose a business structure
While you can generally go into any business or industry you want (e.g., import/export, retailing, manufacturing, etc.), you will need to choose a legal structure for your business entity. There are two primary choices available to those who aren't (or aren't yet) US residents:1
C Corporations
Unlike a self-owned business (or sole-proprietorship), this type of legal entity limits legal liability for the owner(s). That means your personal assets are separate and protected from the legal liabilities and debts of the company, which is important in a litigious country like the US. At the same time, profits and losses are attributable to the company and not "passed through," – which results in double taxation: First, the C Corporation pays taxes on any profits; whatever is left over can be passed on to the owners (or shareholders) as dividends, but then is taxed again (either as ordinary income or dividends).
C Corporations are also more complicated to administer than an LLC (below), with more paperwork and filing deadlines required by the regulating authorities. On the positive side, if you have ambitious plans to expand your business, a C Corporation gives you more options to raise funds and venture capital: you can sell an unlimited number of shares in the business to outside investors – and even list your company on a public stock exchange, assuming you meet necessary requirements.
Limited Liability Companies (LLCs)
Those with more limited business plans will likely be better served by organizing as a Limited Liability Company, or LLC. Generally speaking, LLCs provide the same kind of liability protection as C Corporations but are less costly to administer because the paperwork and compliance requirements are far less strict. And importantly, as the owner of an LLC, you can avoid double taxation by choosing to have profits and losses passed through to your personal taxes.
Another type of US business structure includes S Corporations (which avoid the double-taxation of Corporations), but S Corporation status is generally only available to US citizens and legal residents.
2. Decide where to register your business
Generally speaking, you can't register a US business at the national level – it has to be registered in a specific US state or territory (such as Puerto Rico or Washington DC). So, how do you choose which state?
If all your business activities will be concentrated in a specific state, you may want to register your business there. However, in some states, the process is relatively burdensome and costly – your company may have to pay high fees or taxes. But it's important to understand that you don't necessarily have to incorporate where you do most of your business.
As a result, many advisors recommend incorporating in a low-burden state such as Delaware, Nevada, or Florida. Delaware, in particular, is a popular, business-friendly choice: The incorporation or LLC registration process is relatively streamlined, and you don't need to have a local business address or bank account. Notably, there are also no income or sales taxes if you don't do business in Delaware (although there are some other fees and costs, such as the annual $300 LLC franchise tax).2 The state also welcomes foreign nationals: The Delaware corporate law website is translated into ten different languages.
You’ll need a business name and registered agent
Specific details of the registration/incorporation process vary by state, but wherever you choose to do so, you'll need a business name. The legal name you use for the paperwork may be awkward (or difficult for Americans to pronounce). Still, you don't necessarily have to use it at your office or storefront: "Doing business as" names (or DBAs) are commonly used to provide a more customer-friendly alternative. You can find more helpful naming tips from the U.S. Small Business Administration here.
Authorities will also require a "registered agent" with a physical address (not a PO Box) in the state in which you do business – in other words, an official contact to receive legal and official documents from government authorities. Whether owned by a US or foreign resident, businesses commonly designate a third party individual or business to take on this responsibility, partly because there is typically a requirement that someone always be present at that address during regular business hours.
Taxes, banking, and hiring employees
You’ll need an Employer Identification Number or EIN from the Internal Revenue Service in order to hire employees, pay taxes, and even open a business bank account. It's worth your while to shop around a bit to find a US-based banking partner that can provide all the banking and fund transfer requirements you'll need at a reasonable cost. Each bank has its own fee structure, minimum balance guidelines, requirements for business loans, and commercial banking service offerings. They will also have different guidelines for working with foreign nationals. At the very least, you'll need to present your official corporate or LLC documents listing your official US address, EIN (and typically, an Individual Taxpayer Identification Number, or ITIN) as well as a passport, and will likely ask that you visit the bank in person to open an account. However, they may waive that requirement if the bank has an office in your country of residence.
3. Get the visa that’s right for your business plans
It’s important to understand that opening a business does not automatically give you the right to work in the US. In fact, many businesses are owned by foreign residents who direct operations from abroad and delegate management to on-site US residents.
On the other hand, if you want to move to and work on-site at your US company, you will have to get the correct type of visa. There are a wide variety of US immigration visas issued for all sorts of different situations, and it can be hard to know which is best for your specific needs. Consider working with an immigration attorney who can help you identify and apply for the right one. Here is an overview of some common types of US visas:
B1: This is a short-term business visitor visa that allows foreign business owners to negotiate deals or attend meetings for an existing business, but not do paid work or establish a business.
B2: This is the common short-term tourist visa used for short visits, but it doesn’t allow for business activities. If you make periodic trips from abroad to check in on your business, make sure you get a B2 visa instead.
E-2: This is a popular visa for entrepreneurs that allows foreign nationals from certain treaty countries to establish, invest capital, and operate a US business. They can also extend the visa indefinitely, as long as the business remains viable, but it does not provide a direct path to permanent residency.
EB-5: This immigrant investor visa is another popular choice for entrepreneurs and provides a path to a green card by investing $800,000+ and creating 10 US jobs.
These other visa types allow specialty work, although not specifically for the purpose of starting a business:
L-1: Allows a foreign company to transfer a manager, executive, or specialized employee to work at its US subsidiary or affiliate.
O-1: For individuals with extraordinary ability or achievement, to work in their field of expertise in the US.
H1B: Temporary work visa for specialty occupations.
TN: Allows citizens of Canada and Mexico to work temporarily in the US in certain professional occupations.
Taxation – and steps to protect your US-based assets
As in any other country, you can expect to pay business and personal income tax – and in fact, many of the steps involved in opening a US-based business have to do with making the relevant tax authorities aware of your operations. US tax laws can be hard to navigate because you may be subject to taxes at the federal, state, and local (i.e., city or county) level, so careful planning is needed to minimize potential tax losses. Also, rules for multinational taxpayers are even more complex, and you should be prepared to seek appropriate legal, tax, and accounting advice for your specific business and the other jurisdictions in which you have business interests, income, or assets.
Still, the US can be a dynamic, attractive place to build a business, as well as personal and family wealth. But if your plans eventually include passing on assets to family members in the US, it also pays to think about estate planning – and in particular, taking steps to deal with the estate tax disparity for foreign nationals: US residents enjoy a significant $13,610,000 exemption on estate taxes and lifetime gifts.3However, the nonresident exemption is limited to just $60,000, so any significant US assets may be subject to estate taxes of up to 40% as they are passed on to the next generation.4
Nonresident life insurance can help minimize or eliminate these estate tax consequences, because death benefit payments are generally exempt from federal estate taxes. That also means that money is transferred to beneficiaries without going through the probate process, which can be time-consuming for a large estate. These features could make life insurance an attractive wealth-transfer vehicle for many foreign nationals with US-based assets. Permanent universal or whole life insurance that builds cash value can also provide several other advantages when it comes to tax and estate planning and preserving family wealth:
Covering potential estate taxes with life insurance
The US government imposes estate taxes on US-situated assets for nonresidents. Still, US-denominated life insurance can provide the liquidity needed to cover potential estate taxes without having to sell all or a portion of these holdings, helping preserve the estate's value for heirs.
Portfolio diversification and risk mitigation
Permanent, whole life insurance builds cash value at a guaranteed rate and is among the more conservative financial products available. A policy can build US-denominated cash value* that can be accessed while the policyholder is still alive, acting as a potentially effective hedge against economic downturns in one's home country, fluctuating exchange rates, and other forms of geopolitical risk.
Asset protection
Life insurance policies are generally protected from creditors and bankruptcy. This can provide an additional layer of protection for foreign nationals' assets.
The Global Citizens Program
Guardian provides specialized life insurance solutions and services designed to meet the unique demands of high-net-worth international clients. Our Global Citizens Program allows qualifying clients to tap into a dedicated team that specializes in the more complex financial protection needs of clients with multinational interests – and provides white-glove service with the backing of one of the world's largest mutual life insurance companies. Clients must be non-resident, non-US citizens who demonstrate financial connections, holdings and/or family ties in the US. A dedicated case concierge team is assigned to help each applicant, and submissions are evaluated by specialized underwriters. Other key benefits include a complimentary US trust review, translation services, law firm referrals, and more. To learn more, contact a Guardian financial professional.
Get help finding the right life insurance solution for your situation
Starting a business can be a vital way to build family wealth, and life insurance can be a powerful tool to help protect the things you're working for. If you're a foreign national with US residency, or in the process of obtaining residency to run your business, a Guardian financial professional can help you explore the range of coverage options available. Or, if you're a nonresident with ties to the US, ask about the Global Citizens Program.
* Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
2 https://www.incorporate.com/learning-center/delaware-llc/
3 https://www.investopedia.com/estate-tax-exemption-2021-definition-5114715
4 https://kpmg.com/ch/en/blogs/home/posts/2023/02/us-estate-tax-implications-for-non-us-residents.html