Tax Considerations for Foreign Companies Expanding into the U.S. Market | Podcast

In this episode of Weaver: Beyond the Numbers, Vince Houk and Craig Epstein discuss key tax considerations for foreign companies expanding into the U.S. market. They explore how state nexus, sales and income tax exposure, entity selection and tax incentives can influence expansion plans, along with practical considerations businesses should evaluate before establishing operations in the United States.

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Detailed Description of Tax Considerations for Foreign Companies Expanding into the U.S. Market

00:00:00
Vince: Welcome to Weaver: Beyond the Numbers, C-corporation edition.

Today, we will be discussing tax considerations for non-U.S. companies expanding their operations into the United States of America.

00:00:11
Vince: My name is Vince Houk, and I lead the international tax practice at Weaver. And today, I’m joined by my fellow partner, Craig Epstein. Welcome, Craig.

00:00:18
Craig: Thank you, Vince.

00:00:19
Vince: So, Craig, this is something that comes up time and time again. We have non-U.S. companies. They’re looking to invest in the U.S., and they’re wanting to know what to do from a U.S. tax perspective, right? And so can you just kind of summarize the key points that companies really should be thinking about as they look to expand into the U.S.?

00:00:42
Craig: Yes. Certainly. So this could either be, like you mentioned, foreign companies that are either looking to do business in the U.S. for the first time or looking to expand those operations.

00:00:51
Craig: And I think what we see a lot, the starting point to that, is really a lot of companies come to us and say, “Well, I want to do business in the U.S. Here’s the operational footprint. What state should I be in first and foremost?”

00:01:08
Craig: A lot of it is, where should I set up first? And so our answer to that is really understanding what’s happening in those different states.

But a lot of times, companies want to set up in Delaware. They say, “Well, if I set up in Delaware, I’m not going to be subject to any state taxation.”

00:01:26
Craig: And I think setting up in Delaware isn’t necessarily what’s going to drive their state nexus requirements. That’s really going to drive what is the state impact to that. But first and foremost, we look at where do they want to set up first?

And then what is their operational footprint going to be from in the different states, which will really drive nexus requirements both from a sales tax perspective as well from an income tax standpoint.

00:01:52
Vince: On the sales tax, another thing I’ll just throw in there is the thing that comes up, right, is the tax incentives. Every state and local jurisdiction has different incentives afforded to companies.

If you’re looking at putting a true footprint, whether it be manufacturing and distribution, you really got to have those discussions upfront, right?

00:02:12
Vince: Because a lot of times, we have to go to those localities and, you know, tell them what we plan to do and see what benefits we can actually get. Whether it be credits or exemptions, different things that they will afford to companies that are looking to expand into the U.S.

I think that’s one critical piece is just making sure you get ahead of what are the tax incentives, depending on what type of activities you’re actually doing in the U.S.

00:02:40
Craig: For sure. And then the next thing we want to understand is, do you even rise to the level where you are subject to taxation there? There’s going to be differences from a sales tax perspective as well as from an income tax standpoint.

00:02:52
Craig: And also contrasting that from a federal income as well as from a state income tax perspective, because there may be differences in how a particular state would conform to, let’s say, treaty benefits as well.

So when we think through all that, we want to also consider potential entity selection in the U.S. Certainly, there’s going to be a legal aspect to that, but we’re obviously here focusing on the tax component.

00:03:15
Craig: And so a lot of times, companies will want to set up a separate U.S. subsidiary, which will help manage taxation by that foreign parent. Usually, foreign entities don’t want to be subject to U.S. tax. We want to think about, both from an operating standpoint, how is that foreign entity going to be subject to U.S. tax, if at all.

00:03:36
Craig: But then we also want to think about the exit. What are the exit considerations? And whether or not, if that foreign entity is looking to one day sell that U.S. operation, trying to at least create single-layer taxation when we set up this whole structure, so that they’re not subject to two layers of U.S. taxation.

00:03:56
Vince: That concludes this episode. Please join us for the next edition of Weaver: Beyond the Numbers for solutions for your cross-border activities.

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