Can a foreigner start a startup in the USA without being a resident?
The term "startup" has been trending in the world for about 15 years, and the United States is the country with the highest proportion of successful startups. It is estimated that North America is the epicenter of action for at least 63,700 commercially successful startups by the first quarter of 2021.
It is an important figure considering that only 2 out of 5 of these new ventures reach profitability, 67% of that figure started as a business from home. From that point of view, can a foreigner start a startup in the United States without being a resident in that country?
And without much further ado, the answer is Yes!
Every day, foreign nationals residing outside the U.S. (non-resident aliens) setup small online businesses and start-ups, aiming at a business nexus with the United States. Accessing the North American market is taking advantage of the potential of the largest domestic market and the first economy in the world, and it is feasible to achieve this without establishing a physical presence or permanent residence in the US, thanks to the internet boom.
But starting a startup in the USA without being a resident is not something that you should improvise about; planning is crucial, as well as the series of steps necessary to register your idea, protect it and achieve tax and accounting legal status, all to avoid a premature closure or break the law.
Join us in the series of steps and recommendations to start a Startup in the United States without being a resident.
Recommended reading: How to start a business in the United States?
How to start a Startup in the U.S. as a non-resident?
Although each case is different, generally speaking, in order to operate formally a start-up or an online business in the United States, as a non-resident foreigner you must:
Sort your ideas by formulating a business plan
Even the most revolutionary idea or the most promising startup for a niche market can fail without the correct formulation, implementation and evaluation of a plan. The business plan is a document that brings together premises and exhaustive market, technical and financial aspects related to the business idea.
It is a tool for both planning and communication, an exhaustive forecasting exercise that even though it does not guarantee the success of a new business model, it can contribute greatly to reducing the chances of failure. It will also facilitate access to loans or private capital.
Moreover, if you want to bring and implement your idea physically in the U.S., the Citizenship Service (USCIS) and other authorities will ask you for a plan. You'll even be able to use the plan to convince people to work toward your business idea, get credit from suppliers, earn certifications, and attract potential customers. This reflective exercise can even help you discover mistakes in your idea and correct them in a timely manner.
Choose the state and register your business
The next step to start a Startup in the USA without being a resident, is to develop the idea and the plan into a commercial structure, registering your business with the Department of Corporations in the state where you mostly hope to promote your service or product. This will be the state with the greatest commercial nexus, this is recommended but not exhaustive. And it will all depend on the scope of your intentions.
There are many elements that can lead you to bet on one state instead of another when registering your startup. From the "tax climate" to the average entrepreneurship rate, these are factors that should guide your decision.
Never dismiss consumption patterns, business survival and entrepreneurship rates; use these indicators as a framework for analysis and comparison. State tax rates and regimes are important, as well as licenses, permits, paperwork and registration fees, which vary significantly from state to state.
If you'll just register a legal entity in the U.S. with the sole purpose of offering a product or service online, structures such as LLC/Sole Proprietorship and states like Wyoming or Delaware are the common denominator, or something like a "cliché" for many.
Now, if you're going to hire payroll locally, labor costs change based on average household income. Whether you will establish physical locations or locations within the U.S. for any type of operation, keep in mind that you must file state and federal taxes.
In this case, in addition, the proximity to suppliers and logistics centers, as well as risk factors for climate and natural disasters, droughts, biological events, and other factors such as protectionist measures, can make a difference. According to U.S.News and Forbes locations such as: Florida, Texas, Arizona, Nevada, Utah and South Dakota top the list of the best states for entrepreneurs.
Protect your intellectual creation
According to Forbes, 7 out of 10 founders of a startup realize that their intellectual property is not a competitive advantage, but for 3 out of 10, it is. Therefore, it is appropriate to protect your intellectual property, whether it is software, patents, trademarks or copyrights.
Patents, trademarks and copyrights are the 3 ways to protect your intellectual property or unique creations.
- Patent: It is the way to register a unique process, device or invention.
- Brand: It is the name, slogan, logo, colors or other differentiating elements of a product or service.
- Copyright: The way to register literary, audiovisual or artistic creations,it also includes software.
Copyrights are only registered at the federal level, with the U.S. Copyright Office of the Library of Congress.
Patents must be registered with the U.S. Patent and Trademark Office (USPTO). As for trademarks and service brands, depending on the scope, they may registered at the federal (usPTO) or state level with the State Trademark Services Office.
Hire a business mail management service in the U.S.
When starting a startup in the USA without being a resident, it is necessary to set up a physical address in the U.S. for the purposes of mail, marketing, banking and government procedures. For some foreign online businesses under the ecommerce format, it is enough to use the address of your registered agent; however, in some cases this address is used by hundreds of small businesses and it may not cover all your logistical requirements.
Many foreign entrepreneurs opt for the services of a P.O. Boxof the Postal Service (USPS), of a supplier endorsed by it, or some private logistics and parcel services provider. Some private companies offer the service of virtual office and mail with physical address included for parcel and mail management.
It is advisable that you hire these services in the same state where you register your startup or Small Business.
Keep in mind that if you use the extensive services of a logistics provider in the U.S. for the shipping of your goods, your operations are likely to be subject to federal taxes.
Apply for an EIN with the IRS
For subsequent procedures such as opening bank accounts, paying federal taxes, or hiring employees for your U.S. operations, you will need an Employer Identification Number (EIN). According to the Internal Revenue Service (IRS), you can apply for an EIN online if you have a business in the U.S. and you have an SSN or failing that, an ITIN.
You can also apply for an EIN via email, phone or fax by completing the IRS Form SS-4. You can authorize a third party to process it as your registrar agent.
Open a bank account in the USA and explore the payment processing market
With your company registration and EIN, it's time to open a bank account in the name of your startup. Traditional banks will probably ask you to actually go to a branch to open an account, although many already allow the opening of accounts 100% online.
Alternatively, the offer of "neobanks" or online banks are easily accessible and they charge competitive commissions. Also, if you expect to receive payments for your products or services through credit cards, it's a good idea to get the services of a payment processor.
At this point, it is important that you research market options such as: Wise (formerly TransferWise), PayPal, Payoneer, 2CO or Square. These are just some of many options and service models that you can explore.
Hire accounting and tax services
Another advisable step to start a Startup in the USA. is hiring professional accounting and tax advisory services. International accounting standards, accurate reporting and careful analysis will allow you to assess the financial health of your startup and achieve its business objectives.
In addition, expert professionals in U.S. tax and international tax matters will help you handle tax matters holistically, in addition to providing you with the necessary advice to minimize your tax liability in the U.S.
Recommended reading: Business Consulting, a model based on integral solutions.
Start a Startup in the U.S. as a non-resident – To sum up
There are many business model variants that will determine which proceedings are necessary when starting a startup in the United States as a non-resident foreigner.
For example, if you have an online store and you ship your product directly to end consumers in the USA, without contracting logistics services within the country, it is likely that the transaction is not subject to federal taxes in the U.S.
On the other hand, if you sell or maintain a business nexus in a state that charges sales tax on your items, you will most likely have to withhold sales tax and offset it; for this, you must register in the state revenue department. We are talking about a very wide range of possibilities and each case must be analyzed.
You should keep in mind that establishing a startup in the U.S. as a non-resident can be simple when you have the help of a team expert on business start-ups, taxes, logistics and even immigration procedures.
The comprehensive support of the best experts at GBS Group is within reach.