Incorporated in US but expenses in another country?


1

I'm forming a US C corporation in Delaware. Paid the service fees to a lawyer and everything's ready to be filed.

My goals are very simple as:

  1. Having a US presence for user credibility,
  2. Opening a US bank account,
  3. Using advanced PayPal features only available to US entities,
  4. If things go well, I will want to move it to US

Several of my websites will be transferred to this corp and the income flow will be going like this:

Customer payments -> corp PayPal account (used to be my personal
business account)
-> corp bank account in US -> wire to my China or
Hong Kong bank account

Would there be any problem for me in terms of taxation?

One problem I can see now is that as the expenses are mostly incurred here in China, how do I deduct them from my revenue that is received to my United States bank account?

Apparently I don't want to be taxed for profits I didn't earn. Any advice on how I can make this work without paying an arm and a leg?

Incorporation Tax USA

asked Nov 20 '12 at 17:07
Blank
Kavoir.Com
129 points

1 Answer


1

You should really get a professional consultation with a US CPA savy in international corporation taxation. Tax-wise, you might have been better off with a DE LLC, not a corp.

Consider this:

  1. All corp income is taxed at corp rates (as a foreigner you cannot benefit from the pass-through taxation of a S-Corp structure, you could have benefited from a similar pass-through taxation with LLC).
  2. Your payments to China/HK will be taxed (in the US!) and you'll have to withhold the taxes and remit them to the IRS (check rules and treaties, etc).
  3. Your foreign entity will have to file non-resident tax returns in the US to get back the portion of the withheld funds that exceed your actual tax liability.
  4. If your foreign entity is a subdivision of your US corp, it gets really messy and ugly.

Bottom line, you should first ask, and then do. I'm not a professional, and this is not a tax advice. It is my personal opinion that you've dig quite a hole for yourself. You should get a competent professional American CPA ASAP, and hold the papers and not file until you know exactly what you're getting yourself into.

answered Nov 20 '12 at 19:47
Blank
Littleadv
5,090 points
  • Thanks a lot for your tips. They help a lot. I did do some research between a Corp and an LLC but never knew the corp would even be paying taxes for sending money to someone in another country. My primary goal is to open a US bank account. Can LLC do that without me having to come to US in person? Does LLC pay taxes for sending money to a foreign country? – Kavoir.Com 6 years ago
  • LLC is an entity just as the Corp, and is governed by the laws of the states. If in that state you can open a bank account for a corp - you also can for LLC. Tax treatment is significantly different. LLC is (by default) disregarded for tax purposes, which means you won't have the double taxation that you'll have with the C-Corp. Bottom line - get a proper tax consultation. – Littleadv 6 years ago
  • thanks for the kind help. Do you know where I can find a tax consultant to get my concerns and questions solved? – Kavoir.Com 6 years ago
  • Say I (a foreigner in China) form a corp and the corp pays me (one of the shareholders) a dividend or any other compensation, the corp would withhold any taxes on this payment and then file a W-8BEN form to establish me as a non-resident alien. After filing the W-8BEN form, the corp will get the taxes back from the IRS. Is this correct? – Kavoir.Com 6 years ago
  • No. W-8BEN is what you file with the corp so that they'd know who you are. If you don't they must withhold the maximum, but on W-8BEN you can claim treaty benefits that may reduce the withholding. Check the relevant treaty. The corp doesn't get the taxes back, you do. – Littleadv 6 years ago
  • Thanks. I thought the W-8BEN form would be submitted to IRS by the corp? I would first fill it of course and hand it over to the corp. – Kavoir.Com 6 years ago
  • It will only be submitted by request (if the corp is audited, which is likely, they might ask for that). – Littleadv 6 years ago
  • Thank you so much for the help. This is starting to make sense to me. – Kavoir.Com 6 years ago

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