Most people know the United States of America as a leader in filmmaking, sports, technological advancements, and so on. But not many are aware that the USA is also a popular destination for an offshore company.
From increased credibility to easier access for your products and services to a major consumer economy, there are several reasons to set up an offshore company in the USA.
In this article, we’ll explain what offshore companies in the USA are and the requirements for setting one up. We’ll then highlight the best American states for an offshore company and the benefits and challenges of offshoring in each.
This Article Contains:
(Click on the links below to go to a specific section)
- What is an Offshore Company?
- 3 Key Requirements for Offshore Companies in the USA
- Top 4 States to Set Up an Offshore Company in the USA
Let’s get started.
What is an Offshore Company?
An offshore company is a legal entity in a country other than your country of residence.
In other words, an offshore company is an entity that manages the business operations you set up in another country.
For example, if you live in Norway and open an offshore drilling company in the United States to do business there or internationally, that’s an offshore company.
With offshoring, you can either:
- Set up your operation in a foreign country and hire your own team.
- Assign part of your business operations to a foreign third-party services provider. Their team would do the work.
What makes the USA an attractive offshoring destination?
Setting up an offshore company in the USA lets you take advantage of the country’s excellent infrastructure, global reputation and attract more investors and venture capitalists.
Additionally, the USA is a tax haven as it offers certain tax privileges to foreign investors.
Businesses may also set up an offshore company in the USA if they want to gain easier access to the American market, one of the world’s largest consumer markets.
And when you register an offshore company in the United States, you can set up a Limited Liability Company (LLC). USA LLCs are corporations where the partners are not liable for the liabilities of the company.
3 Key Requirements for Offshore Companies in the USA
If you’re considering setting up an offshore company in the USA, there are a few things you should be aware of first. It doesn’t matter whether it’s offshore drilling companies or software development firms.
Key requirements for offshoring in the United States include:
1. Registration With the Federal Government
You may need to register your offshore corporation with federal government departments, depending on the nature of your business.
For example, when importing food, pharmaceuticals, or medical devices into the USA. You’ll have to register the business with The Food and Drug Administration.
Or if your offshore company works for the US military, you must register it with the Directorate of Defense Trade Controls, part of the US Department of State.
You’ll need to do your research regarding which federal US departments to register your company with.
2. Registration With the Internal Revenue Service
According to the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions need to register with the IRS (Internal Revenue Service) and report the identity of their US account holders.
A foreign financial institution can be a bank, brokerage, trust, mutual fund, hedge fund, or an insurance company that offers life insurance or annuities. And account-holders may be either individuals or foreign companies.
So if you set up an offshore company in the USA and open bank accounts in your country of residence or outside of the USA, you may need to register with the IRS.
However, non-profit organizations are exempt from these reporting requirements.
Additionally, foreign financial institutions that register with the IRS must withhold 30% of all payments to foreign payees, including US taxpayers who are subject to federal income tax.
Non-compliant foreign financial institutions could face an IRS investigation and penalties levied by the US government.
3. Registration With the State Government
An overseas corporation may establish a US subsidiary, but the subsidiary must register in the state where it’s headquartered — in other words, where it does business.
The subsidiary will pay federal and state income taxes on money it earns, including capital raised by issuing shares or contracting for loans. However, some US states don’t require foreign companies to pay the state tax rate, including Wyoming, Delaware, and Oregon.
Additionally, if a foreign company partners with a US-based company and forms an offshore company or LLC, the business is subject to state-specific registration requirements.
Top 4 States to Set Up an Offshore Company in the USA
The USA is a federal republic located in North America, bordered by Mexico on the south and Canada on the north. It has fifty states, with Alaska bordering the Arctic Ocean, and a Federal District – Washington, DC, that also serves as the US capital.
There are no citizenship requirements for a company formation in the USA. So regardless of your country of residence or citizenship, you can register a company in any state.
And while each jurisdiction or state offers its own offshoring benefits and challenges, here are the four most popular offshoring destinations in the US:
Wyoming is a state in the western part of the country, and its capital city is Cheyenne. Although this state is the tenth-largest in size, it has the lowest population.
To attract investment, Wyoming has some of the most business-friendly tax laws. The state has no personal, corporate, or value-added tax.
But like all states, there are benefits and challenges of choosing Wyoming to register your offshore company, including:
- LLCs (Limited Liability Companies) pay no state income tax.
- Business owners with LLCs registered in Wyoming get a certain amount of asset protection. So if your business runs into trouble, your personal assets are protected.
- Due to privacy laws, you don’t have to provide the state with a list of members or managers, as you need to in some other states.
- In Wyoming, there is no limit on the number of owners a business can have. Additionally, you can transfer ownership if you sell the company.
- The costs to set up an LLC (Limited Liability Corporation) is lower than in Delaware and other states.
- Although there is some degree of asset protection, it’s not guaranteed. Wyoming does have asset protection laws, but you may have to deal with conflicting rules. The Wyoming asset protection laws may become irrelevant and lose some of their benefits depending on your home country or state’s local laws.
- Wyoming companies have some privacy, but you must provide a complete list of company members and managers to the state. You must also disclose their telephone numbers and contact addresses. The address can’t be a post office box – it must be a physical address.
Delaware is one of the Middle Atlantic states on the north-eastern part of the Delmarva Peninsula, with Dover as its capital city.
Interestingly, 67.8% of Fortune 500 companies are Delaware entities!
Here are the benefits and challenges of registering a company in Delaware:
- You’ll pay no state income tax.
- One individual can hold all the positions within the company. In other words, you can function as the sole owner of a corporation or LLC.
- Registering a company in Delaware is convenient, no matter where you are in the world. The Delaware Division of Corporations allows certain Delaware Registered Agents to maintain a direct online connection to its electronic database for fast filing and document retrieval.
- Venture capitalists and other investors prefer investing in Delaware companies rather than corporations formed in other states due to favorable state laws.
- Delaware has a Court of Chancery that handles only corporation cases, and the judges are experts in corporate law. The decisions from the court are usually more consistent and predictable than those in other states.
- Filing is more expensive in Delaware than it is in other states like Oregon.
- If you’re choosing this state for tax purposes, remember that you won’t pay income tax in Delaware. But you’ll have to pay the Delaware franchise tax based on the company shares’ value if you decide to franchise. It increases as the number of shares rises and as the share value goes up.
- You’ll need a Delaware registered agent to file your registration papers and who can accept legal filings on your behalf. This may require hiring someone in the state and could cost you extra money.
- Any legal proceedings will require you to travel to Delaware and retain legal counsel from the state to represent you. If you have to travel around the world, this could be costly and inconvenient.
Oregon is a state in the Pacific Northwest of the United States. Although Salem is its capital city, Portland is its largest city and a major business hub.
It has some of the lowest operating costs in the country. The cost of buying land in Oregon is about 75% less than in San Francisco and other popular US business hubs.
These are some of the benefits and challenges of offshoring in Oregon:
- Similar to Wyoming, when registering an offshore company in Oregon, business owners are safe from personal liability from business debts. So if your business runs into trouble, your personal assets are protected.
- Doing business is relatively easy. Filing and management of business papers for your Oregon-based company are simple compared to other states.
- If you register a new business in Oregon, there are potential tax benefits and tax credits. For example, the Oregon New Markets Tax Credit (NMTC), previously known as the “Oregon Low Income Community Jobs Initiative.” The aim is to promote financial investments by businesses and create new jobs in low-income communities.
- If your LLC does business in Oregon, you don’t need to pay sales tax to the state.
- You’ll need to engage the services of a registered Oregon-based agent with a street address in that state. This could add to your expenses.
- An LLC (Limited Liability Corporation) is best for foreign owners, but your company name must end with the words “Limited Liability Company” or “LLC.” This can deter some investors who may be hesitant to invest in a company where the owner has no personal liability.
Nevada is a state in the western part of the USA. While Carson City is its capital, its most famous city is Las Vegas — a tourism and entertainment hotspot.
This state is exceptionally business-friendly with many tax incentives and business assistance programs. In Nevada, you’ll pay no personal, corporate, or franchise tax.
Some of the benefits and challenges of offshoring in Nevada include:
- Nevada has no personal income tax and imposes no fees on corporate shares.
- Stockholders, directors, and officers of corporations are not required to reside in or hold an annual meeting to present the annual report in Nevada.
- Officers and directors of a corporation are protected from any personal liability. Creditors can’t pursue the personal assets (house, savings accounts, etc.) of the owners to pay for business debts.
- If you register your company in Nevada, you’ll need to file an annual tax return with the state.
- Nevada doesn’t offer business owners as much privacy as other states like Wyoming. It requires you to list all officers and directors on the business license.
- The yearly fee for incorporating your company in Nevada is higher than in other states.
Whether you want to make your business more attractive to investors or gain access to the North American market, offshoring in the USA may be the answer.
Although offshoring in the USA has several pros, there are also some essential requirements and challenges you should be aware of. Additionally, choosing the right state for your offshoring company is crucial.
Hopefully, the information we’ve provided here will help you make your decision and give your offshoring venture a push in the right direction!
Lauren Soucy is the VP of Marketing for Time Doctor, the world’s leading time tracking and productivity software. She has 15+ years of experience in marketing at fast-paced companies. Her first passion is SEO, she can’t start her day without coffee, and she enjoys spending time at the beach with her two boys and her husband.