Doing Business in the United States

The United States continues to attract global investors, thanks to its transparent legal system and strict adherence to Generally Accepted Accounting Principles (GAAP), which together ensure regulatory clarity and reliable financial reporting.  

Foreign businesses must carefully navigate the treatment of foreign income taxes for federal income tax purposes, especially considering the cross-border provisions introduced under the 2017 Tax Cuts and Jobs Act (TCJA), which significantly altered U.S. international taxation rules. Understanding the evolving regulatory landscape is essential for companies aiming to remain competitive while expanding their operations in the U.S. market. 

The TCJA—one of the most significant pieces of U.S. tax reform legislation—shifted the U.S. toward a modified territorial system and introduced major measures, including Global Intangible Low-Taxed Income (GILTI), Foreign-Derived Intangible Income (FDII), and the Base Erosion Anti-Abuse Tax (BEAT). 

CONTENT INDEX

Business Structures | Political and Economic Overview | Corporate Tax |  Payroll Taxes | Business Culture

Challenges of doing business in the U.S. 

In today’s digital economy, financial institutions, federal agencies, and businesses conducting business activities in the U.S. increasingly leverage platforms beyond Google, creating a competitive environment where intellectual property systems, franchise tax questions, and policy frameworks like those studied by the Tax Foundation play a crucial role. 

Foreign Investment 

Foreign investors face various challenges when entering the U.S. market, including navigating complex regulatory approvals, restrictions on certain sectors, and compliance with both federal and state-level tax laws. Understanding the nuances of investment screening under the Committee on Foreign Investment in the United States (CFIUS) and managing currency exchange risks are also critical factors for successful market entry. 

Litigation Risk 

The United States is known for its litigious environment, which presents significant risks for businesses. Companies must prepare for potential lawsuits related to contracts, intellectual property, employment, and regulatory compliance. Effective risk management and legal counsel are essential to mitigate the high costs and reputational damage associated with litigation. 

Internal Revenue Code and Anti-Money Laundering 

Compliance with the Internal Revenue Code (IRC) is fundamental for all businesses operating in the U.S., especially regarding tax reporting and payment obligations. Additionally, stringent anti-money laundering (AML) regulations enforced by agencies like the Financial Crimes Enforcement Network (FinCEN) require companies to implement robust compliance programs to detect and prevent illicit financial activities. 

Political and Economic Overview of the United States 

• Total population: 341million (2025 estimate) 

• Currency: U.S. Dollar (USD) 

• Official language: English 

• Political system: politics functions within the framework of a constitutional federal democratic republic with a presidential system. The three distinct branches share powers: Congress, which forms the legislative branch, a bicameral legislative body comprising the House of Representatives and the Senate; the executive branch, which is headed by the president of the United States, who serves as the country's head of state and government; and the judicial branch, composed of the Supreme Court and lower federal courts, and which exercises judicial power. 

• Tax treaties: The U.S. maintains more than 60 income tax treaties with countries around the world to prevent double taxation and promote cross-border investment. 

Business Structures 

Foreign investors entering the U.S. market must select a legal structure that aligns with their business objectives, tax strategy, and regulatory requirements. 

Sole Proprietorship

• The simplest form of business, owned and operated by a single individual 

• No legal separation between the owner and the company. 

• Profits are taxed directly to the owner (pass-through taxation) 

• Not recommended for foreign investors due to a lack of liability protection and limited access to credit 

Limited Liability Company (LLC)

• Their profits and losses are passed through to members, who report them on their individual tax returns. 

• LLCs do not pay taxes on their profits directly. 

• No U.S. residency requirement for members 

• Popular among foreign investors due to operational flexibility 

• The regulation of LLCs varies from state to state. 

Corporation (C Corporation)

• Treated as a separate legal and tax entity 

• Suitable for companies seeking to raise capital or go public 

• Allows for unlimited shareholders, including foreign entities 

• Offers strong legal protection and structured governance 

S Corporation

• Offers pass-through taxation, avoiding corporate-level tax 

• Restricted to 100 shareholders, all of whom must be U.S. citizens or residents 

• Not typically available to foreign investors, but relevant in U.S. joint ventures 

• Subject to strict eligibility and filing requirements with the IRS. 

Selecting the right structure is essential for optimizing tax efficiency, protecting assets, and ensuring compliance with U.S. laws. It is advisable to consult with legal and tax professionals before registering any entity. 

Corporate Tax in the United States 

The U.S. corporate tax system is one of the most sophisticated in the world, administered primarily by the Internal Revenue Service (IRS) and influenced by both federal and local governments. Businesses operating in the U.S.—whether domestic or foreign—must understand how taxable income is calculated, which tax deductions and tax credits apply, and how their income fits within federal tax brackets. These elements are essential not only for compliance but also for effective tax planning and forecasting. 

• The United States taxes resident corporations at a flat rate of 21%. 

• Note that the US tax reform legislation enacted on 22 December 2017, the Tax Cuts and Jobs Act of 2017 (P.L. 115-97 or so-called TCJA), significantly revised the US federal income tax regime, moving it away from a ’worldwide‘ system of corporate taxation towards a ’territorial‘ system of taxation. 

• Corporate alternative minimum tax is a 15% minimum tax on adjusted financial statement income (AFSI) of C corporations. 

• S corporations generally are not subject to US federal income tax. 

• Foreign corporations and non-resident alien individuals are subject to a yearly 4% tax on their US-source gross transportation income (USSGTI) 

• CIT rates vary from state to state and generally range from 1% to 10% (although some states impose no income tax). 

Taxable Income and Corporate Tax Rates 

Corporations are taxed on their taxable income, which is calculated by subtracting allowable business expenses, tax deductions, and applicable tax credits from gross revenue. The federal corporate income tax rate is currently flat at 21%, but local governments (states and some municipalities) may impose additional corporate taxes that vary widely across jurisdictions. 

While the corporate rate is fixed at the federal level, U.S. businesses are also subject to state and local taxes, which may have their own tax rates, rules for income apportionment, and filing obligations. These differences can have a significant impact on a company’s effective tax rate, especially for businesses operating in multiple states. 

U.S. Tax Considerations for Foreign Investors 

Foreign investors in the U.S. must comply with various government requirements, including income tax reporting, entity classification, and international disclosures. Understanding these from the start can help avoid penalties and ensure smooth operation. 

• FATCA is a federal law enacted in 2010, requiring foreign financial institutions to identify and report accounts held by U.S. taxpayers—or by foreign entities significantly owned by U.S. persons—to the Internal Revenue Service (IRS). 

• Non-compliance by FFIs can lead to a 30% withholding tax on certain U.S.-source payments, including passive income or proceeds from the sale of U.S. securities. 

• Penalties are substantial: failure to file Form 8938 can trigger fines starting at $10,000—with increases to $50,000 if the violation continues after IRS notification—and additional penalties of up to 40% on understatement of tax liability. 

Tax Year and Filing Requirements 

Most corporations adopt a tax year that matches the calendar year, although alternative fiscal years are permitted with IRS approval. Businesses must file an annual corporate income tax return (Form 1120 for C corporations) with the Internal Revenue Service, reporting their taxable income and any eligible tax deductions or credits. Accurate record-keeping, alignment with Generally Accepted Accounting Principles (GAAP), and compliance with filing deadlines are crucial to avoiding penalties and interest. 

Tax Planning Strategies 

To optimize tax outcomes, many corporations rely on strategic planning that includes accelerated depreciation, research and development (R&D) credits, and deductions related to employee benefits, interest expenses, and operational costs. Understanding how to effectively structure these incentives within the framework of federal and local government tax rules is essential for maximizing net profits and maintaining compliance. 

Impact on the U.S. Economy 

Corporate income tax plays a significant role in the U.S. economy, contributing to infrastructure, defense, and public services. Although it accounts for a smaller portion of total federal revenue compared to individual income tax, it remains a key component of public finance and policy. In 2024, corporate tax revenues represented a notable share of the federal budget, reflecting the country's strong gross domestic product (GDP) performance and corporate profitability levels. 

Payroll Taxes in the United States: Obligations for Employers and Resident Corporations 

Payroll taxes support essential social programs and are applied to income earned by employees through wages, salaries, and ordinary income. Employers must navigate a complex system of federal, state, and local payroll tax obligations to remain compliant and avoid penalties. 

Foreign-owned companies and their foreign subsidiaries operating in the United States must adhere to the federal-level provisions of the Fair Labor Standards Act (FLSA), which obliges employers to pay overtime pay at one and one‑half times an employee’s regular rate for any hours worked over 40 in a standard workweek. 

Payroll taxes in the United States include several mandatory contributions: 

1. Federal Insurance Contributions Act (FICA): Covers Social Security and Medicare taxes, shared between employers and employees. 

1. Federal Unemployment Tax Act (FUTA): Paid solely by employers to fund unemployment compensation. 

1. State unemployment insurance (SUI): Varies by state, with additional rules for disability insurance in states like California, New Jersey, and New York. 

1. Withholding of federal and state income taxes: Employers are responsible for withholding taxes on the income earned by employees, which includes both wages and other forms of ordinary income. 

American business and social culture 

American business culture emphasizes individual accountability, efficiency, and results-oriented communication. Decision-making tends to be pragmatic and data-driven, with a focus on measurable outcomes and return on investment. Meetings are often direct and time-sensitive, and professionals value clarity, punctuality, and follow-through. 

Business Etiquette 

Attire expectations vary by industry, but business casual is widely accepted. In finance, law, or government-related sectors, more formal clothing may be required. 

Communication 

Americans tend to communicate clearly and assertively, often getting to the point quickly. Diplomatic but straightforward language is preferred in business settings. 

Punctuality 

Arriving on time at meetings is considered a sign of respect and professionalism. Being late, even by a few minutes, can be perceived as disorganized or uncommitted. 

Accommodation 

Four major cities in the United States that are ideal for doing business are New York City, followed by Washington, D.C., Los Angeles, and Chicago. The most notable hotels for a perfect stay are the Four Seasons Hotel New York Downtown, the Waldorf Astoria Beverly Hills in Los Angeles, The Langham Chicago, and The Ritz-Carlton Georgetown in Washington, D.C. 

Embassy and Consular Services 

Embassies and consulates play a pivotal role in supporting foreign businesses and investors in the U.S. They provide guidance on visa applications, legal requirements, and cultural orientation. Establishing contact with the embassy of your home country can facilitate smoother business operations and help resolve challenges related to immigration or legal compliance.