US Corprate Taxes
There are three levels of taxation in the USA:
- Federal Income Tax: federal tax;
- State Income Tax: none in Florida;
- State Sales Tax: 6% on all sales of goods, storage, or rentals located in Florida. Services or sales outside Florida do not apply. Any goods sold in another US state will be subject to the Sales Tax of that state.
The most important tax is therefore the Federal Income Tax. This tax regime is quite complicated to understand, but we will try to explain it to you simply it. The first question to answer is whether or not your company is taxable in the US.
You are subject to the Federal Income Tax only if you conduct a business activity in the USA. This is the concept of Engaged in a Trade or Business in the US (ETBUS). You are classified as ETBUS only if you have a dependent agent in the US and this agent constitutes a substantial activity for your company in the US, as opposed to a purely administrative activity.
If you have an employee or subcontractor who works primarily for your company, this qualifies as a dependent agent. On the other hand, having a client like Amazon that works for thousands of companies does not qualify. Importantly, having a customer/ supplier or a bank account in the US is not a criterion for US tax liability.
Here is a diagram summarizing the applicable taxation:
Transparent or Opaque?
If you are not ETBUS, there is no tax to pay in the USA. Total tax exemption is only possible if the company has a sole natural person partner (a Disregarded Entity) and is a non-resident of the USA.
If you are ETBUS, there are 2 possibilities of taxation:
– Partnership taxation: it is the partners themselves who are affected by the tax, rather than the company as a whole. The company is considered to be a transparent entity with respect to tax law;
– Corporation taxation: the company is automatically taxed as a legal entity in its own right. The company is considered to be an opaque screen between the tax law and the partners.
Usually, Partnership Taxation is the more appealing option. However, if the company does not distribute its profits, then Corporation Taxation is more appealing because the corporate tax rate is usually lower than the highest tax brackets for personal income and there is no double taxation on the undistributed income. With Partnership Taxation, even if the income is not distributed, it will still be taxable for each partner. It is possible to switch between tax systems every 5 years.
Note that there is another regime: S corporation taxation. This type of company is only for US residents, which is not the subject of this website.