Applicable taxes in the USA
- Important note -
Please note that this explanation cannot replace a consultation with a tax attorney specializing in U.S. taxation and in the tax laws of your country of residence. MERRITT is not authorized to provide this type of advice.
The main taxes in the USA
The main corporate taxes and levies in the USA are as follows:
Federal income tax
US federal tax on personal income - tax of up to 37%.
State income tax
State-level tax on personal income - it does not exist in the state of Florida.
State sales tax
When are you subject to federal income tax?
You are subject to Federal income tax only if your entity is located in a US state and you conduct business in the USA. This is referred to as being "Engaged in a Trade or Business in the US", abbreviated as "ETBUS". You are considered "ETBUS" only if you have a dependent agent in the USA and that agent carries out substantial business activities for your company in the USA (as opposed to purely administrative activities).
Having an employee or subcontractor who works primarily for your company qualifies as having a dependent agent. Conversely, having a client such as Amazon (which works for thousands of companies) does not. Therefore, having a client, supplier, or bank account in the USA is not a criterion for being subject to US tax.
If you are not "ETBUS", there is no tax to pay in the USA.
If you are "ETBUS", there are 2 possible taxation methods:
- Partnership taxation (tax transparency): the partners individually pay the tax, rather than the company itself. This is a considerable tax advantage.
- Corporation taxation (tax opacity): the company that conducts business and manages its affairs is taxed directly in its own name.
What taxation applies to a company in the USA?
The main taxation cases
Case No. 1 - No taxation in the USA
The company pays no taxes in the USA. Our USA company formation offer applies only to this case!
Note no. 1: to ensure that the U.S. tax administration (IRS) does not tax the company, the company must be classified as a "disregarded entity". In theory, it is possible to request a tax exemption if the company has multiple members, but by default the IRS then taxes the company as a Partnership taxation entity (case no. 2.A below). As a precaution, we therefore recommend that the company have only one member to ensure its "disregarded entity" tax status.
Note no. 2: a "disregarded entity" means that the company is not taxed in the USA because its sole member reports its income separately and is therefore taxed in their country of tax residence. This is the principle of tax transparency. We recommend that you confirm this point with a tax attorney in your country of personal tax residence.
Case No. 2 - Tax Option A
Partnership taxation
The company’s partners pay tax on their income (federal income tax), with a maximum tax rate of 37%. There is no state income tax in Florida (as in Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming).
Case No. 2 - Tax Choice B
Corporate taxation
The company is subject to a 21% tax on its profits (Federal corporate tax rate) and a 5.5% tax (State corporation tax rate), and its partners then pay tax on their income (federal income tax) according to the tax brackets above. There is no state income tax in Florida.
Passive income
All passive income (dividends, interest, and royalties) is subject to a 30% withholding tax. This rate may be reduced (down to 0%) if a tax treaty applies. The existence of a tax treaty is therefore a financial advantage for partners who plan to settle in Florida.