Are you preparing to expand your German business to the United States? Congratulations! You are about to embark on an exciting journey, one that will provide you with valuable opportunities to extend your reach and customer base. Before you take the leap, here are five tasks you should check off on your to-do list:
Step 1: Determine your entity type
First, decide what entity structure would best suit your worldwide tax goals. Many multinational companies opt to establish either a partnership or a corporation, such as a limited liability company (LLC). It is advised to choose the entity type that is consistent with your company’s ownership structure in Germany. There are a few key questions to consider: Will your owners work in the US? What kind of legal protection do you need? Does your company require a two-tier ownership structure for additional legal protection? In addition to enlisting a qualified international tax team for guidance in this area, it is also essential to retain an attorney who can help you navigate the legal aspects of your entity creation.
Step 2: Understand your income tax obligations
In the US, companies are subjected to several different levels of taxation, including federal, state and local taxes. Tax rates can range from around 25% to 40%, depending on if your US entity is structured as a corporation or a partnership. The way in which your US holdings are structured can be an important factor in optimizing your worldwide tax rate. Your international tax advisory team can design and implement strategies that allow you to reduce tax risk and taxes paid while protecting your bottom line.
Step 3: Know your sales tax liability
Though the US does not have the value-added tax (VAT) system that most Europeans are accustomed to, US entities will be subject to sales tax, which is imposed on sales of products to customers. Sales tax rates vary significantly across all 50 US states and localities. While sales tax is typically imposed on the sales of tangible products, certain software and SaaS products may also trigger sales tax, depending on the state.
Step 4: Arrange bookkeeping
There are no requirements stating that companies must keep their bookkeeping activities in the US, which means you can choose to handle bookkeeping in-house in Germany. That said, it is important to make sure that your bookkeeping reflects US generally accepted accounting principles (GAAP) or another set of accounting rules that can be used in the US.
Step 5: Hire employees
If you decide to hire employees in the US, you will need to determine how they get paid, and what benefits you want to offer them. There are a few ways your company can handle this: you can use a Professional Employer Organization (PEO), which is similar to the Employer of Record offering used by companies in Europe. PEOs manage your payroll and benefits, reducing the administrative burden for your business while enabling you to offer better benefits to your employees. If you decide to directly employ your US employees, a professional team can handle payroll filings and help you decide how to provide benefits.
No matter what path you choose, Aprio can help you make the best-possible decision for your situation.
About Kristin Maeckel
Kristin is a partner in Aprio’s International Tax practice. She focuses on consulting and US tax compliance for multi-national corporations in the manufacturing/ distribution and technology space. As native German speaker, many of her clients are German entities doing business in the US, but she also serves many clients from other European countries. Her client base includes a variety of technology, SaaS, e-commerce and manufacturing and distribution companies, including many foreign firms starting to do business in the US.
Are you interested in expanding your German business to the US and need help navigating the process? As a one-stop service provider, Aprio delivers advisory, assurance, tax, outsourcing, staffing and private client services to multinational corporations and individuals — from promising startups to market leaders alike. Contact Kristin to start the conversation and schedule a consultation!
Contact: kristin.maeckel@aprio.com | +1 770-353-8606 | LinkedIn
