International Business

For business owners and investors from Canada, the United Kingdom, Australia, and across Europe, entering the U.S. market offers unmatched scale, direct access to capital, and a dynamic consumer base.

At the same time, the United States presents a dual-layered regulatory and tax framework that can quickly catch unadvised investors off guard. Structuring an inbound investment thoughtfully from day one protects capital, prevents double taxation, and makes day-to-day operations straightforward.

Entity Selection & Hybrid Entity Traps

How you organize your U.S. presence dictates your tax baseline. While the domestic Limited Liability Company (LLC) is standard in the U.S. for its single-layer pass-through taxation, it often creates significant headaches for foreign parent entities.

Tax authorities in jurisdictions like Canada and the U.K. treat U.S. LLCs as opaque corporate entities rather than pass-throughs. This mismatch can strip away treaty benefits, trap foreign tax credits, and trigger unexpected double taxation. For most cross-border enterprises, a U.S. C-Corporation or a properly structured Limited Partnership serves as a far cleaner vehicle.

Cross-Border Withholding on Dividends, Interest, and Royalties

Outbound payments from a U.S. company to foreign owners generally trigger a statutory 30% U.S. withholding tax.

Where an applicable bilateral tax treaty exists, these rates often drop significantly—often to 5% or 15% on dividends, and frequently to 0% on qualified interest or royalties. Realizing these benefits requires formal documentation at the outset, specifically through correctly executed IRS Form W-8 series filings (such as the W-8BEN-E).

The Branch Profits Tax

Operating directly through a U.S. branch office rather than a distinct U.S. subsidiary exposes foreign corporations to the Branch Profits Tax—an additional 30% levy intended to mirror dividend withholding on repatriated earnings. Income tax treaties can reduce this exposure, but utilizing a domestic subsidiary corporation remains the standard method to insulate foreign parents from direct U.S. tax filings and branch-level assessments.

Transfer Pricing and Related-Party Transactions

When a foreign parent provides management services, software, financing, or inventory to its U.S. operating company, transactions must follow arm’s-length economic standards under Section 482 of the Internal Revenue Code. Having clear intercompany agreements and contemporaneous economic documentation in place avoids transfer pricing adjustments, audit penalties, and non-deductible expenses.

FIRPTA and U.S. Real Estate Exposure

Under the Foreign Investment in Real Property Tax Act (FIRPTA), the disposition of U.S. real estate—or equity in a U.S. company where real estate forms the majority of its assets (a United States Real Property Holding Corporation)—triggers mandatory gross withholding of 15% on the transaction value. Structuring asset ownership early determines whether a future liquidity event can proceed without cumbersome withholding holds.

State & Local Tax (SALT) Dynamics

Federal tax planning is only half the equation. Each of the fifty states operates its own tax code, nexus standards, and reporting requirements. A state like Texas imposes no traditional corporate or personal income tax, relying instead on a gross-margin franchise tax, whereas other states enforce complex apportionment formulas on multi-jurisdictional revenue.

Income Tax Treaties and Permanent Establishment

Bilateral tax treaties between the U.S. and partner nations establish clear guidelines on what activities create a taxable presence (a “Permanent Establishment”). Maintaining a clear boundary between preliminary marketing or independent agency and taxable local operations prevents unintended federal tax liabilities.

Exit Planning and Capital Gains Treatment

When a foreign investor sells stock in a standard U.S. operating C-corporation that is not a real property holding entity, the resulting capital gain is generally exempt from direct U.S. taxation under domestic law and primary income tax treaties. Establishing clean capitalization tables and maintaining appropriate holding structures ensures this tax-free treatment is preserved at exit.

Tariffs, Trade Costs, and Supply Chain Alignment

Shifting tariff schedules and trade measures directly impact landed costs, profit margins, and customs valuations for businesses moving goods across North American borders or across the Atlantic. Factoring tariff classifications and transfer pricing into your U.S. corporate structure helps maintain healthy margins and minimizes unnecessary cross-border friction.

Planning Ahead

Expanding into the United States should be an exciting milestone, not an administrative burden. Aligning your legal architecture with your tax strategy before signing leases, hiring domestic teams, or funding accounts creates a clear foundation for long-term growth.

How MHW Can Help 

MHW international business attorneys are experienced advising companies and investors from the globe structure their US operations and investments. Contact us to learn how we can bring tax and legal experience to facilitate your venture into the Texas market.