Expanding to the USA (Part 3) – Setting up a C-Corporation

Matthew Marcarian   |   23 Nov 2017   |   2 min read

In our Expanding to the USA (Part 2) blog post we discussed that many Australian companies and entrepreneurs set up their US operations by using an Limited Liability Company (an LLC). However they are often later surprised to find out that the LLC is treated like a partnership under US tax law and also as partnership under Australian law if the foreign hybrid rules apply.

The alternative to establishing an LLC, which we think is commonly overlooked, is for Australian business and entrepreneurs to establish a C-Corporation. The name stems from the fact that a C-Corporation is governed by subchapter C of the Internal Revenue Code.

In many respects the C-Corporation in America works exactly like an Australian Private company.

The C-Corporation has directors, shareholders (stock holders) and has its own tax identity that is separate from its stock holders. By default it is taxed as an entity, keeping profits and taxation separate from the stock holders until such time as a dividend is declared by the corporation. Tax is payable at US Federal Rates (graduated rates between 15%-39%) but state income tax may also apply depending upon the state of incorporation and where business is carried on. As compared to a flow through LLC the C-Corporation is a simply structure because US tax filings are not required to be made by Australian shareholders.

In the case of Australian resident shareholders owning a C-Corporation, when dividends are declared, a dividend withholding tax arises on the dividend paid. This means that Australian shareholders will receive a dividend paid to them net of US withholding tax. If the reduced tax treaty rate applies then that dividend withholding tax can be reduced to 5% in certain situations.

Depending on a client’s situation in Australia, a C Corporation may be the appropriate US business structure.

CST focuses on advising clients with international tax issues, many of whom expand into and invest in the United States.

NEED ASSISTANCE FOR YOUR SITUATION?

Contact us today
Contact Us
By providing us your information you agree to our privacy policy

More articles like this

 

Tax Requirements When Expanding Your Australian Company To Singapore


20th May 2021
Matthew Marcarian

Singapore is often chosen as a regional business hub for Australian companies looking to expand into Asia or beyond This is largely because Singapore is one of the countries where there are limited...

 

Australians moving to the USA: Key Differences in the Australian and US tax system


2nd Apr 2021
Matthew Marcarian

Like any overseas move, moving from Australia to the United States will mean that you will encounter a brand new taxation system  If you’re used to the Australian tax system, the US system may...

 

Tax Considerations Every Australian Expat Should Understand Before Moving To The USA From Australia


14th Feb 2021
Matthew Marcarian

If you’re an Australian who is moving to the United States, there are many tax issues to be aware of Here’s a basic overview of what you need to know before considering the move  You can...

 

Tax Requirements When Expanding Your Australian Company To Singapore


20th May 2021
Matthew Marcarian

Singapore is often chosen as a regional business hub for Australian companies looking to expand into Asia or beyond This is largely because...

 

Australians moving to the USA: Key Differences in the Australian and US tax system


2nd Apr 2021
Matthew Marcarian

Like any overseas move, moving from Australia to the United States will mean that you will encounter a brand new taxation system  If you’re...

 

Tax Considerations Every Australian Expat Should Understand Before Moving To The USA From Australia


14th Feb 2021
Matthew Marcarian

If you’re an Australian who is moving to the United States, there are many tax issues to be aware of Here’s a basic overview of what you need to...