Make Sure You Understand These 3 Basic Things About US Taxation if You’re a UK Business

However, what’s even more complicated is trying to understand tax if you’re considering expanding your business overseas. It can seem that another country’s rules and regulations around taxation are designed to trip you up, or put you off setting up a business altogether.

One such place where the rules seem very complex is the US but you needn’t be dissuaded from expanding your British business across the pond because of this.

Here are three basic things you need to know about US taxation if you’re a UK business looking to expand into America.

1. You’ll need an EIN to do most things

An EIN is an Employer Identification Number. Your EIN identifies your tax returns when you file them with the IRS (you can think of the IRS as the equivalent of HMRC in the UK), and it enables you to operate your business as a partnership or as a corporation. An EIN also enables you to pay your employees and show that you’ve deducted their tax, and even if you aren’t ready to hire employees yet, many US banks will require that you first have an EIN before you can set up a business account. You can apply for an EIN number through the IRS website.

2. You’ll be taxed at three different levels

You wont pay tax in the same way as you do in the UK. In the US, you’re actually taxed at three different levels: federal, state and local, and the amount of tax you are charged depends on how you’ve legally structured your business. For instance, a Limited Liability Company (LLC) isn’t considered a separate tax entity like a corporation is, and the IRS will treat it like a sole proprietorship or a partnership. There’s a very comprehensive guide on this subject available here from PwC.

3. The rate of tax you pay will vary depending on what state your business is operating in

The amount of tax you’ll pay will vary from state to state. So, it’s important to think about where you want to set up a business in America, because while you’ll want to be somewhere with access to your target market, you’ll also want to be located in a state where the tax rates are manageable for your business. 

This all sounds very complicated, but there are resources and services available to help you handle it. For example, there are companies like this one who will handle tax and other logistics (such as recruitment) on your behalf if you’re thinking of setting up a company in the US.  Also, the IRS also has many different guides and resources available to help you understand what’s required of you. Have a look at this video to learn more about federal taxes for businesses operating in the US.