How Non-U.S. Entrepreneurs Can Stay Compliant: Bookkeeping Essentials for International Success
Congratulations on setting up shop in the American market. The excitement of reaching a vast new customer base is probably fueling your ambitions. With sales picking up, you are probably super optimistic about the future.
But what if you receive a letter from the IRS one day reminding you of the complex web of tax obligations, sales tax requirements, and financial reporting standards you must meet? Suddenly, your dreams of success might feel like a distant reality.
But you have nothing to worry about as long as you perform proper bookkeeping for non-residents to comply with the legal requirements and drive your entrepreneurial empire toward success. This guide will help you navigate the fundamentals of U.S. bookkeeping so you can focus on growing your business without fear of non-compliance.
Step 1: Follow the Fundamentals of US Bookkeeping
As a US business, your accounting practices need to be in accordance with GAAP. These are uniform standards and guidelines for international accounting. Some of the requirements are as follows:
Use the accrual basis of accounting. Earning is recorded when earned and expenses when incurred, not necessarily according to actual cash flow.
Applying the accounting principles all through one period to the next reporting period.
All business transactions are recorded for defined accounting periods, such as monthly or quarterly.
Recording of proper bookkeeping records that can maintain comprehensive audit trails.
For an e-commerce business, your chart of accounts should capture key activities like online sales, cost of goods sold, website fees, advertising, payroll, refunds, and returns. This makes reporting much easier with accounts mapped closely to your business.
Step 2: Look into Sales Tax Obligations
Sales tax compliance remains one of the most intricate aspects of conducting business within the United States. Regulations differ significantly between states, with each establishing its own rates applied to taxable goods and services as well as filing procedures.
For example, while New York imposes a 4% sales tax, additional percentages from local counties can drive the overall rate as high as 8.875%. In sharp contrast, states like Oregon and Delaware do not demand any sales tax whatsoever.
Understanding and managing nexus, the linkage or presence connecting a company to a state's tax obligations, proves crucial, especially for enterprises engaging in e-commerce or supplying services across multiple jurisdictions. As determined by the Supreme Court decision in South Dakota v. Wayfair, Inc., a physical location is no longer necessary to establish a nexus.
If an organization meets certain economic benchmarks within a state, such as annual sales exceeding $100,000 in South Dakota, registration and remittance of sales tax to that state becomes mandatory.
Step 3: Check Out Income Tax Requirements
Income tax liabilities for non-American entrepreneurs depend heavily on their company's framework. If a sole proprietorship or partnership is chosen, your earnings sourced within the United States typically face individual earnings tax rates ranging from 10% to 37%. Alternatively, companies deal with a level corporate tax rate of 21%.
Furthermore, as stipulated in the Internal Revenue Code, international enterprises with American operations must submit an IRS Form 1120-F to report profits, costs, and the deduced tax liability. If the enterprise qualifies for relief under a taxation treaty, it may potentially decrease the taxable earnings or perhaps dodge twofold taxation entirely. For instance, the United States-United Kingdom tax treaty permits some types of earnings, like dividends and interest charges, to face diminished rates of taxation.
Step 4: Understand Overseas Taxation
The concept of cross-border taxes is a critical area for non-U.S. entrepreneurs to understand, as missteps could burden their businesses with the hassle and expense of double taxation. When ventures operate across many lands, profits may face being taxed twice—first by the home country and also by the United States on the same earnings. Thankfully, signatories to tax treaties between nations have established protocols to mitigate this unwelcome duplicate levy.
For instance, according to the Indo-American tax agreement, some commercial gains are liable for levies exclusively in America only if the company maintains a lasting locale within its borders. What's more, the arrangement allows for reduced rates of withholding on dividends, interest charges, and royalties.
Another indispensable item for consideration is the Foreign Account Tax Compliance Act, which necessitates that foreign financial entities provide data about the fiscal maneuvers of their US account holders to the IRS. For non-American venture founders, meeting FATCA's demands confirms that their business's economic exchanges with American associates remain transparent, sidestepping consequences and scrutiny.
If an enterprise deals in physical wares, customs duties and tariffs may apply depending on the nature and birthplace of the products. Employing a customs broker or trade compliance software can help efficiently handle such prerequisites.
Step 5: Pay Employment Taxes
If your company employs individuals in America, you must adhere to federal and state work tax duties. The Federal Insurance Contributions Act (FICA) necessitates employers to withhold Social Security (6.2%) and Medicare (1.45%) fees from workers' wages.
In addition, the Federal Unemployment Tax Act (FUTA) imposes a 6% levy on the initial $7,000 of an employee's yearly wages. Some states may necessitate extra contributions to their unemployment insurance programs. The requirements are in place to protect employees and fund important social programs.
This is a crucial part of US business compliance to avoid severe consequences. For instance, neglecting to deposit payroll taxes on time can result in fines ranging from 2% to 15% of the unpaid tax, subject to the amount due.
Step 6: Fulfill Financial Reporting Needs
Implementing stringent financial safeguards is paramount to preventing deception and guaranteeing precise fiscal revelation. Inner checks help safeguard assets, identify errors, and uphold observance of United States laws.
Core checks comprise the segregation of jobs, where diverse persons are dependable for allowing, handling, and assessing transactions. For example, the Sarbanes-Oxley Act (SOX) demands internal checks for publicly exchanged corporations, yet its principles can be valuable for nonpublic corporations, too.
Are You Struggling with the Bookkeeping Requirements of Your Non-US Business? Contact SamsCashFlow Agency!
Navigating the complex landscape of US financial regulations can be challenging for non-U.S. entrepreneurs. However, the professionals at Samscashflow Agency can help you with the intricacies of foreign entrepreneur bookkeeping to ensure compliance. Visit https://www.samscashflow.com/#book and book a call with them now!