Besides being home to a number of pubs serving Guinness at the proper temperature, the City of Atlanta, Georgia’s capital, is considered the economic centre of the southeastern US, and is one of the most successful and dynamic business centres in the world. Because of the potential benefits of doing business in the US and Georgia, many UK companies are actively considering the idea as a profitable option. However, the prospect of doing business in a new and different market with another legal system can be daunting.
This article will provide some general information regarding two legal topics that frequently arise for UK companies considering doing business in the US, and more specifically, in Georgia: (1) basic business structuring and corporate formation issues, and (2) immigration issues.
Basic business structuring and corporate formation issues and options
Two of the principal considerations in structuring business activities in the US are avoiding exposures to liabilities and minimising taxes. UK companies doing business in the US often start by engaging a sales representative, typically through a contractual relationship. Companies desiring to establish a more permanent presence in the US may choose to open a US office. In most instances, it is advisable to structure the US office as a separate legal entity.
The two most common types of entities presently used in Georgia (and in many other states) are corporations and limited liability companies (LLCs). The law regarding exposure to general liabilities potentially created by sales agents and US subsidiary entities is not the same as the tax law and tax liabilities, and the distinctions are discussed below.
Independent sales representatives
Many UK businesses choose to distribute their products in the US through an independent sales representative. In Georgia, the relationship in most instances should be structured so that the representative will be an “independent contractor” and not an agent or employee. This distinction is particularly important for general liability and tax purposes. Depending on the circumstances, a sales representative may or may not be treated as a “permanent establishment” under the current US – UK Income Tax Treaty.
If the activities of the sales representative are structured so that they do not constitute a US permanent establishment of the UK company under an applicable Income Tax Treaty, the UK company may be exempt from US income taxation on its US business income. The relationship with a sales representative needs to be carefully documented in writing, and, since state law governs these types of arrangements, a qualified Georgia attorney should prepare the underlying agreement.
If a UK company plans on having a more significant presence in the US it should consider forming a US subsidiary entity. UK companies wishing to form subsidiary entities in Georgia most frequently form corporations or LLCs. Both a corporation or an LLC can be easily formed in Georgia. Corporations are normally taxed on their income at the corporate level, and then any dividends distributed to shareholders are subject to taxation again at the shareholder level, normally at a 30% rate if the shareholder is a foreign person (but reduced to 5% if the U.K. parent owns at least 10% of the stock on the US corporation under the current US – UK Tax Treaty).
LLCs are treated differently for tax purposes than corporations. LLCs are treated as a flow-through entity for federal and Georgia tax purposes. An LLC is often advantageous because instead of being taxed twice (with important exceptions not discussed here), the income of the LLC flows through to its members, and is taxed only at the member level, and generally no second tax applies when the income is distributed to the members.
Even with current limitations on certain types of visas allowing employment in the US, a citizen of the UK has several options to legally work in the US. Approximately 60 categories of non-immigrant (temporary) visas exist that allow foreign nationals to stay in the US for a designated period of time to pursue activities such as education, investment and business.
The US Citizenship and Immigration Services (USCIS) will permit foreign nationals to travel to the US to, among other purposes, conduct market research, engage in corporate meetings, or make arrangements for opening a new office. Foreign nationals who come for such short-term business purposes are given B-1 status. A B-1 visa is generally valid for a 10-year time period and allows the foreign national multiple entries into the US for periods of three to six months. The foreign national must be an employee, and remain on the payroll of the foreign company.
A foreign company may apply to the USCIS for an L-1 visa for its managers, executives or employees with specialised knowledge to open the new office. The USCIS will grant the initial L-1 status for a period of one year. The employees coming to the US to open the new office must be managers, executives, or specialised knowledge employees who have worked for the foreign company for at least one year out of the previous three. The position the employee will hold in the US must also be managerial, executive or require specialised knowledge.
At the end of the initial year, the US company may file for an extension of status to allow the foreign national employee to remain for an additional period of time. Managerial and executive employees may extend L-1 status for a total of seven years. Specialised knowledge employees may extend L-1 status for a total of five years.
E-1 status permits a foreign national, or certain employees of a qualified entity, to enter the US to carry on “substantial trade” between the US and the country of which the foreign national is a citizen. E-2 status permits investors, or certain employees of a qualifying entity, to enter the US “solely to develop and direct the operations of an enterprise in which the qualifying investor or entity has invested, or is in the process of investing, a substantial amount of capital.”
Both statuses require the existence of a treaty between the US and the foreign national’s country of birth or citizenship, and such a treaty is in place between the US and the UK. An employee of an E-1 or E-2 company must be engaged in supervisory or executive duties, or have specific qualifications that make his/her services essential to the operation of the enterprise.
A significant category of non-immigrant visas for US business and industry are the H visas for temporary workers, including H-1B for professionals in a specialty occupation. The US Congress has imposed limitations on the number of new H-1B visas issued each year. As of writing, H-1B visas for new employment are not available until October 1, 2006, unless the individual has a Master’s degree from a US university.
The H visa category requires an offer of temporary employment with a US employer in a position that requires the particular skills related to the category. The foreign national must possess the skills through education, experience, or a combination of both. H visas can be issued for an initial period of three years and extended for up to six years.
However, if an individual is pursuing permanent US residency, the employee generally can obtain further extensions of H-1B status.