Why is the US most preferred destination for Indian businesses

Business in US

By Sukanya Raman

 World Bank report on ease of doing business ranks the US among top ten nations.

The United States of America is the most entrepreneurial country in the world. Many businesses across the globe when thinking of going global choose the US over other countries.

In the same way, Indian start-ups, entrepreneurs, and young businesses are attracted to the US because of the  opportunities in the global marketplace, capital investment enhancement, tax benefits, among others.

From Tech startups to Tech giants, manufacturing businesses to retail businesses, automotive businesses to solar energy, businesses of all sizes set up their operations in the US.

The World Bank report on ease of doing business ranks the US among the top ten countries. The US has always been the most preferred destination for many Indian businesses that want to expand globally.  One of the key reasons is the ease of doing business in the US, followed by the most business-friendly regulations.

There are certain things to keep in mind if you are planning to expand your Indian business in the US. We shall discuss in detail the guidelines for Indian businesses that want to set up in the US.

Corporate setup: The first and foremost thing is to build your US business on firm foundations by incorporating it right to avoid any structural changes once it is established.

Especially when businesses that are linked to the owner’s visa, where non-compliance could cause immigration issues. The main type of corporations in the US are S-corporation, C-corporation, LLC, LLP. You choose the type of corporation based on your business model.

State of Formation/Incorporation: Typically, businesses incorporate in the state of Delaware since it has established a reputation around the world as the best and most business-friendly state in which to incorporate.

In fact, more than 65 percent of all Fortune 500 companies and more than half of all US publicly-traded companies are incorporated in Delaware, and more startups are incorporating in Delaware every day.

It is important to understand the advantages and drawbacks involved in setting up your business in Delaware. A Delaware incorporation is less complex and has some tax benefits.

READ: Indian American hoteliers contribute $368.4 billion to US GDP (August 11, 2021)

The other significant reason is the state has a corporate court – the Court of Chancery which handles only corporate cases.

However, if you are planning to do business in the state of New York or in the state of California, or anywhere other than Delaware, you shall have to register your Delaware entity in that particular state to do business and get the required business license and  permits, if applicable.

Alternatively, you may choose to form or incorporate your company where you actually intend to actively operate. It is important to understand the advantages and drawbacks involved in setting up your business in Delaware or in any other state.

Employer Identification Number: The Employer Identification Number (EIN) is needed to file your business tax returns and to open a corporate bank account in the US.

A request for EIN has to be filed with  the Internal Revenue Service (IRS). In general, it takes about a week to get an EIN, however, Covid-19 has significantly affected the ability of the IRS to process requests for EIN.

International Taxes: Moving to another country can be complicated enough, without having to get to grips with a whole new system of taxation, especially when the US tax system is set up on both a federal and state level.

Therefore, it is critical to structure the formation and operation of US business in tax-efficient manner to minimize US tax on business profits and how to avail the benefits under the Double Tax Avoidance Agreement (DTAA) between India and US.

Visa and Immigration: Establishing presence in the US, usually requires actual presence in the US of the executives, managers or specialized knowledge employees from the Indian entity.

Typically, the B1/B2 or visitor’s visa would suffice if there is only a need to attend meetings and conferences for the business, negotiate contracts, or consult with business associates.

However, if there is a need to actively work for the US company and be in the US for a longer period of time, other options like the L-1 have to be considered. There are two types of L visas. L-1A visa is for managers or executives and L-1B is for specialized knowledge employees.

If the US company has not been operational for at least one year, it will only qualify to file a “new office” petition, which will give the beneficiary an initial period of one year.

On the other hand, if the US company has been already operational for more than one year, it may potentially file a regular L-1 petition, which will give the beneficiary an initial period of three years.

READ: Why Canada is a lucrative startup destination for Indians (December 9, 2021)

Eventually, it is possible to transition to a green card or permanent residency through an EB1C petition for multinational managers or executives.

The E-2 Treaty Investor visa is another option, ownership and control of a minimum of a 50% of the E-2 business and a substantial investment. There is no minimum amount of investment required, but we typically recommend at least $100,000.

The advantage of the E-2 visa over the L-1 is that there is no need to prove the existence and operations of a non-US or foreign entity.

However, it should be noted that only nationals of E-2 Treaty Countries are eligible to apply. Since India is not a treaty country, one has to look into obtaining a passport from a treaty country like Grenada or Turkey.

Bank Account: To do business in the US, it is advisable to have a company bank account for all payments and receipts related to the business.

Some major international banks in India do assist in opening a US corporate bank account without visiting the US. Alternatively, a few US banks also allow opening a corporate account through a third party.
Qualifying Relationship: It is extremely important to demonstrate a qualifying relationship between a foreign (Indian) company and the US company to qualify for the L-1 visa category.

Qualifying relations could be any of the following – parent company – subsidiary or holding company or an affiliate or a branch. When determining a qualifying relationship for visa purposes between the foreign (India) company and the US company, ownership and control are two of the factors that are examined.

Hiring Talents: The top management team could be supported by local talents as well as international talents. There are various work visas that allow employees to work legally in the US.

The most sought-after among Indian professionals is the H-1B visa, which allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise.

Office space: Virtual office/home office could be an option. However, for visa purposes, it is important to have “sufficient physical premises” in an actual office setting with office equipment, furniture, signages, among others. It could be in a co-working space or a traditional office. A twelve-month lease for the office is highly recommended.

It should be noted that the L-1 visa category is subject to the administrative site visit and verification program, which means that USCIS can go for random site visits to the US office to confirm the existence and operations of the US company.

(Sukanya Raman is an immigration attorney with Davies and Associates, LLC)

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