Structuring Sales into the US from a Foreign Country
Foreign manufacturing company desires to sell finished products in the US and required assistance in determining appropriate options for US marketing and distribution.
Potential cross-border structuring options included:
- Direct sales to US customers from foreign home country
- Use of a US third party distributor.
- Use of a wholly owned subsidiary that provides sales and marketing services.
- Use of a wholly owned subsidiary that buys products from foreign parent and sells to US customers.
- Where the foreign company is not in a US tax treaty jurisdiction, use of an intermediary operating company in a treaty jurisdiction in order to leverage favorable tax treaty provisions related to creation of a US taxable presence and reduced withholding tax on payments from the US subsidiary.
Relevant tax considerations included:
- For the option involving using a third-party distributor, ensuring that the US entity was not treated as a U.S. dependent agent of the foreign company thereby creating a taxable US presence for the foreign company.
- Evaluating relative corporate tax rates in the foreign country and the US.
- S. withholding rates on dividends, interest and royalties paid to foreign parent from US subsidiary. Where there is a tax treaty between the US and the foreign country, foreign company can benefit from reduced US withholding rates compared to when there is no tax treaty. In addition, a tax treaty reduces the risk that the foreign parent will create a US taxable presence by undertaking sales support activities in the US.
- Type of foreign entity and US entity choice (e.g., US C Corporation, partnership or US LLC). For options with Prager Metis assisted the customer in identifying the option that was aligned with the company’s operational objectives while at the same time ensuring maximum tax efficiency.
Outcome and Benefit
Prager Metis assisted the client in evaluating the most appropriate options given the nature of the products, the needs of US customers and the relative tax environment in the US and foreign country location, including the availability of an income tax treaty. For options using a third-party distributor, a relevant considering was ensuring that the US entity was not treated as a dependent agent of the foreign company thereby creating a taxable US presence for the foreign company.