Key Considerations for Foreigners Looking to Establish a U.S. Presence or Increase Their U.S. Investments

With the recent increase in political and economic instability in Latin America and other parts of the world, many foreign businesses and individuals are looking to establish a presence or increase their investments in the United States. Based on our experience helping hundreds of foreign businesses and individuals navigate their entry and investments in the United States, following is a practical guide to key issues warranting consideration before entering the market.

Structuring Matters

Whether the business is a large multinational corporation that intends to expand its operations into the United States or a foreign fund looking invest in real estate in the United States, ensuring that the investment is made through the proper structure is key to avoiding potential unnecessary legal and tax liability.

With very few exceptions, foreigners should structure their U.S. investments through one or a series of legal entities. In many cases, the structures will also include foreign entities. The types of U.S. entities to be used in the structure (either limited liability company, corporations or partnerships) will depend on a variety of factors specific to each client and investment, including the nature of the business/investment, the location of the owners/investors and the contemplated exit strategy.

These factors should be carefully analyzed in order to minimize the potential legal liability for the U.S. business and foreign parent and establish the most tax efficient structure for the group.

Generally, limited liability companies and corporations provide similar liability protection to their owners and investors, with a limited liability company providing slightly more flexibility from a corporate formation and governance standpoint. Unlike most civil law countries, the formation of an entity in the United States is a simple process that can usually be accomplished by legal counsel within a couple of days. The business owner is not required to sign corporate documentation before a civil notary or establish a bank account prior to formation, processes that usually take much longer in civil law countries. In addition, most of the relevant documents are private with the sole document filed with the relevant state registry being the articles of incorporation/organization for the entity. There are however, certain requirements for a new U.S. entity. First, most states will require that the entity appoint a local registered agent for service of process. Second, yearly filings are required to maintain the active status of the entity. Law firms, such as AVILA, and other providers typically offer convenient registered agent and maintenance services that address these requirements.

From a tax perspective, an in-depth analysis of the potential business/investment should be conducted to determine the most tax efficient structure. Keeping in mind that various tax rates could apply to the U.S. operations and investments, including federal corporate tax rate of 21%; state corporate tax rates ranging between 0%-11.5%, maximum individual tax rate of 37%; maximum withholding tax rate applicable to certain payments to foreigners of 30%, and maximum estate tax rate applicable to certain U.S. assets owned by foreigners of 40%, it is important that such analysis be completed prior to establishing a presence or making an investment in the U.S., as certain tax implications may not be mitigated once such steps are taken.

Immigration Matters

When entering the U.S. market, is also important to note certain immigration considerations. In most cases, it is preferable to transfer one or more trusted foreign employees to manage the U.S. operations. While U.S. law provides a variety of immigration options for foreigners, the following is a breakdown of the most often used by our clients:

L-1 Visa—Intra-Company Transferee: This visa is used when a foreign company is interested in bringing one of its employees to its U.S. branch, subsidiary or sister company. In addition to the L-1 Visa, the spouses and unmarried minor children under the age of 21 of L-1 visa holders are eligible for an L-2 Visa. Such visa allows the spouse and children to study and the spouse to obtain permission to work in the United States.
E-1/E-2 Visa—Treaty Trader/Treaty Investor: This visa requires a substantial trade/investment and is used by nationals from certain treaty countries to buy or start a business enterprise in the United States. It also allows a spouse to obtain permission to work in the United States.
H-1B Visa—Alien of Distinguished Merit and Ability: This visa is available to individuals coming to work in the United States in a specialty occupation, such as an architect or engineer.
H-1B1 Visa—Chilean Professional in a Specialty Occupation: This visa is available to Chilean citizens in certain specialty occupations.
TN Visa—Canadian and Mexican Professional in a Specialty Occupation: This visa is available to citizens of Canada (TN-1) or Mexico (TN-2) seeking to engage in business activities at a professional level in the U.S.

Each available visa has its own requirements and qualifications. Additionally, each provides different rights to the individual holders and distinct paths to residency should that be an objective. Whether the business intends to bring employees to the United States from its existing foreign operations or it intends to hire other foreign employees for the U.S. operations, it is important that immigration planning be part of the initial considerations for its entry into the United States. Legal counsel should incorporate immigration planning into the initial foreign client structure discussions, as the immigration considerations could
also influence the corporate structure planning discussed above.

Regulatory Matters

U.S. businesses are subject to a multi-jurisdictional regulatory regime (federal, state and local) that may be much more complex than that found in a foreigner’s home country. Depending on the activities in which the U.S. business intends to engage, the business may be required to obtain certain licenses or registrations. Typical regulated industries include financial services, auto sales and financing, insurance and medical. For this reason it is important that as part the initial structuring discussions, legal counsel analyze the type of business being established in order to determine whether or not licensure or registration is required.

Employees and HR Matters

Employment laws in the United States significantly differ from those in civil law countries. For example, in the state of Florida, employees are generally at-will employees (meaning that their employment may be terminated for any reason other than discriminatory reasons). That is why employment agreements in Florida are typically reserved for executives or higher level employees. Unlike in many civil law countries where an employment agreement may be a necessity, it may not be preferred in a U.S. jurisdiction like Florida. For this reason, each potential hire should be analyzed with U.S. counsel to determine whether or not
an employment agreement is beneficial to the business.

Another key human resources consideration for first-time U.S. employers is the accounting and payment of payroll. In this respect, we often recommend that such employers engage a payroll company or local bookkeeper to assist it with such function. The U.S. has many well established payroll and bookkeeping companies that can efficiently handle such function for first-time employers.

Real Estate Matters

Most foreigners establishing a U.S. presence either lease or purchase a location for their U.S. operations. Considering the differences between the legal structures in the United States and that of most foreign countries, it is important to consult with experienced real estate legal counsel with respect to their leasing and real estate purchase matters.

There are many local laws and issues that impact the leasing or purchasing real estate in the United States. Such counsel will explain the considerations, local customs and contractual obligations related to each type of transaction to help the business owner make informed decisions for their specific business.

Ongoing Representation

Once the U.S. business is established, it is important to engage U.S. counsel that is accustomed to acting as outside general counsel for companies with foreign parents. First, such counsel’s experience as outside general counsel will enable it to assist its U.S. operations in everything from its day-to-day contractual matters, its financing and potential investor matters, its regulatory matters and its dispute resolutions. Legal counsel should, however, also have experience in
dealing with foreign owned U.S. operations. Whether it be such counsel’s experience in working hand-in-hand with foreign local counsel, its experience with the business owner’s local culture or its experience in explaining the differences and strategy considerations for a dispute under the complex U.S. legal system versus a civil law system, such counsel will be able to work with the home country advisors and management to more efficiently counsel the U.S. business and foreign
parent through any legal issues that may arise.

For anyone considering establishing a presence or increasing their investment in the United States, these key considerations will prove invaluable as they build out their advisory team and begin to structure their investment in order to successfully overcome the typical obstacles, maximize the opportunities and protect their business interests.

Eugenio Hernandez, an immigration partner at AVILA, may be reached at ehernandez@avilalaw.com. Asnardo Garro, a corporate and financial services partner at the firm, may be reached at agarro@avilalaw.com