Starting or Expanding a Business to the USA from China

Why Chinese Companies Choose the US Market

For Chinese citizen entrepreneurs, the benefits of expanding business in the USA include the opportunity to attract global partners, access to highly skilled labour, and utilise the world’s largest capital markets with an extensive consumer base. 

A significant difference between the Chinese and US markets is that Chinese investors predominantly populate the Chinese markets. In contrast, US markets attract a wide pool of international investors who benefit from US stock exchanges. 

Another benefit of expanding or starting a business in the US is that certain technologies, such as Nvidia’s advanced AI chips, aren’t available on the Chinese market. 

Choosing the US to start or expand a business means building a global sales platform and carving a path to eventually create an international brand. 

Business Structures Available in the US

The typical business structures available in the US are sole proprietorship, partnership, limited liability company (LLC), and corporation. Chinese nationals who own a business in China also have the opportunity to open up a branch office or subsidiary in the US. 

The main types of business structures are:

Sole Proprietorship

A sole proprietorship is the most basic of business structures. This type of business structure is ideal for smaller businesses, as it is run by a single person who holds sole ownership of the business and is personally responsible for its debts. There is no legal separation of the business and the owner, who keeps all profits, which are subject to personal income tax.

Partnership

A partnership is when a business is run by more than one owner, with each owner having a share in the profits, combining their capital and expertise. Having multiple partners means that banks are more likely to loan money to a business with multiple partners. A partnership also presents an opportunity for an existing company to rebrand and expand its market.

LLC

An LLC is similar to a private limited company, where the business owner has limited responsibility when it comes to business debts. With an LLC, the owners’ personal assets are protected from any obligations and liabilities; however, this comes at the cost of a more complex business structure with specific legal responsibilities. 

Corporation

A corporation is an association or company that is recognised by the state as having a separate legal identity from its owners/shareholders. Corporations are often large organisations where the owners are protected from being responsible for any company debts. With corporations, ownership can be gained or relinquished by buying or selling stock.

Steps to Registering a U.S. Business

Registering a business in the US must be done in the state where you will be running the business. The registration process varies depending on the state in which you’re registering the company and the business’s structure.

There are some steps to registering a business in the US from China, regardless of the state and business structure, including:

1. Choose a business structure and state in which to register.
2. Select a registered agent with a registered physical address within the same state as the business. The registered agent receives official papers and legal documents on behalf of the business owner.
3. Officially register the business by filing the necessary state documents and providing the required information, including the names of the founders and the business’s address. You will also need to pay a registration fee (this varies from state to state).
4. If you wish to register to do business in another state, you must file for a foreign qualification. 
5. You may also need to register with a local agency for specific permits and licenses, which is a requirement by most states.
6. Choose a unique business name as a trademark, ensuring it complies with the state’s naming requirements in which it is registered.
7. Obtain a tax ID number, known as an Employer Identification Number (EIN), from the Internal Revenue Service.
8. Research banks/providers and open a business bank account once you have obtained your EIN.

Tax Considerations for Chinese Businesses that Expand to the USA

For Chinese businesses that are looking to expand their business in the US, or Chinese entrepreneurs who want to start a business in the US from China, the tax considerations include:

• The legal structure of the business (which determines the kind of tax to be paid)
• Federal and state tax charges
• Employee tax
• International tax for foreign employees

The fundamental difference between federal and state taxes is that federal taxes are imposed on everyone, whereas the specific state government imposes state taxes. The types of federal taxes that businesses must pay include:

Income tax 

All businesses except partnerships must file an annual income tax return, which is a pay-as-you-go tax. How you pay income tax depends on your business’s legal structure. If your business is a partnership, it must file an informational return (Form 1065). Income tax is generally withheld from employees and paid directly to the government by the employer on the employee’s behalf.

Employment Tax 

Business owners are responsible for paying their employees’ Social Security, Medicare and Federal Unemployment Tax (FUTA) through FICA (Federal Insurance Contributions Act). Additional Medicare tax must be withheld from employees earning a salary of over $200,000.

Excise Tax 

This is typically an indirect tax on a specific category of goods, services, or activities, such as alcohol, airline tickets, and indoor tanning services. Excise tax can be paid per unit or as a percentage of the sale price. Most excise tax is filed through Form 720. Excise taxes filed through Form 720 include environmental taxes, fuel taxes, and taxes on communication and air transport.

Relocating Staff and Immigration Support

Chinese entrepreneurs who wish to conduct business in the US or are looking to relocate staff from an existing Chinese business to and from China and the US must apply for the correct visa. 

Visa routes for relocating staff from China to the US include:

• L1 – for intra-company transfers of employees
• L1A – for managers and executives
• H1-B – for skilled workers in specialist fields

Foreign entrepreneurs and executives seeking to invest substantial at-risk capital in a US business, while also contributing to its growth, can obtain an E-2 Visa (also known as an Investor Visa) or an EB-5 Visa. 

E-2 Investor Visa

For those looking to invest in the US market from China, an Investor Visa allows foreign nationals from certain treaty countries to invest in a US business (typically, the investor must own at least 50% of the company). 

This non-immigrant visa allows companies to live and work in the US; however, Chinese nationals must be citizens of a treaty country to be eligible.  As of 2023, if you have acquired citizenship of an E2 country through a citizenship by investment program, you will need to have been a citizen of the E2 country for a minimum of 3 years. 

EB-5 Visa

An EB-5 Visa is a route for foreign entrepreneurs to obtain a green card, with a minimum investment threshold of $800,000 in Total Entrepreneurial Activity (TEA) or $1,050,000 without TEA. A foreign entrepreneur on this visa must keep or create a minimum of 10 jobs for US workers.

Common Challenges for Chinese Companies 

The number of Chinese businesses expanding in the US has been rising steadily. If you’re considering expanding a Chinese company to the USA, it’s essential to understand the challenges, particularly those related to immigration and US regulations.

Some of the common challenges that Chinese companies face when expanding a business in America include:

• The US has a complicated immigration process, and there can often be delays for visas
• Political tensions between China and the US are on the rise, leading to increased tariffs and trade barriers
• Work culture clashes can make it a challenge to recruit and retain US talent; for example, different leadership styles and work models (hierarchy vs collaborative)
• There has been a recent rise in economic nationalism in the US, which can lead to scepticism when it comes to investment.

How IAS Can Help Chinese Businesses Entering the US

Starting or expanding a business in the USA from China is a complex process to navigate. At IAS, we have the expertise and services to help you smoothly navigate the legal framework behind starting or expanding a business in the US. Our services range from staff relocation to business visas, to tax registration, and cultural training.

Whether you are seeking assistance with Chinese entrepreneur visa options in the USA, need help obtaining your Employer Identification Number, or guidance on registering your new business, we can help you get set up, step-by-step. 

Our dedicated team of immigration lawyers will help you to gain a better understanding of the legalities of running a business in the US from China, and navigate any immigration issues you may be facing in starting or expanding your business, so that by the end of your consultation, you will have a good understanding of the immigration requirements for Chinese business owners in the USA.

Contact the team on +44 (0)333 414 9244 or get in touch online to find out more about our services for expanding a Chinese business to the USA.