Establishing a holding company in the United States of America

14.03.2024

Establishing a holding company in the United States of America

In 2024, establishing a holding company in the United States of America remains a strategic choice for numerous international entrepreneurs and significant investors, attracted by the myriad benefits that the country provides for global business. Forming a holding company in the United States grants access to one of the most substantial and rapidly growing markets on the planet, while simultaneously ensuring the protection of assets and investments within the framework of a stable economic infrastructure.

The economic robustness and political stability of the United States contribute significantly to attracting foreign investors. Establishing a holding company in the United States affords access to cutting-edge technology, a highly skilled workforce, and an extensive consumer base, positioning the United States as an optimal location for business expansion and penetration into new markets.

The U.S. tax system, albeit complex, presents numerous advantages and incentives for holding companies, particularly in the realm of international taxation. This includes various double taxation treaties that can substantially reduce tax liabilities for companies operating on a global scale.

Furthermore, the United States boasts a robust infrastructure and technology ecosystem that fosters innovation and entrepreneurial activity. Access to finance through comprehensive capital markets and venture investment provides holding companies with ample opportunities for growth and scaling.

Thus, establishing a holding company in the United States in 2024 proves to be a strategic decision for those seeking to capitalise on a stable economic environment, favourable tax regimes, and access to global markets and innovative technologies. These factors collectively render the United States one of the most attractive destinations for international business development. Let's have a closer look at the requirements for creating a holding company in the USA.

Types of corporate structures available for creating the US holding company

Type of corporate structure	Description	Advantages	Drawbacks
C-Corporation	Traditional corporate structure with the ability to issue shares and attract investors. Subject to double taxation: at the corporate level and on shareholder income.	- Possibility of raising substantial capital through the sale of shares. - Limited liability for shareholders. - Prestige and reliability of the structure.	- Double taxation. - More complex and costly management and business administration.
S-Corporation	Similar to a C-Corporation, but avoids double taxation by passing income directly to shareholders. There are restrictions on the number of shareholders and their residency.	- Avoidance of double taxation. - Limited liability for shareholders. - Possibility of attracting investors.	- Limitation on the number of shareholders (up to 100 individuals). - Shareholders must be US residents.
LLC	A flexible form of business organisation that combines features of corporations and partnerships. Offers personal liability protection along with management and tax flexibility.	- Flexible taxation (can elect to be taxed as a corporation or partnership). - Limited liability for founders. - Fewer documentation and management requirements.	- There may be restrictions on attracting investments. - Tax rules can be complex to understand.
Partnership	There are several types of partnerships, including General Partnership and Limited Partnership.	- Easy to establish and manage. - Direct distribution of income among partners.	- General partners bear full personal liability. - Difficulties may arise when attracting external financing.

Forming a holding company in the United States requires careful analysis of the available corporate structures to select the most appropriate option, considering business objectives, prospects, and tax and legal considerations.

Authorized capital requirements

When establishing a holding company in the United States, min. share capital requirements may vary depending on the chosen corporate structure. It is essential to note that in many cases, the specific amount of the minimum authorized share capital is not stipulated by law but is determined by the business requirements and the prerequisites for its registration.

For C and S Corporations, the fundamental registration requirements include filing articles of incorporation with the relevant state government; however, there is typically no specified capital requirement. Instead, companies may be obligated to issue a certain number of shares upon incorporation, but the value of these shares and the total share capital are determined by the company itself. This underscores the flexibility in determining initial capital for both forms of Corporations in the United States.

Similarly, for LLCs, the precise amounts of the minimum authorized share capital are not specified. Rather, the founders must contribute to the company's capital in an amount sufficient to commence its operations. In some instances, opening a corporate bank account in the United States may necessitate a nominal amount, such as $1, indicating the minimum formal capitalisation requirements when forming an LLC.

In The United States, legislation affords significant latitude in determining the authorized share capital for C-Corporations, S-Corporations, and LLCs. This allows entrepreneurs and investors to adopt a flexible approach to financing their holding company, focusing on their requirements and development plans rather than on stringent regulatory requirements for authorized share capital.

Holding company establishment procedure

Establishing a holding company in the US entails a multifaceted process that demands meticulous planning and strict adherence to a myriad of legal prerequisites.

Phase 1:

Selection of legal structure

The foremost step involves determining the appropriate legal structure, considering various forms outlined above. Each structure carries its advantages, disadvantages, and distinct tax implications.

Phase 2:

Company name registration

Ensuring that the chosen name is not in use by another entity and complies with all state requirements is imperative.

Phase 3:

Submission of documents

Submission of requisite constituent documents to the relevant government agency of the intended state of registration.

Phase 4:

Appointment of registered agent

Designation of a registered agent within the state of incorporation to receive legal documents on behalf of the company.

The steps for establishing a holding company may vary depending on specific circumstances, including the chosen state of incorporation and the nature of the business activities. Diligent planning and consultation with legal and tax professionals are essential to mitigate potential issues and ensure the effective management of the holding company.

Procedure for obtaining an EIN

Obtaining an EIN is a crucial step in establishing a holding company in the United States, necessary for conducting business operations within the country. This identification number facilitates various transactions, including opening corporate bank accounts, filing tax returns, and hiring personnel.

Online Submission: available to organisations primarily operating in the United States or its territories, with the application process requiring completion in one session. Successful verification results in instantaneous EIN issuance.
Fax submission: involves submitting a completed Form SS-4 to the fax number provided on the IRS website, with an EIN response typically sent within four business days if the sender's fax number is provided.
Mail submission: may take up to four weeks for processing, requiring accurate and comprehensive completion of Form SS-4. Upon processing, the assigned EIN is sent to the provided address.
Telephone submission: exclusively available for international applicants, using the telephone number listed on the IRS website.

During the registration process for a holding company and obtaining an EIN, accurate and current information about the “responsible person” managing the company and its assets must be provided.

Opening a corporate bank account for the U.S. holding company

Selecting an appropriate account entails familiarising oneself with tariffs and service terms to choose the most advantageous conditions.
Preparation of necessary documents includes the director's photo identification, proof of the director's personal address, articles of organisation or incorporation, proof of business registration, EIN confirmation from the IRS, and proof of a business address.
Documents can be presented in-person or through specialised financial institutions' services facilitating the process.
Submitting an application and making an initial deposit, if required, completes the process.

In addition to traditional banking services, alternative options such as Wise Business offer online account opening procedures, particularly beneficial for internationally operating entrepreneurs seeking to reduce banking costs for transfers and currency exchange.

Tax aspects of establishing the US holding in 2024: brief overview

Tax system:

The U.S. tax system involves federal, state, and local taxation levels.
Different tax rates apply to individuals and businesses, including corporate income taxes and investment income taxes.
State income tax rates vary from 0% to 13.3%, and local taxes can differ by municipality.
It's crucial to consider federal and local tax requirements, international tax treaties, and worldwide income taxation when incorporating a holding company in the U.S.

Corporate taxes and taxation of profits:

Corporate tax rates in the U.S. vary significantly across states, ranging from 0% to 11.5% in 2024.
The federal corporate tax rate is 21%.
Foreign citizens are subject to a 30% tax on certain types of income received from domestic sources.
Withholding requirements apply to payments made to foreign entities and transactions involving the acquisition of interests in U.S. real estate from foreign persons.
The tax liability of foreign nationals is determined based on factors such as the type of income and applicable tax treaties.

Tax benefits and incentives available for holding companies and their subsidiaries in the United States:

Dividends from subsidiaries to holding companies can be received without tax consequences under Section 243 of the Internal Revenue Code, subject to certain ownership and income requirements.
Holding companies can use strategies like creating a separate holding company for each shareholder or splitting income among multiple owners to defer taxes and minimize taxes on dividends.
The U.S. holding company structure can provide asset protection and risk mitigation by isolating potential losses or legal risks of one subsidiary from the rest of the business.
Different states and localities offer tax incentives and benefits for holding companies, such as reduced corporate income tax rates, tax credits, or exemptions from certain taxes.
Various strategies and structures can be considered to optimize tax liabilities when forming a holding company, including dividend deductions, asset protection, and estate planning. Strategic planning and consultation with tax professionals can help maximize tax benefits and minimize liabilities.

Financing of holding companies

Establishing a holding company in the United States requires a well-considered approach to financing, which may include both internal and external sources of capital. Internal financing offers several advantages, such as ease of access, absence of interest payments, and independence from external lenders. Such means may include utilising personal savings, profits, or proceeds from the sale of company assets. This approach enables the company to make swift decisions on capital expenditures and avoid additional financial costs associated with interest on loans or borrowings. However, internal financing can limit the scope of growth due to the finite funds available and potentially reduce the company's working capital.

External financing provides access to larger amounts of capital through instruments such as loans, lines of credit, or investments from shareholders. Although it may necessitate more time and effort to secure funds due to the requirement for loan and investment approvals, external financing can play a pivotal role in the implementation of large-scale projects and the establishment of a holding company in the United States. External sources can also contribute additional resources and expertise to the business, particularly if the investors possess experience in the relevant industry.

The key to selecting between internal and external financing lies in understanding the advantages and disadvantages of each approach. Internal financing allows a company to maintain independence and avoid additional financial costs, but may restrict growth opportunities. Conversely, external financing can provide the necessary funds to scale operations but is accompanied by increased reporting requirements and the potential influence of investors on the company's management.

Immigration considerations

Relocating to the US and establishing a holding as a foreign investor offers a wide range of opportunities based on the various programmes and visas provided by the nation's government.

The EB-5 visa is one of the most attractive options for foreign investors seeking to relocate to the U.S. Eligibility for the programme requires an investment of at least $800,000 in projects located in high unemployment or rural areas, or $1,050,000 in projects in other areas. These investments must create a minimum of 10 jobs for local citizens. It is noteworthy that the programme allows the inclusion of a spouse and unmarried children under 21 years of age in the application. The total costs of participating in the programme encompass not only the investment funds but also various fees, including administrative and legal expenses.

The L1-A visa is available for those who wish to transfer executives or managers from their foreign company to work for a U.S. division or subsidiary. The programme is granted for up to 7 years, with the possibility of subsequently obtaining a green card. Recipient requirements include having a comprehensive business plan and at least one year of experience in a managerial position with the parent company.

The immigration process involves filing a petition, awaiting a decision on its acceptance, attending an interview at a U.S. consulate, and, upon successfully obtaining an immigrant visa, entering the United States to acquire a green card. An immigrant visa is valid for 6 months from the date of issuance, during which time the individual must enter the United States.

The key point is not only the selection of the most suitable immigration programme, but also the preparation of a comprehensive package of documents confirming the legitimacy of the investment sources and compliance with all the programme's conditions, including job creation.