Understanding the 5 keys US tax considerations before expanding internationally can save your business significant time, cost and complexity. The Gild Group’s specialist tax and corporate law team has created this guide to assist businesses looking to expand their operations into the world’s largest economy, the United States of America.
Expanding into the US is undeniably an exciting milestone for any business. However, from a legal and tax planning perspective, it is crucial to plan proactively to minimise surprises arising from the US legal and corporate environment, as well as the complexities of international taxation.
We’ve outlined some of the most common US tax considerations that arise when a business expands into the United States, helping you get a head start on optimising your structure while still playing by the rules.
Of course, as your fun-loving, innovative, not-your-typical lawyers, we must caveat that the commercial drivers and circumstances of every business are different. There is no one-size-fits-all approach when deciding how to structure your US expansion.
The United States remains one of the most attractive markets for Australian businesses looking to scale internationally. Its large consumer base, sophisticated business ecosystem and access to investment opportunities make it an appealing destination for companies across industries including technology, manufacturing, professional services, eCommerce and healthcare.
However, expanding into the US involves much more than registering a company and finding customers. Businesses must carefully consider how their expansion will affect both their Australian and US tax obligations. Decisions made early—such as selecting the right legal structure, determining where management decisions are made, or understanding interstate tax obligations—can have long-term financial consequences.
Seeking professional legal and tax advice before entering the US market helps businesses establish the right foundations from the outset, reducing compliance risks while supporting sustainable international growth.
We would like to begin by saying that starting your business in the US, without setting up a business structure in the US, can itself lead to US tax problems. So, it is critical to seek help early to ensure you can hit the ground running with the most appropriate structure for your business.
Choosing a business structure in the US is dependent upon your commercial drivers and goals, and must consider the particular circumstances of your business, as different entities have different tax treatment and requirements. The two most common US business structures for expansions from Australia are:
1. C-Corporation.
2. Limited Liability Company (LLC).
C-Corporations are most easily compared to an Australian company. There is a separation from the shareholders and the company itself.
However, the US does not have an Australian equivalent of our ‘franking system’. Consequently, there is an element of double taxation, once at the company level and again at the shareholder level when they receive the company’s profits. The flexibility of a C-Corporation is the ability to retain and reinvest profits. Being a separate legal entity, the C-Corporation pays income tax on its profits and can retain and reinvest these profits.
By comparison, a LLC defaults to a flow through tax treatment, where the income and expenses of the LLC flows through to the members for tax purposes. Despite this tax treatment, the LLC is otherwise treated as a company with the corporate veil and asset protection implications from this.
An LLC may an election, known as ‘check-the-box’, to be taxed as a different business structure. There are certain advantages that may arise by electing to be taxed differently, such as the benefit of a fixed corporate tax rate and minimising additional compliance and disclosure obligations.
There will be trade-offs between an LLC with flow-through tax treatment and a check-the-box election. The key is to be aware of these trade-offs in order to decide on the most appropriate structure.
The US imposes taxes at a federal, state and local level. Federal income tax is imposed at a fixed rate for companies and at a rate based on taxable income for other entities. State income tax is also imposed on taxable income where such income has a sufficient business nexus with that state. Therefore, whilst you may choose a state to incorporate in based on a number of reasons, if your target market is in another state, you still may be subject to tax in that other state. A range of local taxes are also imposed, which differ based upon the particular local district.
Although the US does not impose federal goods and services tax (GST), most states and local municipalities impose a sales tax on the sale of goods and services. This can sometimes extend to digital sales tax, bringing online sales from any country that sell to US residents into their tax net.
One of the biggest differences between Australia’s tax system and the United States is that there is no single nationwide approach beyond federal taxation. Each state has its own tax rules, filing obligations and regulatory requirements.
For example, some states impose corporate income tax while others do not. Sales tax rates can vary significantly between jurisdictions, and local municipalities may also apply additional taxes or reporting obligations. Businesses operating across multiple states may therefore need to comply with several different tax regimes simultaneously.
Understanding where your customers are located, where staff perform work and where revenue is generated is often just as important as deciding where to incorporate your business.
Even once you’ve decided on the best US structure for your business, you need to consider the operation of Australia’s tax and regulatory systems.
Under a company structure, if central management and control of the business (i.e. the key decision making and control of the business) is being exercised in Australia, the company risks being treated as an Australian tax resident (and subject to tax in Australia on its worldwide income). At worst, your US business could be subject to tax in the US and in Australia on the same income.
Additionally, if certain thresholds relating to control are met, Australian shareholders can be taxed in Australia on income of the US company on an attribution basis, before it is physically paid to the shareholder. This provision is only aimed at taxing Australian shareholders that are holding investment income offshore to defer tax in Australia – if your business is genuinely carrying on business the risks levels should be lower.
Transactions between related parties in Australia and the US has the effect of moving income and expenses between the two countries but within the one corporate group. With different rates of tax this risks inappropriately stripping profits from one country to the other.
These risks are mitigated through transfer pricing rules in both Australia and the US’ tax laws. The transfer pricing rules are incredibly complex, but at the highest level the rules require that any related party transactions between the two countries must represent an arm’s length outcome, which is the outcome that unrelated parties would be expected to negotiate. For example, if a bank would lend your US subsidiary funds at a 3% interest rate, loaning funds from your Australian entity on the same terms but with a 10% interest rate is likely to raise red flags.
Overlaying this is the Double Tax Agreement (DTA) between Australia and the US. The DTA is intended to avoid double taxation, where both countries seek to tax the same income. Using the above example, where the US company pays interest (at 3%, to comply with the transfer pricing rules!) to its Australian parent, the US may seek to tax the interest as it was paid in the US, while Australia may seek to tax the interest as it taxes the Australian parent’s world wide income. The DTA addresses this by saying the US may tax the interest but only to a maximum tax rate of 10%, while Australia may tax the dividend at normal Australian rates (generally 25% for a small business entity), but must allow a tax credit for the US tax paid.
The operation of the transfer pricing rules and the overlay of the DTA to each transaction between related parties can be incredibly complex, but we have the skills to decipher the rules, to explain them to you in ordinary language and to assist you to develop the most appropriate structure for expanding operations into the US.
International expansion often creates exciting commercial opportunities, but it also introduces additional legal, accounting and tax complexity.
Businesses that invest time in structuring their expansion correctly before entering the US market are typically better positioned to avoid unnecessary compliance costs, tax inefficiencies and costly restructures later.
A well-planned expansion should consider not only today’s commercial objectives but also future growth. Whether your business plans to attract investors, establish US operations, acquire overseas businesses or eventually exit, your initial business structure should support those long-term goals.
Professional advice at the planning stage is often significantly more cost-effective than attempting to resolve structural issues after expansion has already begun.
There is no single structure that suits every business. Many Australian businesses choose either a C-Corporation or a Limited Liability Company (LLC), depending on their commercial objectives, tax considerations and future growth plans.
In many situations, yes. Operating in the United States without an appropriate US business structure can create unnecessary tax and legal complications. The most suitable approach depends on your business activities and long-term objectives.
An LLC generally provides flow-through taxation by default, while a C-Corporation is taxed separately from its shareholders. Each structure offers different advantages regarding taxation, investment, governance and flexibility.
The Australia–US Double Tax Agreement (DTA) helps reduce instances where the same income may be taxed in both countries. It also provides rules governing withholding taxes and determines which country has taxing rights in various situations.
Transfer pricing rules require transactions between related entities in different countries to occur on commercial terms similar to those agreed between unrelated parties. These rules help prevent profits from being artificially shifted between jurisdictions.
Potentially, yes. Without appropriate structuring, businesses may create tax obligations in both countries. Australia’s tax residency rules, US federal taxation, state taxation and the Double Tax Agreement all need to be considered together.
Ideally before signing contracts, establishing a US entity or commencing operations. Early planning provides greater flexibility when selecting business structures and reduces the likelihood of costly restructuring later.
Professional advisers can help businesses select the most appropriate structure, manage compliance requirements, understand transfer pricing obligations, navigate Australian and US tax laws and develop a commercially effective expansion strategy.
Expanding into the United States presents exciting opportunities, but successful international growth requires more than identifying a new market. Careful planning around business structures, taxation, regulatory compliance and international transactions can help reduce risk and support sustainable long-term success.
The Gild Group’s specialist legal and tax advisers work with Australian businesses at every stage of their international expansion journey. Whether you’re considering entering the US market for the first time or reviewing your existing international structure, we can help you understand your obligations and identify practical solutions tailored to your commercial goals.
Get in touch with the Gild Legal team today to discuss your US expansion strategy and ensure your business is structured for long-term success.
Are you looking to expand your business internationally? Please reach out to our specialist Gild Legal experts for any questions you may have.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.
