In which state in the US should you incorporate a company?

When a business company decides to expand to the United States, one of the first questions that usually arises is: in which US state should it be appropriate to incorporate a company? The answer, although it may surprise, is simple: There is no single state that is best for all companies. 

The choice It will depend on the activity, the structure of the business, the place where it operates and the growth plans.. States like Delaware, Texas or Florida usually appear among the most popular options, but that does not mean that they are the most efficient alternative in all cases.

What factors determine the most suitable state?

Before deciding where to incorporate a company in the United States, It is worth analyzing several aspects that influence both in taxation and in the administrative obligations of the company.

1. The company’s activity

Not all companies work the same. A digital services company has very different needs than a company that imports products, manages inventory or sells in physical establishments.

The business model directly influences the tax and regulatory obligations that the company must assume.

2. The location of employees and offices

If the company is going to have workers or a physical office in a certain state, in most cases it makes sense to establish itself there.

The physical presence generates what is known as tax nexus, that is, a sufficient connection with that state for certain tax and labor obligations to arise. Even if the company is incorporated in another state, those obligations will continue to exist.

3. Warehouses and inventory

In e-commerce companies that work with Amazon FBA, logistics operators (3PL) or own warehouses, the location of the inventory can also generate physical nexus.

This means that storing merchandise in a state may involve tax and registration obligations, regardless of where the company was established.

4. Where customers are located

When most of the sales are concentrated in the same state, in many cases it is more efficient to develop the activity from that same territory. This can simplify both operational and certain administrative obligations.

5. The sales model

Selling is not the same:

• To other companies (B2B).
• To final consumers (B2C).
• Through its own online store.
• Through marketplaces such as Amazon, Walmart or Etsy.

Each model has different implications regarding sales tax, economic nexus and regulatory compliance.

The most popular states… and why they are not always the best option Delaware

Delaware is probably the best-known state for incorporating companies in the United States.

Among its main advantages are:

• Not applicable sales tax state.
• The incorporation process is quick and simple.
• It has the prestigious Court of Chancery, specialized in commercial law.
• It offers a high level of privacy for the owners of the company.

However, there is a widespread misconception: incorporating a company in Delaware It does not automatically mean paying less taxes. If the actual activity is carried out in another state, the company must register there as a foreign entity, comply with its tax and labor obligations and, in addition, maintain the company in Delaware. This means higher administrative and compliance costs.

Texas

Texas has become one of the great business hubs of the United States.

Among its main attractions are:

• Does not exist state income tax, neither for individuals nor for companies.
• It is one of the largest logistics and technological centers in the country.
• It has a very diversified economy.

However, companies with certain turnover levels may be subject to the Franchise (Margin) Tax, in addition to the state sales tax of 6.25%, to which local taxes may be added.

For companies with real operations in Texas, especially in sectors such as logistics, energy or technology, it is usually a very competitive option.

Florida

Florida continues to be one of the favorite destinations for international entrepreneurs.

Its features include:

• Does not exist personal income tax, which may be interesting for resident members.
• Yes, a Corporate Income Tax of 5.5% for societies.

When the company actually operates in Florida, incorporating there usually simplifies management and avoids additional registrations.

Snowfall

Nevada also often appears among the states recommended by some advisors because:

• does not have state income tax for companies or for individuals.

However, it is worth considering other factors:

• There is the CommerceTax for companies that exceed certain income levels.
• Establishment and maintenance costs are usually higher than in other states.

Therefore, it does not always represent the most efficient option.

What if I simply establish where I am going to operate?

In many cases, this is precisely the most practical alternative.

If the company carries out its activity in a specific state, being established there can allow:

• Avoid double registration (state of incorporation and state of operation).
• Reduce administrative costs.
• Simplify compliance with tax and labor obligations.
• Facilitate the daily management of the business.

Each case must be analyzed individually.

Aspects that should always be reviewed

Regardless of the state chosen, there are certain obligations that every company must keep in mind:

• Have a Registered Agent in the state of constitution.
• Register as Foreign Entity (Qualified Registration) in those states where it operates if they are different from the one of incorporation.
• Comply with obligations related to Franchise Tax or to the Annual Report Fees, which vary significantly between states.
• Correctly analyze the obligations related to Sales Tax, State Income Tax and labor regulations, since these depend on the place where there is nexus and not only from the state where the company was incorporated.

Choosing well from the beginning avoids future costs

Incorporating a company in the United States should not be based solely on the popularity of a state or generic recommendations. Each business has different circumstances and the best decision will depend on factors such as the activity carried out, the location of employees, clients, warehouses or the way in which sales are made.

At UR Global we analyze each project individually to recommend the status that best suits the activity, business structure and growth plans of each client. In this way, we help the implementation in the United States is carried out with maximum legal certainty, optimizing costs and guaranteeing compliance with all tax and corporate obligations from the first moment.