We’re being contacted by startups in the UK and EU saying they’ve been notified by their credit card processor (Stripe) that they will need to have a US corporation to facilitate credit card transactions in US Dollars or that their US customers and partners are wanting to conduct business with them through a US entity.
These startups don’t immediately have a need for US employees but they want to establish a US corporation so they can do business in the US.
The question of “how much does it cost?” to setup a US corporation without employees comes up quickly during these discussions so we thought it might be best to just publish a blog on the topic.
One quick note before we dive into the details of the expenses to setup and operate a US corporation, pay close attention to the corporate state income tax rates in the states where you are considering domiciling your US corporation. These tax rates vary materially. North Carolina has the lowest state corporate income tax in the US at 2.5% so North Carolina should immediately be on the short list of states you consider for US expansion.
Below are some approximate costs for opening a US corporation without any employees that should help in creating a budget. If you’re interested in the costs of US employees check out our blog post on that topic.
The incorporation process is typically handled by a law firm and includes preparing the filing the Certificate of Incorporation with the Secretary of State and preparing the Bylaws and Board of Directors consent to organize the corporation. It is very common for US companies to be incorporated in the State of Delaware, regardless of the state where the company actually has operations or employees.
State Filing Fees: $750
Filing fees vary by state but Delaware state filing fees and first year Registered Agent fees are approximately $750.
Form 5472 Filing: $500
Any business operating in the US with foreign shareholders who own 25% or more of the company are required to file form 5472 with the Internal Revenue Service. This process is typically handled by a US law firm or accounting firm.
Transfer Pricing Determination: $4K - $8K
Transfer pricing refers to how companies price transactions between related parties (the parent company and its US subsidiary). A qualified third party will need to conduct benchmarking studies to determine the appropriate pricing between the related entities. The cost of transfer pricing determination is approximately $4,000 to $8,000. To learn more about transfer pricing check out our blog post on this topic.
Estimated One-Time Costs: $9,250
Federal & State Tax Preparation: $3500
Your US corporation will need to file federal and state tax returns each year. A Certified Public Accounting (CPA for short) can calculate and file simple federal and state tax returns for approximately $3500 each year. To learn more about US taxes check out our blog post on that topic.
Delaware Registered Agent: $250
The state of Delaware requires corporations registered in the state to use a third party Registered Agent to serve as a liaison between the corporation and the state. Registered Agent fees are typically $250 each year.
Delaware Franchise Tax: $400
Corporations incorporated in Delaware but don’t conduct business in the state are subject to an annual Franchise Tax. To learn more about Delaware Franchise Taxes click here.
State Certificate of Authority: $250
A corporation operating in one state but incorporated in another state (often Delaware) may be required to file as a foreign corporation and pay an annual fee. In North Carolina a Certificate of Authority to operate in the state costs $250 annually.
General Liability Insurance: $1500
Your US corporation will be required to have General Liability Insurance that provides property coverage and business liability coverage for your US entity. General Liability premiums are based on assets, payroll, and revenue. The minimum costs for a General Liability Insurance policy are approximately $1500 annually, although payments can often be made monthly or quarterly.
Estimated Annual Costs: $5,900
Physical Office: $259 per month
Underwriters at insurance companies and banks usually require their customers have a physical office location in the US. While there are a growing number of “virtual” office options available that provide a company “address” and mail service for a low monthly cost, the risks of this approach outweigh the benefits. There are many start-up friendly co-working options available where your US corporation can secure a physical office location and mailbox for as low as $259 per month.
US Phone Number: $15 per month
There are many options available for setting up a US phone number. If your company is already using Microsoft Teams, you can add a US phone number that’s integrated into your Teams messaging platform for a low monthly fee.
Bank Fees: $25 per month
Depending on your company’s overall banking relationship and average balance in your US bank account, you may incur monthly bank fees.
Accounting Software: $27 per month
Your US corporation will need its own accounting software solution. Quickbooks is a popular solution in the US and pricing starts at $27 per month.
Estimated Monthly Costs: $326
Additional Cost Considerations:
State Income Taxes: 2.5% - 11%
Individual states in the US tax the profits of corporations domiciled in their state. State corporate income taxes vary in range from 2.5% in North Carolina to 11% in New Jersey. If your company is setting up a US corporation for the purpose of conducting eCommerce transactions, domiciling your company in North Carolina is the obvious choice.
Federal Income Taxes: 21%
The Federal Tax Rate on corporate profits is 21%.
Sales Tax: Varies
Sales tax in the US is complex and varies by state, transaction, location, and sales volume. This chart provides an overview of sales tax by state.
Translation of licenses and agreements: $2500
Your US corporation will need US versions of your current licenses and agreements to conduct business in the US. We recently had a client have a US law firm translate and convert their license agreements from German to English with traditional US terms for a flat fee of $2500.
Additional Insurance Coverages: Varies – See our blog
You may want to consider additional insurance coverages for your US corporation beyond the required General Liability Insurance. To learn more about corporate insurance coverage in the US check out our blog post on that topic.
Future Employee Costs: Varies – See our blog
If you plan to ultimately hire employees for your US corporation and want to budget for employee related expenses, check out our blog post on that topic.
If you have questions about US expansion or creating a US subsidiary, please feel free to contact us. We will be happy to answer your questions.