Expanding business operations into the U.S. can be a lucrative opportunity to grow business if the structural decisions are made at the right time by the owners. The choice of the entity to undertake the U.S. operations should be aligned to the commercial objectives.
The owners of the family-owned businesses may classify an entity as a corporation, partnership or a disregarded entity for U.S. tax purposes, which creates planning opportunities. All business entities that have not been per se classified as corporations for federal tax purpose may elect to be treated as disregarded entities for U.S. tax purposes. Our whitepaper titled “United States entity considerations in the Trump era” discusses the “check-the-box” (CTB) regime and how the Trump reforms reshape the way businesses and private clients analyze entity choice within the U.S. and other countries.
The entity classification under the laws of the U.S. and India may not be the same, and the understanding of the laws of both countries can be a game-changer for a business structure. For example, a U.S. partnership firm is taxable for its profits at partners’ level and the firm is considered as a flow-through. However, an India partnership firm is taxable for its profits at partnership firm-level and partners are not taxed for their share of profits. The business owners should also be mindful of the strict anti-avoidance rules provided under the U.S. and India. These rules often give huge powers to the revenue officers to question the structure and require the owners to be able to document the business purpose to support their choice of doing business in the U.S. or India. Our whitepaper titled Interaction of Indian and U.S. Tax Laws harps the importance of addressing the structuring needs before you plan to enter the U.S. markets from India and otherwise.