EP [number] — Expanding to the US without tripping state taxes or visa traps.

US expansion sounds exciting until you realise how easily it can go wrong. Sonia Kanjee breaks down why most founders misjudge when they're actually ready for America and how small missteps around people, sales tax and structure can snowball fast.

She walks through the three tiers of US entry, how state rules really work, when you must form a Delaware Inc, and the hidden compliance triggers founders routinely miss. This is a practical map for approaching the US market without burning money or credibility.

What You'll Learn in This Episode:

• Decide when you're genuinely ready to open in the US

• Avoid economic nexus sales‑tax traps state by state

• Understand when one US hire obliges you to set up an entity

• Structure a clean UK–US group without future investor problems

• Track where your US revenue lands so you don't trigger avoidable filings

This episode is for UK founders eyeing the US market who want a grounded, practical view of what expansion actually demands.

*For Apple Podcast chapters, access them from the menu in the bottom right corner of your player*

Spotify Video Chapters:

0:00 Expanding to the US without blowing up your tax position

02:00 Sonia’s route into US tax and cross‑border work

05:10 When you’re genuinely ready to enter the US

08:20 Remote sales vs creating a taxable presence

12:10 Sales tax, economic nexus and SaaS treatment

16:20 Hiring across multiple states and compliance load

19:20 Contractors, dependent agents and testing the market

24:00 Visa realities when travelling repeatedly for business

29:40 The three tiers of US expansion strategy

33:20 Delaware Inc, lawyers and why setup matters

37:50 Trademarks, contracts and insurance for the US

43:10 LLCs vs C Corps and why UK companies should avoid LLCs

49:00 State tax allocation and how to track revenue properly

56:00 Treaty mechanics, withholding and W‑8BEN‑E

1:05:00 Interest on intercompany loans

1:12:00 Dormant entities and cleanup filings

1:17:00 Should founders relocate or hire locally?

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If you'd like to be on the show, get in contact - mail@businesswithoutbullshit.me

Expanding to the US Sounds exciting. Until you realize just how easy it is to get it completely wrong.

In this episode of Business Without BS I'm joined by Sonia Kanji, founder of Bridge and US tax expert who's helped hundreds of companies expand into America.

We unpack when you should actually expand, how to structure it, the biggest mistakes founders make and the tax traps that cost you a fortune if you get them wrong. So if you're thinking about the US market, this episode could save you a lot of money and a lot of pain. Welcome to business without B.S.

Our guest this week is Sonia Kanji, CEO and founder of Bridge, a specialist US tax advisory firm built for founders and high growth companies expanding into the United States. Sonia is a CPA or Certified Public Accountant which is the US US accountancy qualific, I guess.

With over 14 years of experience advising startups, scale ups, international businesses on U. S market entry, cross border strategy compliance and entity structuring. Her work has spanned across Australia, New Zealand, UK and Europe.

And indeed your homes have somewhat. You've lived in all of those places too. So Sonia, welcome to the podcast.

Thank you, thanks for having me.

So nice to see you today.

And we've both got the memo, which is why we're both in this lovely blue which is somehow representing the red, white, you know, the red, white and blue of America. I guess it's the bridge.

The blue is the bridge between the UK and it's the water.

Yes, it's the, it's the water. Of course, it's the water between. So brilliant.

So look, I think today we really want, for anyone looking at expanding to the US and obviously for anyone in the UK or Europe, this is very much a common thing that people look to go to the biggest market in the world. So I think we'll get in all of that. But it'd be lovely just to start. Let's have a little bit about, you know, your background and your journey.

Sonia, so how, how have you ended up doing this and where are we now in your career?

So I always tell people that my entire career has been an accident. Like I, I went, I, I grew up in Chicago, went to the University of Illinois as undecided.

And then someone's like, you know, maybe think about accounting.

So then you said it's a language.

Yeah, it's in a language you can use it as a language and finance department.

Yeah. Wow. Yeah, Interesting way of putting it.

So I fell into accounting. Then when I was a student, someone from EY came and they're like, why don't you try this tax internship? Fell into tax.

Then while I was at EY during the earlier years of my career, they were like, hey, you want to go to London? And I was like, yeah, I never lived abroad before. And then the rest is history.

I came to the UK 11 years ago and then shifted my focus from US domestic companies to international companies going into the US and left EY went to a smaller firm that focused on bringing startups to the U.S. we found that there was a need in Europe for talented tax people who could explain the journey, the tax journey to businesses in English. And I'm not talking US English, I'm talking British English. Because there is a difference.

There's the proper English.

Yeah, there is a difference.

And I guess I got really good at it because I've helped over 200 companies expand into the U.S. now, after 11 years here and becoming a naturalized British citizen as well, my partner and I decided to move to New Zealand. And then now I've been helping Aussie and Kiwi companies expand into the US as well.

It's pretty much the same journey for all these companies, just a different tax treaty. And the key, the key thing that brings me joy is looking at a founder who's like, okay, I've done really well in my home country.

I want to tap into the biggest consumer market in the world, and can you help me do that?

So these are clients who we'll be working with every year, and then about five or 10 advisory clients, depending on the time of year. And we're helping these companies expand into.

The U.S. it's funny when you talk about it being a different language, I think that's. I think that's so true that particularly in business, the, the subtlety, the semantics really matter.

I mean, both you and me know, I'm sure as tax advice is, you get people on calls and they start throwing these words around and they're just trying to explain what they're doing, but they use a word like associates or they Use, you know, like, you know these. It's various words that us mean very specific things in tax.

And obviously there's this translation too, that and being able to understand how to say to someone in a UK language what you're going to do. Is that what you mean when you're talking about it? The sort of speaking British, basically being able to speak both languages, isn't it?

Yeah, it's about being American trained and locally sourced.

Yeah.

So I know the tax regulations on how the IRS has written them and interprets them. But sometimes, for example, sales tax, sometimes when you're coming from Europe. Right.

VAT is a reclaimable expense in Europe and in Australia and New Zealand as well. But in the US it's not.

So helping a finance department or a CEO understand that you can't claim back the sales tax expense you pay as a business on a laptop you purchase. You have to take that as a business deduction. It becomes a part of the cost and you don't claim it back.

It's a one way is actually it's probably one of the biggest differences because VAT actually is more common around the world. You know, most people operate a sort of VAT system. So I have the reverse.

I spend my life telling American clients explaining this thing called VAT to them and yeah, demystify. They're like, no, no, I'm not business consumer. This is irrelevant to me. And it's like, no, it's definitely not.

It's a great example and we'll talk a little bit about it later.

So I mean the, obviously the attraction of the us, this sparkling giant market, I mean, what are the initial even, not even necessarily getting into sort of how we're going to do it from structure wise. What are the initial pieces of advice you give people about when they're ready to do it or what would they be.

So let's pretend we live in a world where the tariff regime has not.

You're going to say when Trump doesn't exist or something?

Well, I mean if we, if we're fantasizing, then yeah. But let's be a little more realistic and say let's, let's put tariffs to the side for the minute.

Yeah.

So previously what I would taught what I would say to prospective clients or com or businesses that were European or UK headquartered and selling it to the U.S. i would say, okay, there's three kind of buckets. There's the bucket of zero to $100,000 of sales, annual sales from the U.S. market.

If you haven't built up that much sales, keep doing what you're doing, focus on building momentum, brand recognition and a pipeline of loyalty customers. Then there's the second bucket and during that first bucket, don't, you know, don't pay me like focus, focus on the business.

And just to pause there for a moment.

I think this is an important distinction that people sometimes miss in their mind, which is more obvious to us as tax advice is you can trade with a country and you can trade in a country. So you're kind of talking about trading with a country.

If you're trying to build up sales, you're saying no people on the ground, you've got a few customers in the US Carry on, jump on flights to go and see them occasionally. But just, just, just get it going. Don't get into sort of like, oh, we've got to set everything up now.

Exactly. So if your goods are intangible.

So you're selling software.

Yeah, software as a service, professional services, things like that remotely sell into the US Right.

Obviously you can do business development trips where you kind of meet with prospective clients, you do demos of what your product can do, but that's more just like auxiliary and developing the business, not income producing activities. So you can do that, come back.

To the uk, you can advertise, you can use zoom, there's lots of stuff.

And so do all of your value add income producing activities from here, your home country and sell into the US remotely. So yeah, you can absolutely sell into the US without creating a US entity or a structure.

So that's where I would say focus your energy in that zero to $100,000,.

Provided you have no one on the ground.

Exactly.

The simple way to put it just, you know, people can get very lost on like when they got to set up, I mean 95% of it is about people. Have you got people?

And if you say, well they're not employees, they're contractors, just anyone working for you on some sort of thing, then you need to start thinking a little carefully. So, okay, bucket one, minor sales, getting there. What's, what's, what's bucket two?

I guess the next. But the next tier.

Yeah, let's call it tiers. That sounds much more professional.

Yeah, yeah. Would be between a hundred thousand dollars to half a million dollars of sales.

That's usually where a lot of companies that approach bridge are, they're in that middle tier.

Yeah.

And so they're like, we've got the momentum going where we've got some pretty big projects coming up now in that tier. You do need to start thinking about tax.

Because depending on the state where you're generating that revenue, you may have state corporation tax filings or state sales tax filing obligations. So that's when I'd say, okay, let's talk. Let's see what the risk and exposure is.

Sometimes it doesn't make sense to pay us to do your tax filings because the total tax due to the state is less than what it would cost for us to prepare the returns.

So you're gonna do the filings, though, and I doubt a British person knows how to do it.

Yeah. So it comes down to risk appetite. Right. Pragmatically, maybe you don't make those filings, and if you get a notice, you pay the notice.

Oh, really?

Right. Like, say it costs us $2,000 for the year to maintain the compliance, but the tax exposure is $400.

Yeah. You know, so in tier two, I've got a bit of sales there. What have I done? Set up a little entity or what?

No, you can still be selling remotely.

Still selling remotely. So I would say, why have I got tax there, then? What's triggering the tax?

Because states. So there's a treaty at the federal level. Yeah, right.

That allows you to operate in this capacity, this remote selling capacity, without having boots on the ground in tier one. So the first bucket. And also tier two. So. And in some instances, Tier three, which we'll get to.

But at the state level, there's no such thing as a tax treaty.

So what the states say is, okay, you can sell into my jurisdiction as long as you don't have a physical presence, you have some grace period before I subject you to my tax regime. And that generally is $100,000 of sales for sales tax purposes.

Ah, you're talking about what's massively changed. America was a completely open market.

And then Wayfair, a company that many of you know, came along and was selling loads across America without paying any sales tax. So. So if you're used to vat, there's a zero threshold for foreign companies to sell in Europe, the uk, any goods to consumers. You know, it's zero.

Really?

Yeah, yeah, it's zero. Unless you set up a company so you sell one pound of goods, you've got a VAT problem. And it's a real issue in this direction.

America's this incredibly open market, and actually it goes back to history in the Second World War and trying to encourage the Europe that was rebuilding itself, America said, well, we'll buy stuff and we won't. You could bring it in here, you know, we're not going to have tariffs and all of this stuff going on so that that history sits there.

And then as far as I understand, and you'll know better, but the Wayfarer case came along and then states of all some have what's called an economic nexus. So it's a really good place to start, actually. Sales tax.

I think it is the right place to start because people are thinking about companies and d. But actually the first place you need to think about is sales tax. If you haven't got anyone there, that's the first tax you're going to bump into. Does that apply to services? It applies to everything. Does it?

So it generally applies to all tangible goods.

Yeah. So that's physical goods. Physical anything you need.

And then it depends on intangible goods. So software as a service is a highly scrutinized area.

And with each passing year, more and more states are starting to put it on their list of sales taxable goods. Right now, about 50% of the states consider SAS to be exempt from sales tax. And then the others don't. Big example.

California, it's got Silicon Valley, it's got huge lobbyists for software companies. California exempts SaaS products from sales tax. So you can sell millions of dollars worth of SaaS.

Oh, it'd be interesting because they don't want to. They want to. They treat others as how you want to be treated yourself. They don't want to see sales tax. Other places.

They've got big pockets who are going to lobby to keep sales tax off of their SaaS goods.

And you used a word. Because I've heard Americans use this syntax on something else. I was looking at again, this semantics.

The language really intangible means a very specific thing in the uk and it usually means intellectual property or something like that. Whereas you Americans would say intangible services, which like, in a way doesn't make much sense to us. But yeah, you're effectively services.

We would probably just say, you know, so it's good, it's goods or services. And if you're providing services via platform, somehow you can't just sit there and ignore sales tax.

And you've got to consider state by state, are you breaching an economic nexus? This is assuming no one's on the ground.

Yeah.

So this does catch people off guard, which is why I say in that hundred thousand to half a million dollars tier, you need to start talking to a tax advisor. Because New Jersey, their threshold is $100,000 for sales tax compliance. And $100,000 for corporation tax compliance.

So not only do you need to start slapping sales tax on your invoices, you need to submit a return to this.

No way. Even if you don't have anyone there?

Even if you don't have anyone there. Yeah.

Oh, wow. New Jersey. Go New Jersey.

Yeah. It's one of my least favorite states.

Jersey. Excellent view from New Jersey, I hear.

To Manhattan.

Yeah, exactly. Well, that's great. I didn't know that. And I mean, maybe you want to talk about. We, we use the words.

And if you, if you've done any international business, you may have heard tax advisors talk to you about concept of permanent establishment, but America sort of uses this word nexus. So let's just stick with sales tax, you know. So a nexus from an American perspective is either you breach the threshold. Is that a nexus?

Yes, yes, kind of.

Yeah.

Or you have somebody involved in these sales.

You know, I see what you're trying to allude to. So it's either physical nexus or economic nexus.

Yeah. Okay.

And physical nexus is really easy to understand. Right. Employee office site, a remote work desk location, inventory, laptops.

The bar's really low, I would say, in America for what's called a physical nexus. In terms of when they start saying that's sales tax, we're keeping talking about sales tax.

Okay, yeah, we can focus on sales tax.

Yeah, well, no, Jay, because the rules.

Are the same for sales tax and corporation tax.

Oh, okay.

So physical nexus means immediate tax obligations to whoever has that physical presence in that state. In that state. So let's say a limited who's not a software as a service company, but they're a.

A E Commerce brand and they store stock in a warehouse in New Jersey. That hundred thousand dollars is irrelevant. Now you have physical presence, so you need to immediately register for sales tax, incorporation.

And does this fit well with strategy to approach the U.S. you know the old phrase, how do you eat a whale one bite at a time? That, that. And Americans do this with Europe. They go like, well, I'm just going to roll out in Europe.

And it's like, no, this is, this is like 30 countries.

Okay.

You know, there's common laws with the European. But what I'm sort of saying is, so I'm a UK company and I start trying to sell in multiple, multiple states.

That could get complicated pretty quickly. And also when I'm hiring, I'm like, oh, I'll have that person in Florida and I'll have that person in New York and then I'll have that.

Yeah, look, you've shivered. It's like, it's like pick a spot, isn't it?

Almost, you know, concentrate your operations. Right. I guess if I was to set up in England or in the uk.

Well done in the uk, Sorry, I'm Scottish listener.

Would I hire one guy or one person in Edinburgh? One person in London, one person in Brighton. No. Right, like that, that team.

You might in this little country. But still there's an element to which, you know, you want them together a bit closer. Maybe Milton Keynes and you know.

Yeah, more likely than that. I'll try to have someone in Slough and someone in London, you know, that, that dynamic could work. Yeah, it could work a little bit better.

But yeah, same thing. I mean the US is a huge country. It really, if you're. And not just as a country, it's 50 sub countries.

So if you hire an employee in California, you have to do all of the employer registrations, licensing, payroll tax, licensing, withholding, tax on unemployment, workers comp, all that in California. Now let's say you want to hire someone in Florida, you have to go through that entire process again in Florida.

So it makes sense if there are two really qualified candidates that you want to onboard that are going to add extreme value to your company. Yeah, pay. Pay the compliance fees. Right. Bring them on board because it's, it's worth the investment.

Yeah, don't let tax wag the dog.

Exactly.

If they're the right people, they're the right people. But be aware that you've got a lot of compliance headaches.

Exactly. So I work with one startup from Australia. They onboarded 10 employees over the course of a year or so in 10 different jurisdictions.

So that's 10 state employees.

Are they regretting it?

I don't know if they're regretting it. I think they are just realizing that it could have been more streamlined.

But I think all the people they hired, they're happy they've hired, but maybe it would have been nice if they were more clustered.

Yeah. And I think picking your entry points is really interesting.

I had a client a few years ago who was sort of initially wanted to go into New York and actually then all the advisors pushed them down to Philly and said, you want to do Philly? And they were very friendly in Philly and they had, you know, a bit more support.

It's a bit like people have said to me, you know, Raleigh's a really interesting entry point. There's these sort of if, if you don't have, like, if you're not Like I'm a fintech, I need to be in New York or something.

There's agencies out there. America has, I forget all the names of them.

But you know, you may know Sunny, there are people who can try and give you some guidance here to say for what you want to do. This is a good place to go and hire, I mean for clients. I feel sometimes they get a bit sort of obsessed about a person in a way.

I mean, it's a difficult balance, isn't it?

And a lot of companies will test the waters before they hire.

So they, you had talked about contractors and you said as long as you don't have a physical presence in the U.S. or people boots on the ground in the U.S. right? You can sell remotely now, contractors. It depends. Is this contractor working for you and working for other companies?

Are they, are they a dependent agent?

Exactly.

Is the phrase and the clues in the name. You may be a contractor, but America has similar rules to the UK to look at the fact that you'll say, well, they're dependent on you.

They're basically your employee.

Right? So what some companies that I support do is they'll hire or they'll contract with a consultant in the US and they'll say 20 hours a week.

Okay, so I don't want you working for me full time. We have like non compete, they have their own confidentiality privacy clauses. But that contractor can work on other clients and do other work.

And then they test the waters to see if this person is someone they want to invest in and bring on board as a full time employee. And then once they get confident in that, then they set up the US entity to house that individual and run their payroll.

So there's also that way you can go about it too where you're not just blindly hiring people that you think, yeah, this person's gonna be a value add. You can even test the waters as long as you're doing it in a contractor arm's length capacity.

And I've heard people comment, I don't know whether you think it's fair, but the, there's the cultural gap between the British. The British are very bad at selling ourselves and we downplay ourselves.

So I've seen with clients that they go and interview people in America and they're like, God, these people sound fantastic. You know, I've just interviewed them. Very impressive. You know, and someone who's done it for, he's an older guy, I know he's done it a few times.

He was like, look, you have to, you have to down dial a little bit that this person is very good at selling themselves.

Exactly.

It's in American culture to do so. You know, it doesn't mean they're going to be that good at their job, you know.

Yeah.

Is that fair?

Yeah.

There's a little bit of that.

I do think so. I think people put their best foot forward in an interview and they. That's their. That's probably the best version of them you may get.

Yeah. Yeah. Whereas British people spend the whole interview. I don't know I'm going to do this and it's not going to really work out and stuff like that.

So that's great. So you can test. If you're going to test, you give them small amount of work. I mean I think the technical terms are sort of.

They use slightly different language but it's similar here. You know, it has to be someone acting in the normal course of their trade.

Exactly.

Which is just the concept that goods is an easy example. You find a lot of agents like that that basically they are, you know, you sell chairs.

You meet someone who's used to dealing with in furniture and selling different types of furniture. You're an interesting brand from the uk, they can take you on and say I'll give you 20 hours and I'll do sales for you.

But I've got two other clients.

Yeah.

One who sells beds and one who sells treat houses. Whatever. I don't know.

Exactly.

And that all makes sense. So you can find those kinds of people. So what we're saying, you're looking at the U.S. think about where you're going to put your operations a bit.

Realize that sales tax and possibly corporation tax can kick on on an economic basis only just from pure sales. You were saying in practical terms you may have fallen foul of that, but if you've fallen foul of it. Can I just be really practical?

If I'm not there, who are they writing to? How do I know? So I do I. I'm not saying can I get away with that? I'm just saying I, I didn't know where I breached a nexus.

Actually I should have done X, Y and Z. But they don't know. Do they know? They don't know. So they're not writing to me to tell me I should know. I've got to work it out. Is that fair?

Yeah. No. And. And clients will point blank say how are, how are they going to catch me?

And I hate that question. Yeah. I think both of us professionals say that question. By the way, I'm maybe you're governed the same. We are professionally governed. Yeah, I've.

If I know, then that's a problem.

Yeah, exactly. So when something like that gets asked, I say, all right, so if you're selling to. If you're selling a good to companies in the U.S. so you're.

Let's go back to the software as a service example. You're selling B2B SaaS products and you're selling it from the U.K. so, sure, there's no physical presence.

There's no, there's no connection to you to that state in any other way. Way. What if they audit your client? Right.

They audit your B2B client and they see this client making $50,000 purchases with your UK company per year for your software product. Then they say, who is this company? And you say, this is a UK Limited. I buy software from them, then they're going to come knocking on your door.

They're like, hey, over the past however many months I see you've made this much cash from this customer in New Jersey. I don't see a sales tax return from you. So that's a, that's one way they can do it. Now, let's say you do. You do have U.S. operations.

One of my clients got caught by parking tickets. So they had operations. They had set up a US Subsidiary in I think New Jersey. Actually, they set up a subsidiary in New Jersey.

Employee was in New Jersey, but really worked in New York most of the time. But they didn't register their company with the state of New York. So they were like, no Delaware, Inc. New Jersey office.

Because New York has state and city taxes. So very high tax jurisdiction.

Of course you get, you can have city taxes as well as almost like county. Is it almost like county?

Yeah, state, local. And then it gets even more complicated for sales tax.

But that employee would go to New York City, I guess, once a week or twice a week and park the company car legally, apparently. Yeah, exactly. And so they got two parking tickets within 20 days.

And the state was like, I guess the state handed that information over to the tax authorities. And the tax office was like, you don't. You're not registered for an office in New York. And that's how they got this Sounds scary.

I mean, when you talk to Americans, it's worth paying note to the way that they. You act about the IRS is like, they're the FBI. I mean, people are, you know, hmrc.

Look, they're a serious organization, but we're a bit more like, we don't mind. They get things wrong we need to have a, you know, game of chess with them or a bit of a fight about stuff. The way people talk about the IRS is fear.

It's like, are they just incredibly powerful? What would you say to a British person about the rss? Like, don't mess with them kind of.

Thing, or I would say, do things legally.

Great advice. Let me write that down.

If you're coming to America once every few weeks, don't come on an esta, get a visa.

Well, we haven't even mentioned the visa. I've seen people say that. Esther is not designed for that. A business thing. You can come for a conference. You can come probably.

Like I do a business trip. But if you're coming regularly to look at business.

Yeah.

For business purposes, what do they do when they do. Because do they just sort of shut you down, the irs, you know, or. That would be a visa issue. That's almost ice. Is it? Sort of.

I don't even want to go there.

So I have had clients held at the border and their phones get taken and they go through the calendar emails to see if there's business meetings lined up during their.

They go through your phone and they go through your emails and everything.

Yeah. When you enter that country, and I'm guessing the UK probably does it, too, when you enter the country, you give them the authorization.

I'm sure it does happen, but that seems very invasion of privacy to me. Very un British.

Well, they're only doing it when they're. When you're flagged.

It's not like they're doing it for every single person coming into the country, but it's when they feel that you are abusing the ESTA for business needs. You should have a business visa. I mean, I'm not. I. I feel like I'm a citizen of the world. Right.

I live between the us, the uk, Australia, New Zealand, and I think everyone should be able to live on four. In four countries.

Yeah.

Three continents, you know, like, why. Why do we have these rules? But then I. Then you think, well, safety.

Well, I think that attitude is how global business and entrepreneurs think. A lot of time they're flying by their seat pants, especially if they're starting up.

They're having to cut corners and look, let's be real, if you do everything perfectly, you'll be broke.

Exactly.

You know, literally can't afford it to start with. You got to do whatever you got to do to get it going. And Americans are kings of this.

I mean, Uber wouldn't exist if they, you know, they they, you know, now we've got different rules on employment due to Uber, but, you know, we wouldn't have an Uber if they made everyone be an employee day one, you know, so they're com. They're hard things for someone to navigate, but people do fly around and feel very free these days. But I think, like, both of us have to advise on.

I think underneath it, they need to be understanding. There are very strict rules about visas. And there is an extremely tense attitude in this country.

And Americ amongst many people who feel very angry about immigration, who don't like all this, hey, globalization, it's all cool and funky. They're like, you're stealing our job. You know, tense, anger driving political situation that they're not all just chilled out about.

It's very prescriptive. And the tax too. I imagine there's some understanding. Like there's some sort of. Okay, you don't know what you're doing. If you've just started out.

It's small amounts. We can fix this. There's various ways. There's various ways. I know with the rsrs, you can kind of say, hey, I've messed up.

Yeah.

Voluntary disclosure, you know, you know, I'm not. And that's cool. And there are that stuff. But you, you probably just need to be a little more aware of it than you think. It's.

It's almost getting your guidance or on what, what lines you don't cross. Isn't it really, you know, tricky to navigate? Okay, so bucket one was doing small sales. You can do it remotely. Careful with your visa.

Maybe that you go to a conference or something, but try and do it remotely. Be careful with that. Tier 2, you start to get some sales, you probably need to look at state registrations.

Yeah. So see where your sales are landing. Some states are more friendly, some states are less friendly.

So less friendly. And the IRS is federal level.

Yes.

So there will be a state tax.

Yes.

Oh, I hadn't even thought of that. So there's. What do they call those? Just state tax authority or something.

Yeah. So in the US we call everything income tax and sales tax.

Oh, yeah, you do.

This is part of the language. So I don't say income tax when I'm talking to Europeans.

Corporations.

I say corporations.

Thank you very much.

Because if I say income tax, it will confuse you.

It does confuse us.

Yeah. So it's technically called corporate income tax. State income tax.

Right.

But for our discussion purposes, it will be referred to as corporation tax. And then state corporation tax.

Very good. Okay. And then should we move to tier 3? Is there anything else you wanted to say about Tier two?

So Tier two, we might have an agent temporarily, you might have hired one person or something and. Or not, maybe not.

So for Tier two, it's. I still say remote sales because you're just about. You're just about ready to invest in a US structure.

However, if in tier 2, you need boots on the ground, then you can't remotely sell. You need to set up a US entity, and then either the US entity sells to the US customers or you can continue selling from Europe.

But if there's a person involved in the us, get an entity set up.

And just get that clear in your mind. That's the key trigger. It's the key trigger pretty much in any country. If you're.

The moment you're putting actual people on the ground, 99% chance that you need an entity at that point.

Yeah. And sometimes people do this shortcut, which is not correct, which is they use.

A peo because we're so sick of it. This direction. All Americans have 20 people on a PEO in the UK and no company. That happens the other way too.

Exactly. Yeah.

Oh, wow. Talk about that a bit.

Yeah. That one client I talked about, the 10 people in 10 states. That's what they did.

Right.

So they're actually in the process of sending up a US entity now because they didn't realize. Sometimes people don't realize. They're like. But because. And you know why they don't?

And I almost want to knock on PEO's because they're telling and they're like, you can do it. Don't.

Yeah, yeah, yeah. It's. Yeah. 100%. Be very wary. They've got these websites you can employ in 100 countries.

For you, we'll do it for you. No, no stress. No stress. You need to stress. Yeah. So, yes, that. So that's the middle tier, and then the final tier is half a million dollars. Plus.

I usually don't push companies to set up a US entity until they get to this point, because getting to the first half a million dollars of annual sales in the US takes. Takes time. It takes a lot of, you know, what do you call it? Blood, sweat and tears.

And then once you get to the half a million, getting from half a million to 1 million happens a lot quicker.

And if by the time you reach a million dollars of annual sales in the US and you don't have a US entity setup, in my experience, you're scrambling, then you've got like a DD coming up. And they're like, why haven't you done a due diligence?

Due diligence.

An investor. Due diligence.

Yeah, yeah. And they're saying the lawyers are starting to ask questions about Nexus and you know, have you got a visa? And you're like, yeah.

Then they're asking the pressing questions and you're scrambling also, you could at that point get a, an offer from a large partner. They're like, hey, we want to partner with you because half a million to me and you build the momentum.

If you're selling on TikTok, like, people are hearing about you. And a lot of the times you need either a US person or a US entity to finalize those conversations.

So I would say about half a million dollar mark, let's really talk. This is when I would say, start paying us.

We're going to help you put a structure in place so that when you get to the investor due diligence or the large contract, you are ready to hit the ground running because you look.

Really, you just look a bit of a mess at that point. A bit incompetent, a bit like if you can't, if you haven't actually got your head around this and who are lawyers and, yeah, good advisors.

And you're like, okay, yeah, yeah.

That's another thing that sometimes surprises me is if you're selling into the US and you don't have insurance for your products to cover both countries, I know that when you're selling like Amazon, fba, they, they check for all of that stuff. But making sure you're insured in the U.S. your terms and conditions are because.

The U.S. is often excluded from policies because you guys love to sue each other and people love to keep them. I mean, sometimes I think it's way overdone because I don't think people sue each other as much as we like to think.

Yeah, insurance policies often cut out the.

US and then what was the other thing? There is all terms and conditions. Now, I'm not a lawyer, but I work very closely with a team of like five or six different law firms.

They're fantastic.

Including my dear brother, including James, James Uri. So, I mean, let's just pause there for a moment.

You know, obviously as a firm in the uk, we do both sides of the fence, but there is an absolute division between law and accountancy, effectively in, in America. And explain that to me. What, what can't you do? And what can only a lawyer do?

So I'm a certified public accountant, a cpa. I Can sign tax returns. I think I can sign audit and financial statements, though I would never do that. And I can do.

Yeah, anything in the accounting and tax realm. I cannot incorporate an entity. I can't.

That's very key. Only lawyers can incorporate entities.

Yeah. Or I guess like you've got these platforms now, like Stripe Atlas, so you can go on the Stripe Atlas platform and incorporate an entity.

I don't know the mechanics of it. I do not recommend it. Because who's looking at your stuff?

Right?

Like.

Well, it's same here. You can form a company online here cheaply, but the registered office will go to an address that no one's looking at.

So you won't get your tax reference number. They'll use model articles that will have to change because they're wrong. You know, it's like spend that little bit of money to get it set up. Right.

Yeah. Just make sure your. What is it? Your eyes are dot and your T's are crossed.

Yeah. I've been really surprised about the law thing. I think you've got to understand that. And there's a real like separation.

Like you can go to a British accountancy firm and you can get a company set up and the tax sorted out and all done. You know, we do it all.

Accountants generally do that a lot of the time, whereas lawyers are sort of more on specialist subjects or on corporate transact. Like lawyers can form companies and do form companies. Do. Do tax advice. You can go down that route, but you can kind of do either.

Whereas in America you run into this thing where you're like, I can't touch any of that. You have to see lawyers. You have to go to a lawyer initially and they do the setup and the tax structuring and all of that. That's almost like.

Like a lot of the initial stuff is their camp. Is that right? But you know, you do tax structure.

I do. I was just going to say I do structuring because I've been doing this for 15 years. So I.

Structure should look like for a non US company expanding into the US So.

You just need a lawyer to form the entity.

Exactly. Which is where James is very helpful. Yeah, yeah, yeah, yeah. So they.

Lawyers would form the company, they would do the bylaws, you know, all of those incorporation documents. They would also register the business in different states. So say you. You should not say. You should always set up a Delaware Inc.

Unless there is a compelling reason for you to put your business headquartered anywhere else. Like so not headquartered but incorporated else. So if you were Say a mom and pop shop in Florida. All your employees are Florida.

You, you have brick and mortar in Florida. Sure, incorporate in Florida. But generally speaking, non US companies incorporate in Delaware. Then let's.

That hasn't changed at all with the sort of, you know, Tesla moving to Texas or the sort of, you know, all of that. The. Not really Delaware. Delaware.

Delaware, yeah. I mean again I'm not the lawyer so we could ask James if there's trends for other.

Yeah, I wanted it to join us today, but yeah, anyway.

But Delaware is still the golden stamp of approval at least for venture backed companies as well as non US companies expanding into the US but let's say you need to hire someone in Texas. You would then register your Delaware Inc. With the Texas state authorities. Lawyers would do that as well.

And then they would also do any sort of contract review, trademark registration, patent registration.

I would hope you, you can do your trademark registration from here. I mean if you're a British company.

Well, I mean I'm amazed how many people overlook trademarks and doing, doing the basics of, you know, some people say, well you, you have an intrinsic right, don't you work. Technically you do in the uk but if you've ever tried to use the law of passing off, you'll find it's a pretty hard law to use.

So you should protect your trademark here and anywhere you trade. And get a similar mark in the U.S. exactly. I would do that before you've even started to sell there. Go and go and get your mark.

Because if you find out you can't. They don't.

Yeah.

And then they find out there's a clash.

Yeah.

And then they're like, I've got to change my brand name and that's massive.

Yeah, yeah, that has happened. It's, it's not super frequent, but it does happen.

And then the other thing which I think is the most important part of the lawyer is the contract reviews. So if you're going to hire an employee, make sure your employment contract is rock solid.

Your terms and conditions in the U.S. you want to make sure they're written under U.S. law, not under UK law because you're reselling to customers in the U.S. so that is all within the realm of the lawyer.

If I'm looking to do this, I mean, what kind of budgeting, I'm not asking, you know, is this, are we talking £1,000, £20,000, £200,000?

We're going to talk in dollars, let's talk in dollars. And I usually say if you don't have about $50,000 for your first year for startup and operations, professional fees. Yeah.

You probably aren't ready to.

And that look, that should immediately give a listener of a sense of this.

Yeah.

You know, you could probably do that for a tenth in the uk. You could probably, if you wanted, you could probably spend £5,000. Let's do dollars, whatever.

Yeah.

And set up a company and get a few things off, chat GBT and sort of be like, oh yeah, I'm off. You know, I don't, I think it's true in America I think you can, you can look where to catch corners, but you're in a, you're trying.

If you're actually going to do the U.S. you kind of got to go for it a bit and have a serious budget.

Yeah, you should have. And I mean I've seen people do it in $20,000. And those are the companies that have no people.

No, they just, they just have a third party logistics provider in the U.S. they have a lawyer and an accountant and every. It's a very slim structure and so you, you can do it. But I, I don't think I've seen it done successfully for less than $20,000.

People usually try to like put a band aid on a bullet hole and then they have to retreat.

So I mean things are going. Got a bit of sales.

Yeah.

Got a couple of people, maybe I've employed them directly or I've done some, I've got a, you need to get an advisor, you know. And then I'm setting up this Delaware entity that would normally be a subsidiary of the UK entity.

Yeah.

Now that doesn't make me. Because US Tax, as you may know, is extremely in a long arm of the US tax. But provided I'm more than 50% non US owned. That's right, isn't it?

I'm a UK company, 100% owned. Even if I bring in some investors from America who own 30%, the UK company remains UK and the US company remains US roughly speaking.

Yeah, yeah.

Okay. So you've set up an entity there. That's the entity that you're going to tax with all the weird like check the box or whatever.

Is there anything else you need? You know, you set up a, you say look, vanilla approach, get a Delaware in former subsidiary.

Anything else to like be aware of there, you know, you're going to register that in states. It's just going to act as an.

All these phrases are very American opaque entity, you know, because you can have, you can sort of switch entities and stuff sometimes and Stuff but that will be a, that you can look at that ink like you would look at a UK Limited.

Correct. Yeah, yeah, yeah. That's pretty, pretty much the entry structuring.

So you would have your UK shareholders, you own your UK Limited and your UK Limited owns the US Inc. Or sometimes I see there's a UK holding company that owns the UK trading company and that owns the US if you can. Yeah. And, and that's more common when there's like, like two or more countries involved or three or more countries involved.

That's usually there's a UK Trading, Australian Trading and a US trading. So they have a holding company.

Yeah.

To hold all those. But that's pretty much it. What is often seen is if you do bring an investor on board later. So you've got your original, your OG OG investors. Yeah.

And now you've got interest from a usvc and they're like we, we want to. Sometimes it is 30%, we'll give you x million dollars for 30% in the cap table.

And in order for you to get this X million dollars you have to do a flip.

The Delaware flip.

The Delaware flip. So that's when the holding company becomes a little bit more annoying. But yeah, you then have a US headquartered company that owns the UK Limited.

So that is something that could also happen. But that's more down the road and.

I think it's worth commenting there because if you're a British business use, good chance you would use eis especially as they've made it even more generous and long term.

So you'll have E investors and you'll be thinking, well, well you should be thinking, by the way, EIS is a very generous but a very sensitive tax regime in the UK and if you mess with it, you can screw it up very easily. You know, can I insert a US holding company? You can, but you need to plan the hell out of that.

There is a relief that allows you to put in place a holding company and keep eis. The US holding company would have to have some operations here.

I'm not going to get into it but suffice to say if you've got EIS investors you've built in the US and now a US person is wanting you to do a Delaware flip.

Yeah.

That needs some planning and thought. But it's all possible if you do it in the right way without screwing up the EIS investors and keeping them happy and ending up a Delaware company.

Yeah, I didn't even think about that.

Yeah, yeah, yeah it's. And, and people Forget people take the money on EIS and there's three years, you know what I mean? And they're like, well, I'm good.

You know, we've got the money. Let's crack on. And it's like, no, no. If you mess it up, they'll lose their relief. You have some very angry shareholders.

You know, they can't take their money back. But it's not a great look, you know, especially when there is a specific relief. EIS has one restructuring relief, which is a holding company relief.

So before we crack on with the show, please consider subscribing to this wonderful channel and to our mating lists.

At withoutbs.com you get free weekly classes from the best minds in business and free downloadable resources that strip away the jargon and give you the real world lessons. You don't get a business school. Thank you. Do you ever use the LLCs or. Your LLCs have always talked about. You often meet American businesses at LLCs.

I mean, just give a very basic difference between the two. And when you think an LLC might be useful to anyone or not.

Yeah. So an LLC is useful. I'm American, let's say I live in Chicago, so I'm a US Tax resident, and I set up an LLC that's owned 100% by me.

That means that that LLC is a disregarded entity. So in the US a single member llc, LLC owned by one person is not. It's. It's transparent.

Yeah. Disregarded entity. I find such a confusing phrase back in the day. What it means is it's disregarding the limited company.

Just to remember what a limited company is. It's not you. It's a separate legal entity. It's a box. And effectively a disregarded entity is. You're disregarding the box.

It doesn't exist.

The box is gone.

Yeah. In the eyes of the irs, that entity doesn't exist.

And that's really beneficial for me as a US Tax resident in Illinois, because that means my LLC can generate its business profits. It doesn't have to pay tax as a. As a separate legal entity. It all flows onto my personal income tax return.

And in general, in America. This is a terrible generalization. Is it right to say that corporate tax is higher than the UK and income tax, that individual tax is a bit lower?

You know, your sort of top rate of tax, isn't it 30% or something like that?

So I think once upon a time, the corp tax in the US was much higher than the uk.

Oh, it's not so much anymore.

Yeah. I think it used to be 35.

It used to be 35%. That's right.

Now it's a flat 21% at the federal.

Is he really. Yes, I hadn't quite taken that in. Okay.

Yeah. So that, that change came Trump maybe. I think that was. Trump won the first term. It was not, it's not recent. It's been in place.

I've discovered another rate of 14.125% for Overse. You know, there's a load of sort of Trumpism to try and would get make America very attractive to run a business again.

Okay, gotcha. Yeah. So the federal corporate tax rate is 21. A flat 21. And that's lower than the UK.

Yeah.

But then you have to factor in state and local, if that's applicable to you. Most startups will end up in the range of 22 to 20.

Oh, it's quite small. The state, local, if you're 1 or 2%, a little, a little sprinkle.

Well, the state tax rates are actually anywhere between 0% to 11 and a half percent, I believe.

Right.

But let's, so it's, it's complicated. But let's, let's see if I can explain this in British English. It's. You have net profit of a hundred dollars.

Yeah.

Of that hundred dollars, you haven't hit the threshold in any states. So you only have one state tax obligation, which is Florida.

Where your people are.

Where your people are. And you haven't reached economic nexus in other states because you haven't gotten, you haven't sold enough dollars in. In one particular state.

Yeah.

So of that hundred, Florida is going to say how much of that is from Florida based customers? And let's say 30 of it is. So now 30 divided by 100 is 30%. So you multiply that, you get $30 in Florida.

Oh, they're only going to tax this 6%.

Yeah. So and your effective tax rate and Florida state tax rate is 6%.

Right. So it's 30% of 6% is 2%. Yeah.

So it just comes down. And then also Florida says if you made under $50,000 of taxable income, don't pay me tax.

So there's a lot of different ways to bring your effective tax rate in a state.

You need to know where your customers are. You need to internally be tracking and be able to run a spreadsheet to say where these customers are. Easily.

Yeah. You can't go to the United States without having a mechanism to monitor your sales by state footprint. That has to.

Whether that's your Shopify or zero or something else.

Strike Quick Quickbook. I mean, QuickBooks is the popular one because it's American, isn't it?

I mean, generally Americans will want to use QuickBooks and they're like, what's this zero rubbish? You know? But they're very similar.

Yeah. I, I've never opened Xero. All my clients. Oh, sorry, I've never opened QuickBooks.

Oh, really?

Yeah, all my clients use Xero because.

They're coming from Britain.

Yeah.

And they're coming from Australia. New Zealand. Yeah.

I Bridge uses Zero. I finally had to learn how to use Zero.

Well, our team in the uk who do both, they think Zero is a slightly better product, but you know, it. Look, you've got the canny Kiwi product or you've got. What are they called in Intuit? Yeah. The massive, like American company with QuickBooks.

But yeah, coming this direction. Yeah, it's QuickBook success. But zero is popular in America. Can do it all nicely. Fine.

I think Zero is gaining popularity.

Yeah. So thanks to you.

I should get some royalties there.

In that example, you were doing state taxes and you've got to keep a track of where you have. So you obviously need accounting systems to work this out. Do people ever use a branch?

Okay, so to close the loop on the llc, if you're a US person, opening a US LLC makes total sense, right?

Because you're already filing personal tax returns and then all the business comes onto your personal tax return and you pay tax on that income twice. When you're a non U.S. company expanding into the U.S. if you set up an LLC, that means your UK limited needs to file tax returns in the.

U.S. because it's a, basically in our language, a partner of a partnership in the US and therefore just if you had a partnership here, an LLP or a partnership, and you had a U.S. partner, they have to register here and do tax. But you have this ability to then switch an llc to add further confusion to this confusing topic. Right.

So if you must set up an LLC for God knows what reason, and you. For legal purposes, you can set up the llc, but then for tax purposes, you can make an election, a check the box election, which is what you.

Yeah.

Earlier. And that means that for tax purposes, the LLC is treated as a C Corp. Yeah. Okay, so if you must set up.

But you use a different phrase now to us, C Corp means corporation.

Yeah. S Corp means S Corp is a hybrid entity. It has elements of both corporations, but.

You mix up ink, don't you? So it's like an Ink is a type of C Corp. An INK is a C Corp. That is the only C Corp.

The C Corp. Yeah, okay.

It's the same thing. Yeah.

A Delaware Inc. Is a C Corp.

Okay, Very good. And then there's. Because sometimes you meet people and they say they're escort. What's an llc? A P Corp.

So an LLC can either be a disregarded entity or it could be a partnership.

Okay. It could be. It could be a C Corp and llc. No, but it.

So an LLC can be an elected.

C Corp. Elected protection. So you can say treat me like a C Corp. Yeah, it's bonkers. The whole thing's bonkers.

And the fact there's no public register that you can view all these people, that's the most crazy thing. Yeah, I mean, well, you know, the principle of it, the principle of limited liability.

The whole basis was I will limit my liability and have a public balance sheet. Therefore, you know who you're trading with.

You know, I've got a million pounds, or you know I've got minus a million pounds, you've done business with me. I owe you 500, 000 pounds. I'm limited because shame on you. It was in public record that I was massively in debt.

Americans just chucked that out the window and said, no, we're gonna have absolute privacy and we're going to have limited liability, which. Like it. You know, I still can't in Delaware. Can you look people up at all?

No. Not a sausage? No.

You can't find out who the directors are? Nothing?

No. No.

Wow.

I don't think you can in any state.

And on that subject. Okay, I've set up my ink sub. Let's do. Let's do vanilla. Vanilla is always good. Lovely flavor.

Subsidiary Inc. Few people on the ground who should be my directors, my officers, as you may say.

Yeah. So the president, the vice president.

Wait, break that down for me because president doesn't mean anything to us. We've. We've started using these terms here. And the vice president always seems to be in charge. So is a president an.

An.

A director. An officer.

So it's an officer responsible party of the US entity. And I think the titles are President, Vice President, Secretary, Treasurer.

Wow. Those are the sort of the commonly used titles for the. To name the people who will be on the Delaware Inc.

If you could actually get a copy in the bylaws.

Yeah. And it can be anyone. It doesn't need to be a US person. And I. I have clients that are one person bands.

So it's the same person in all the roles, but they do oftentimes have their lawyer listed as the secretary.

What do you recommend?

It's up to you. Does it matter who use the same directors of the limited for the.

You know, if there's a managing director of a limited and a director, use that as the president. Vice president.

Do you use the word director in the us?

You don't use it, really?

No. Officer.

Yeah. So.

And you don't have a statutory audit is the other thing. Because you can scare the crap out of an American. You say, oh, we're going to need an audit. They think an IRS audit is what they think.

There's no requirement.

No. If you're. If you're privately held, you don't have a requirement to be audited and disclose audited financial statements.

You have that requirement if you're publicly listed on, like the sec. And then the only financials you need, I mean, you need to prepare books, and then those books are only really reviewed by the irs.

No one else, no one else gets to see access to them.

And the reason people get scared of the word having us, what we would call, well, you can have a non statutory audit here, but an order checking all the books and records by accountants generally and doing an audit. If someone said to me, it may be new, Sonia.

Well, the trouble with that, in America, the starting price of an audit is a hundred thousand dollars, you know, and up. It's a in nor. If you're investors in America and saying, well, we want this company audited.

Yeah.

You know, you, you get your checkbook out, you know, it's a major, major cost.

Yeah. So that, that's one of the things. Right. As a cpa, I think I can sign off on those financial statements. I don't touch.

Sonia does it cheap. 50 Quid in order. She's available. She'll be at Farrington tomorrow if anyone's got anything just to knock out. Anyway, we had.

It's like when we get partners who are retiring, I'm always convinced just before they retire, we should just give them all the difficult audits and just say, yeah, just sign all of these, you know, you'll be fine. You know, let's take a step back. Tax treaties exist between most, a lot of countries. The UK has the largest network in the world.

So actually we have tax treaties with 130 countries or something like that. Yeah, Lots of treaties. Now, they don't necessarily fix anything, but they're there to look at conflicts or they're there to look at.

You've got two completely separate systems that do not give a flying about each other other than this treaty, which is the only moment they look at and say, and what is, what is the US UK treaty is a good treaty. Tell me about it.

Yeah, it's, it's very, it's a very good treat. And I do want to just make sure this point is driven home, is that the treaty is not to avoid tax, it's to prevent double tax.

So the whole purpose of the treaty is to figure out if there is a tiebreaker, which country will win the tiebreaker based on how it's such an important point.

And like the treaty can't really. The treaty can't, isn't. It can't impose tax, can only relieve double tax.

Exactly. So you can't, you can't say like, oh, I don't pay tax in either country. No, it's with you will pay tax in a country.

The treaty helps you decide which country.

Yeah.

So that you don't pay tax twice.

And so the most common reasons my clients use the treaty is dividends, interest payments, royalty payments between the US and the uk and generally speaking, the US entity is a subsidiary of the UK Limited. So this is going to be dividend payments being made to.

To give. Again, bit of background.

Most countries, when obviously when something's leaving their country, most countries like to impose withholding taxes to effectively say, well, hang on, you know, we've got a dividend payment, we've got an interest payment, we've got a royalty payment going overseas. They're going to tax it, they're going to have fun with it, but we want some money from it first.

Exactly.

So you get withholding taxes that apply and you can, if you want to Google any country you're doing business with with, it's worth checking withholding taxes. And there's really. It usually forms into business profits which are trading between the two entities.

Dividends, interest and royalties, I would say are the main four ones.

Yeah. And then there could be like personal services.

Yes.

What else is in there? I, I don't touch on this ever. But you know, if you're a, if you're an artist or an athlete.

Well, generally they're always performed in a country. So if you're a sportsman or a musician and you go do a concert.

But yeah, there's rules on that.

I saw someone getting angry about this online the other day and I didn't have the energy to correct them, but they were sort of like, oh, they come here and they do their big event and they take all their money and they don't pay tax. No, no, they pay lots of tax here.

Yeah.

So we've got a treaty between the countries to avoid double taxation, deal with conflicts effectively.

Yeah.

And then uk, US treaty, I mean, as a base is good because most things are 0%. Yeah.

Just you can bring everything down to 0% provided you bring, you meet the lob definition, the limitation on benefit.

So there's all these benefits, that limitation on benefit.

Yeah.

I haven't heard it said like that.

Okay, right, the lob.

No, that must be how America says it. But if you, you can literally Google US UK Treaty and you can read it. I mean, it may be confusing to read if you're not a tax person.

It's not that complicated too. It's different articles you can look up say, oh, I'm doing, I've got a dividend. What's the treaty say?

Yeah. So in the US, the, the flat withholding tax rate is 30%.

So if there was no treaty in place and there was a dividend being paid by U.S. inc. To say Cayman Islands, because I don't think there is a treaty with the Cayman Islands.

That dividend payment would be paid 30% tax withheld and then submitted with the treaty countries, particularly in the uk, that withholding tax rate comes down to zero percent if you meet the limitation on benefit clauses. And generally speaking, clients will meet that as long as there's no third country involved. Right.

So if, if I was making a dividend from US Inc. To UK Ltd. And UK Ltd. Turns around and makes that, takes that money and goes. Gives it to someone who's in Cayman.

Islands treaty shopping, as they call it, trying to use the UK's treaty network to, to get a zero rate and then file it elsewhere.

Yes. And then like I said, it's not to avoid taxation, it's to pay tax once. So the idea is that a dividend is paid by US Inc. To UK Limited.

My understanding is that dividend income to the UK Limited is also tax free.

It's also tax free. One of the reasons the UK is an excellent place to have holding companies, because dividends aren't taxed.

And then you pay that dividend income to the UK shareholders and then they pay tax, then they pay tax. Right, so that's the double tax avoidance, not the total tax tax.

Well, yeah, I think there's some, you know, the whole. We, we love to talk about the special relationship in this country.

Although I was reading an article to say the U.S. uses that phrase for about six countries. But I think you could look at our treat and say there is some special relationship here in terms of it's all zero.

Yeah.

You know, your money can flow back and forward if you follow the rules. Interestingly, if I make an interest or an interest payment, particularly not a royalty payment. But you need to watch out for this.

People mess up on this all.

If I'm a UK company and I pay interest overseas, I do not have the right to access the treaty unless I get HMRC's permission, which is not the same as many countries. Many countries because treat the treaty is supposed to go above local tax law, it's supposed to be more powerful.

But actually when you get into it technically in the UK and I've had many in our race, great Frenchman or others tell me that this is wrong and this is nonsense and you know, had to get three different opinions before they realized we were correct about it. But if you pay interest overseas, you have first of all a reporting requirement over CT61. There's a special thing you need to fill in.

But secondly, you don't get to get a 0% rate if you're paying interest to America. You have to apply 20% until you get permission from the HMRC to apply the treaty.

And then if you have paid interest without getting permission, you should need to pay over 20 and the American company needs to try and come and get it. So it's a real. But just to flip it around because we're talking about the other way.

But you will, you do get into just placements because you know, you may get lent some money and have to pay some interest. These things happen. Cross border. For the US perspective.

I've got a US subsidiary and I'm sending a dividend or paying some interest or paying a royalty maybe back to the UK for intellectual property. Do I need any permission to use the treaty?

Not to my knowledge.

Which is common in many countries.

Yeah. You need a form W8 Ben E from the.

Oh yeah, we not mentioned the W8 Ben.

We're getting there. Yeah. So yeah, so the UK Limited would need to furnish a form W8 Ben E to the US entity to formally document the 0% rate for a dividend.

A royalty interest payment.

World's most confusing form finalist every year. I feel for the. And that is a great example of language differences. I mean to a British tax person that for now I know vaguely how to fill them in.

But my God, you're usually an nffe, aren't you? A non financial something.

Don't tell people that we charge.

Even knowing that doesn't help you. And then sometimes you have to fill in the treaty bit. And so you fill in one of those. It's more simple than it sounds. You're active.

So in British language you're trading.

Yes.

So you're not an investment company that sits there collecting money. I am a trading entity or trying to trade. I'm non financial, so I'm not a bank. I'm a trading non bank, non insurance and anything.

I'm a, I'm a normal business basically. And then you fill that in and then they can pay you without the withholding tax.

Exactly.

Yeah. Okay. And then you have the, the other one that's sometimes stuck in front of you. You have a personal one, don't you? You have a W8 bed.

W8 Ben for the individual. That one's a shorter form. It, it's, you know, that flags.

The question that someone asked me yesterday, which is they asked why does my limited need to own the ink? Why can't I set up the ink personally? Okay. Are you going to personally give loans to, to the U.S. entity?

Because a lot of the times the Limited owns Inc. And it's also the one that, that initiates the.

Yeah. Provides the capital, will loan money to the uk the US company, but more so.

And this person, a UK person and they had a UK limited and they were just, I don't know why, maybe, maybe they were just curious. And I said but you know that when that company makes a dividend to you as an individual, you'll need the wa. Ben. But it is a 15% withholding tax rate.

Yes. Because it's to an individual.

Yeah, it's to an individual.

And it would be taxable on you as a dividend straight away.

Yeah.

Basically the rule of thumb is if you are a limited company or corporation, maybe as an American say, then you want to have a corporation as a subsidiary because it's a closer alignment. Dividends don't get taxed.

Yeah.

And you're not getting into this world of can I own it separately. Yeah. Interesting. Do you have to charge it? Say so classic you.

You know, the UK company's usually going to have to lend some money to the US to help it get going or the Australian company or whatever the pty limit is. Do you have to charge interest?

So this is an hmrc.

Yeah, it's an HMRC question because the.

IRS is never going to come knocking on your door and say, hey, you didn't deduct. Deduct enough expenses in the U.S. you should, you should charge, you should deduct interest expense.

So a lot of, and I mean I'm not a UK specialist by any means. So you tell me a lot of my, you my clients, UK accountants will tell me like, like the group is loss making. HMRC is okay if this is an.

Interest free loan, we're amazingly relaxed about it. Is the answer.

Lots of countries require it including Australia I think in New Zealand require interest because they're saying well I want some income.

Yeah.

The UK it's a question of transfer pricing. So it's a qu. And that scares people that phrase. But it's, it's never overthink transfer pricing.

It's just a question of what does something do you know what what its assets, what it's risk. So basically the UK's position is we can lend money without interest but at some point as you get bigger maybe there should be some interest income.

And I think we're loss making is an interesting one where it's like well you're kind of losing money anyway.

I mean we, I would say we have hundreds of clients in this position and very few charge interests which is maybe, maybe that's something the British government should do. Instead of income we could, we could demand these overseas companies.

You I think also if it's your own entity, it's like well I own it so I get the benefit of it. So you know I'm paying interest back, whatever. I don't know. It's a really curious question because we're all.

I'm often surprised by other countries saying oh you have to charge interest. And I'm saying oh I don't really bother normally. You know, it's a hassle maybe I don't know.

Now let's go back to the U.S. flip. Right? So let's say there's a U.S. flip U.S. entity loans because now we've got.

A Delaware top code.

Yeah. The VCs put the money here in the top co which is a US Inc. And then the US Inc loans to UK Limited.

You best believe the IRS is going to be like there better be interest income. Yeah.

And how much is the official rate?

There's a AFR rate that the IRS publishes per month. It needs to be minimum that or more.

Okay.

And if you don't charge it, I as your tax advisor have to impute it like I have to force it in two years. It's income you didn't can get but you're going to pay tax on.

Well there we know everyone who gets really Angry about we don't pay enough tax in this country. We should get the other people to send us some income and tax that. I mean, you know, what's the loss to us?

I mean technically, if it's my own subsidiary, I'm just taxing my own subsidiary, you know, basically I think that's the loss making argument. It's kind of like. But listen, I would say, and, and I mean we are hot on that in this country.

You VAT register, you will get a VAT inspection, you will get initial inquiries, they'll be on your case. Don't mess up vat. That corporation tax inquiries, they're much less common.

And I think until you get some scale, we take quite a practical view about it that, you know, it's sort of like, it's a bit like we have the exemption for transfer pricing, full rules until you're 50 million euros, 43 million assets. There's a kind of attitude when you're small and struggling that it's like, well, you know, what are we getting excited about here?

But you know, I worry with AI because I think AI is going to come along and the revenue is going to go, go, brilliant. We can open a thousand inquiries this week and we can argue them, do you know what I mean?

And we could, we'll be writing back letters with AI and their AI and I've got these sort of war games in my mind that you'll come back to your desk and it will be like your AI lost with the revenue. And I'll be like, I'll be like, stupid AI.

You know, we've got to get better.

AI mess it up. God. Anyway, brilliant. We've done some really complicated stuff there, but I think it's very helpful practical stuff. So the treaty exists.

We have a great treaty with the us.

I mean one of the great things about the treaty with the us, although it's been changing internationally, most treaties would normally say that the tiebreaker so very important to understand that individual has tax residence. And in America it's based on citizenship, but in most countries it's based on actually going there and living there.

Companies have tax residents as well and can be resident. And resident means where you are taxable on your worldwide income and gains.

But you could have a British company that was fully tax resident in the US and the UK aspect this is mind boggling for people. But the UK would only tax what happened in the UK and the US could have a right to tax everything else.

I have the perverse, I have an American company that's fully tax resident here because everything's here. So usually in the treaties and I may be making too complicated for people, but usually it used to talk about effective management.

So it used to basically say if you had a company overseas and this is still true with lots of different countries.

So if you've got a company in country X and the treaty talks about effective management being the deciding tiebreaker you and you're running it from the UK then actually that foreign company has got to file tax returns in the UK is fully resonant for tax. Australia is a very good example of this. Australia has a very aggressive position on this. But the US and the UK we don't care about that, you know.

Well, it's known to say we don't care isn't right. It's just a factor basically.

You know I could be wrong when I say this but I thought with the. So if, if a UK Limited has a US Inc. It's got a 3 PL operation, no people in the US entity, everything's done from the UK.

That is fine because you guys have like a exemption in the UK like because it's a wholly owned subsidiary.

Well, it's more that the treaty says that it's up to the tax authorities to decide its residence. A company is always resident where it's incorporated. So it's a base position.

The British companies resident in the U.K. and the U.S. companies resident in the U.S. yeah. And then I think because Americans didn't want America has such power in these negotiations, they said oh, we don't want this effective man.

We're not coming to Britain to run our businesses, we're going to run them all from America and we're not allowing that to mean certain things. I, I don't know, I've got that the wrong way around anyway. But effectively just where the effective management is isn't really that deciding.

And unless you're big enough that the IRS and HMRC are going to sit down and have a conversation about you, which you've got to basically be Google or someone, you know that you just attacks where you exist. But it's. To be honest, this is a pretty complicated gray area. Any missteps, any cups to discuss that you're like, I mean we mentioned peos.

Just tread with severe caution with there. Don't believe the hype.

Set up a US entity before you engage a PEO or an eor. That's probably the most important thing I can tell you. The other thing is a lot of people will set up a US entity because they're excited.

They're like, we're going to enter the US market. But then competing interests, life happens and they leave that entity dormant for a few years.

And then they come to me three years later, they're like, okay, we set this up three years ago, but you know, it was a dormant entity. No, nothing, nothing was done. We're ready to make it active now. Well, you should have been filing.

Oh, that's returns.

Yeah. So I, that's probably one of our biggest projects that we get is we get people who are like, I need to. I learned I need to file returns.

Even though the entity was dormant. Unlike in the UK there's no such thing as like a. No activity filing. I think there's a.

Well, you still have to file dormant accounts.

Yeah.

There's nothing to file for the tax authority, provided it's truly dormant or something. Yeah. You can fill it online. You still got to tell companies houses dormant.

And there must be no entries in the books of record other than the share capital.

Yeah, yeah. And in the US the rule is once you're incorporated it. You're a living breathing entity.

Whether you have like a dollar of activity or a million dollars activity. You have to file a tax return.

Do they have like a registered address? A Delaware Inc. Like the UK has the concept of an address that gets written to. Is that what happens in America?

Yeah. When you incorporate an estate, you need to have a registered agent there.

Oh, an agent, an individual.

It's usually a. Yeah, it's usually.

And they would get the letters surely to say you haven't. Do they get warnings like, oh, you should have filed a thing.

Yeah. If the IRS is sending something to them. Yeah, because that would only. That would be the only address they'd probably have on file for you.

Unless you used a different address for your ein. End. Your tax identification.

Yeah, yeah, but.

Yeah, you would. But it's.

Why do they fool. Why is this so common that they fall foul then that they haven't filed it? Is no one sending. So surely someone's giving them a letter.

Saying no one's giving them a welcome to America letter. That's.

Well, where's my welcome to America letter?

No people, you're they. You're expected to know what you're. It's a civil duty. Like you're expected to do it.

Okay. There's no. It's not company's house sending letters, threatening letters sort of thing like that.

No, you get the threatening letter after you file your first late return. You get a twenty five thousand dollar Penalty notice then.

That's the problem.

Yeah.

British people are used to being told, yeah, they're used to getting letters saying, you're a naughty boy and, you know, and you should sort your life out and stuff like that.

Come talk to me when you're ready to enter the us and is it.

Hard to fix years of dormant things?

There's one of two ways I, I go about it. I say, did you open a US bank account? Did you anything with that US entity? If the answer is no, just dissolve it it and start fresh.

But if things were done, expenses were claimed, a bank account was set up, then we got to go back and file those late returns.

Is it hard to get a bank account?

We usually say start with wise.

Oh, interesting British company.

Or Air Wallace.

Yeah, or Air Wallace. Australian companies. Very good.

Yeah. Depending on what region you're in. And once.

Because you can do everything through the digital banking platforms, but let's say you want to relocate, the founder wants to go to the States, then maybe you can look into getting an institutional bank account. But the trend has become aerolics and wise for startups.

Sonny, you've been absolutely brilliant. I think that's just great advice about going into the us.

I think one of the things that is said about going to the US is just the actual cost of it underneath it. I think you all need to be aware of that.

Dan Glazer always say, talks about this from Wilson Sassini, but the thing that you either go early into the US and kind of become a US company. I mean, I was saying to someone the other day, you better have a, you know, you better be a success here.

You know, the US is not going to do very well if you're going well. How's the UK going? Well, it's not going very well, actually. You know, don't be British, sell yourself hard and. But also have a success story.

Be like, we're number one. You know, we're absolutely smashing it in the uk. That's why we're coming to the us. It's important, this confidence thing, isn't it?

Also when raising money, put a zero on it. I mean, in America, you meet companies that would be a tiny. I meet them, you know, regularly.

And it's like, like here they'll be turning over 1 or 2 million, but they're 20, $50 million in the US, you know, they're this big, quite a big entity doing this quite niche thing and you're like, wow, America is big. So you have to remember how they, they see it. Don't you feel.

And like if you're raising money, think big, you know, don't, don't be like, oh, I'm British and you know, I'm not really sure. It's like part of, it's your game face, isn't it?

Yeah, you, you're competing against like the Googles and the metas of the world. They're, they're big players.

So be ambitious in your goals and in your dreams, but also make sure you've got a success story here. I think, I think that's, that's if you're, if it's, I don't think a VC of people are going to invest in you.

If it's like it didn't go that well in the uk. We've got a couple of people on the ground in the US now. It's like, okay, you know, you want to be like, I'm the number one at X.

You know, not only are you targeting the biggest market market but those market, that market has a lot of competitors so you need to figure out what's going to make you distinct, what's going to make you stand out. And if you can do that here in the 66 million dollar market, you should be able to replicate that in your 370 million dollar market.

And one last question. Obviously going, moving to America is quite attractive to British people, especially with our weather, you know.

Yeah, it can be quite like, oh, I'm gonna go to America. But so often they'll be like, right, we're going to go to America and I'm going to move.

Do you think that, do you think that's the right move or should they hire locally?

You know it's different cultures, different approach. So my Australian clients, they go for it, they really go for it. So I spoke with one prospective client yesterday.

They're pre sales in the US and they're like, our founder is going to move there because we believe in our product and we're going to sell the hell out of it in America. And then I've got my clients in the UK who are like, no, we're going to do everything from here.

More risk averse, kind of like how you've been describing. And then when they are ready to put boots on the ground, it's going to be an American.

Like you still have some very powerful outgoing UK founders that relocate to the US but I see it way more from the Aussies. They just, I have to, I think.

The Aussies might be more right. I think we tend to be very like Put one person on the ground.

You know what, Roger's gonna go and have a look on Tuesday, you know, and, you know, it's just going to check it out. And we're all a bit sort of. I think actually sometimes I look at a business and I think, you know, you should just go for it.

You should just, you should just leave your team here and move and go for it and just get to get into San Francisco, get where they have the hell you. It's actually, you could use a simpler one, which is like acting. Yeah. You know, it's like people think I'll never make it. I mean, I know musicians.

I know an amazing Americana musician. Big up. Chris. Chris. Chris Reese.

But I think the fear sometimes is obviously we have a bit of a safety net here in terms of welfare state and things like that. It's quite daunting for them. But I mean, I, you know, you see this with actors too. It's like, yeah, you should go for it and move to la.

It might not work out, but it ain't gonna happen here, almost, isn't it? You know, And I think you've seen so many British actors do so well, and I'm quite sure most of those just went for it, you know.

Yeah.

Lived out a shoebox and whatever.

And, and with the going for it, you do need something to sell. So just, just make sure you've got your.

Yeah, yeah.

You've got confidence and some distinction in what you're selling.

Yeah, yeah. You've achieved something.

Yeah.

Don't just wing it, you know.

Yeah. Like you said, you know, do well locally.

Yeah. And then sit and sit with the, the husband or the wife and say, do you know what? I think this. I think we might have to make the jump.

Might have to take the risk and go and do it. It, you know. Very good. Right, let's take, Take a paddle. Business or.

So we're just going to ask a few questions and just decide if we think they're business or they seem to be quite topical to what we've discussed. But, you know, let's, let's just, let's just round it out. Do you understand it? But you're going to hold it up. Say a word.

I'll say it. I'll scream it.

Yeah, you can hold it up as well if you want. Okay, so first question. Question. Los C Corp. For everyone.

Business.

Yeah, yes, yes. Okay, well, that makes life easy because you guys have far too many types of companies and if there's a lawyer.

Out there who disagrees with Me. Come at me. Yeah, I will take. I will take you on that argument.

Okay. The UK US tax treaty will protect us.

Can I go halfway?

Well, that's probably. Then if there's any risk that. Because this is an absolute.

We're fine in our vanilla structure.

Yes. Okay.

If you've got a lot of different countries and a lot of different people. Just depends. So keep it, Keep it kosher. Keep it vanilla. Yes.

Yeah. So this is about treaty shopping.

And obviously the UK with the largest treaty network in the world by a mile, by the way, I think America's got 40 or 50 treaties, you know, tons. So people like to treaty shop here. Then it becomes all about this word, substance.

Yes.

You know, that the, you know, the relate. Where there's interest or royalties, that the IP really is here and you're not just farming the money off somewhere else or something like that. So.

Yeah. Okay. If you've got a nice simple structure, sales tax is basically just US fat.

That's bullshit.

That is bullshit.

Yeah.

And I don't know if we've got time to explain sales tax in more detail than what you need to know is you need to. You need to get some advice on it and you will need. There's various platforms. You mentioned some platforms to the other day.

Do you recommend those at all? If they're trying to get a sense of it, what did they do?

So the industry leader since the beginning of time has been Avalara.

Yeah.

And then there was taxjar, but now with the startup companies that I'm working, so those two are great. When you're an established company and you get a bit more capital, there's not.

Necessarily a lot of customer service. People do sometimes struggle with these things. They're software companies rather than professional advisors.

Yeah. So Avalara, I know, is a tax software platform. They're not tax advisors.

Great information on their website, by the way. You can type in the States and it'll tell you whether you think you've got a nexus.

Great resources.

Yeah, yeah.

And then we've got partnerships with Yonder Tax, which does VAT and sales tax.

Yeah.

And then Zamp, which is purely sales tax. And those two companies are both tax software specialists and tax advisors. So you do get a little bit of both.

Okay.

And so there's a few different platforms out there. And depending on your size and your need, we could help you determine what makes the most sense for your company.

And if you're doing a B2C just selling goods, remember, sales tax goes on top of your price. Say, oh, I'm glad you're used to our system here.

When Americans ask me here what it's included in the price and it's like, yeah, you know, but you go to America actually gives you a bit more margin actually in a weird way because you only, you don't have to worry about sales tax. You can think, oh well that's. And they're quite small amounts in America too, aren't they? It's like 6% or it's not like 20.

You know, there's like I think 15,000 in sales tax rates in America. So there's state, city, district, municipality. That's what it is.

Oh, so when I'm paying my receipt, it could be just like loads a little bit.

You can, you can have a road trip. My partner and I did a road trip from Colorado, Chicago, all the way down to Austin.

Oh, what a great trip.

Yeah, we bought the same cup of coffee at the same at Starbucks. Oh, I don't like Starbucks. We've already have a coffee at a.

Coffee shop at a well known coffee brand.

Well, yeah, that's in all those states. It would cost different amounts in every state because sales tax rate.

And I think to understand in the U.S. vAT is ultimately a tax pretty much on the consumer. It's a tax on consumption. It's not supposed to be a tax on business.

And VAT nerds, I appreciate there are examples of that where it is a tax on business. You see, I have exempt businesses, but effectively it's, it's a tax on the consumer.

That's the same in the US but the big difference is you don't register for, you know, every business here pretty much registers for VAT and charges each other's vat. In the US it's really is about the consumer and the point of sale, isn't it? That's when sales tax matters, as it were.

Yeah, it is a consumption tax.

It's a consumption tax. Excellent. One US employee won't change anything thing.

In what context?

Saying effectively, I'm expanding to the US having one person, what's the point? It's never going to do anything. Oh, you think it can be enough to change things?

You'll say, yeah, so. So if you're a UK company and you have one US employee with no US entity, you're in trouble.

Yeah, I see. Yeah. Of course. Nexus payroll, permanent establishment, state tax.

Yeah. So even if it's one person, you need a US jar that like we said, if you have a person on the ground, you need a U.S. entity.

Yeah. And actually it's about seniority and stuff matters too. You know, it's.

It's sometimes easier to think about it that it's like you can't put a salesperson in the US who's booking million dollar trades and expect that it's like, oh well, we taxed there. It's just a person on a peo.

Yeah.

I mean, you know, we haven't done anything, you know, transfer pricing can wait until we're bigger business, so. Bullshit.

I, I do think there is a bit of business to that because in the us transfer pricing is applied on the first dollar of sale. I know in the UK you have to reach a certain turnover before you're required to administer transfer prices.

It's always, there's always a duty but the requirement to do it formally. Yes. 50 Million euros and things. Big, bigger companies.

So in the U.S. they're. Yeah, so it applies on the first dollar sale.

But you don't need a full blown transfer pricing study, a benchmarking analysis because generally startups are loss making and so there is no profit to shift because you're loss making. And if the group is loss making. I don't really push for transfer pricing formal, like a formal one.

I push for intercompany service agreements having comparables to document and defend intercompany priority pricing. But not like a full blown transfer pricing study.

Yeah. And it's the world of cost plus probably. Is it a lot of the time. I mean those are the sort of rough.

It's like you're either going to set up as a distributor, selling there locally or you're going to have a sales and marketing team providing things. But there we go. We've absolutely smashed two hours. Sorry about that, son. Well, where could people find you? If they want to find you, they.

Can find me online.

Online?

Yes, at BRDG Us.

Very hip hop of you. Brdg us. Brilliant. Thank you, Sonia, thank you for your time. I hope that's been really useful to everyone.

That has been this week's episode of Business Without BS and see you again soon. Ciao.

Bye everyone.