Many Indian entrepreneurs have an aim to expand their business to the USA which gives you the opportunity to work with a larger market, global reputation and easier financial transactions. But much of this can be confusing and fraught, with penalties, such as compliance, business failure, or whatever, for even easy mistakes. Here are the most common mistakes Indian founders make…and how to avoid them.
1. Choosing the Wrong Business Structure
As many Indian founders rush to establish a C-Corp (C Corp) as it is investor friendly, they forget about other options such as an LLC or S Corp. For venture backed startups, a C Corp is preferred; however, LLCs are flexible in taxation and less compliance. Choosing an inappropriate structure may bring about excessive burdens in tax or operational terms.
2. Ignoring State-Specific Incorporation Rules
While Delaware is known as one of the most business friendly entities for formation, it may not be the best choice. Wyoming or Nevada will have lower fees and tax benefits. Lacking research into a state’s specific needs can lead to higher compliance costs or even costly legal problems in the future.
3. Overlooking US Tax Obligations
In many cases, Indian founders believe that if their business is owned by Indians, taxes are only due to Indian authorities, but the IRS does not care. Key filings include:
- Form 1120 (for C-Corps)
- Form 5472 (for foreign-owned entities)
- FBAR & FATCA (if holding US bank accounts)
Missing these filings can trigger audits, penalties, or even legal action.
4. Mishandling Cross-Border Taxation
There is double taxation — US profits may both be taxed there and in India. But thankfully, the India US tax treaty allows this to be avoided, if founders file the right forms (such as Form 8833). There are many entrepreneurs missing these nuances which leads to unnecessary tax liabilities.
5. Skipping Employer Identification Number (EIN) Registration
As an EIN is needed to apply for a US bank account, hire employees and file taxes, it is important. Founders who put off the application often believe that a personal Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) will do the trick. It can also lead to a stalling of business operations and banking hurdles.
6. Neglecting Annual Compliance Requirements
In contrast to India, US states require annual reports or franchise taxes for a business to remain in ‘good standing’. For instance, Delaware has an annual report fee and California has a minimum franchise tax. Overlooking these can lead to fines or even business dissolution.
7. Failing to Set Up a US Bank Account Properly
Some Indian founders attempt to dip into personal accounts and foreigner accounts which raises flags with banks and revenue authorities. Having a dedicated US business bank account ensures easier transactions, tracking expenses, and filing taxes.
8. Underestimating Payroll & Employment Laws
Hiring employees, US tax accountant or contractors in the US comes with strict payroll tax responsibilities (Form 941, W-2s, 1099s). Employers misclassifying employees as independnt contractors (to skirt around benefits) can receive fines and legal complications from the IRS.
9. Ignoring Intellectual Property (IP) Protection
Many have founders believe Indian trademarks or patents apply to the US, but IP laws are region based. Not filing trademarks, copyrights, or patents in the US leaves businesses open to infringement problems.
10. Not Seeking Professional Guidance Early
Any attempts to try and accomplish legal and tax issues will usually end in trouble. Having a business and tax attorney as early as possible means compliance, expensive errors, and inefficient taxes become things of the past.
Key Takeaways for Indian Founders
- Choose the right entity (LLC vs. C-Corp) based on funding needs.
- File US taxes proactively, leveraging the India-US tax treaty.
- Stay compliant with state-specific annual filings.
- Work with experts to navigate payroll, banking, and IP laws.
Building a presence with register company in USA from India can be incredibly profitable for Indian founders, however, careful planning and avoiding certain pitfalls is key when expanding to the US.