DOING BUSINESS IN AMERICAN STATES CAN NOW LEAD TO REPORTING COMPLICATIONS

Doing Business In American States Can Now Lead To Reporting Complications

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Foreign companies that register with secretaries of state in U.S. states may open themselves up to new ownership reporting requirements. It’s still a process foreign companies should consider.

Many foreign companies are already familiar with the filing and registration requirements of doing business in almost all states of the U.S. – namely registering with the secretaries of state in those states. Now new requirements of the American Corporate Transparency Act (CTA) mandate the reporting of beneficial ownership information (BOI) for domestic and foreign business owners. All domestic and foreign entities formed or registered to do business in the U.S. (unless exempted) must report information on all individuals with major ownership interests of the company.

“Foreign” entities are those formed under the laws of a country outside the U.S and registered to do business in any U.S. state or tribal jurisdiction.) The information is being collected to deter money laundering, especially by overseas entities. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) estimates that the rule will initially impact some 32.6 million companies and some 5 million new companies each decade after that.

The CTA/BOI requirement catches many American companies by surprise, and foreign companies will likely be more off-guard. Many foreign entities?own rental?properties in America, for instance, and although they may comply with income tax return filing requirements,?they may not be registered with the?corresponding secretary of state.

Overseas businesses looking to set up in the U.S. face a choice. Registering with the secretary of state in various U.S. states, though not always mandatory to do business in a state, often makes it less restrictive. Registering, though, can open foreign entities to CTA/BOI obligations.

Here’s a look at registering in two U.S. states popular for international businesses: Florida and New York.

Florida

Like many states, Florida considers any entity outside of the state (including outside of the U.S.) a “foreign” entity. Whether an entity needs to register there depends on what that entity intends to do as a business.

Some non-U.S. entities may be required to apply for a Certificate of Authority as a Foreign Corporation or LLC depending on the transactions they plan to perform in Florida. For example, foreign entities are not required to register within the state to conduct business in Florida, but if they do not, they could lose rights as claimants in potential lawsuits in the state and be open to additional penalties.

Florida statute 607.1501, “Authority of foreign corporation to transact business required; activities not constituting transacting business,” stipulates that a foreign corporation may not transact business in Florida until it obtains a certificate of authority from the department.

But many activities do not constitute transacting business in Florida, including:

• maintaining, defending, mediating, arbitrating or settling any proceeding;
• carrying on any activity concerning the internal affairs of the foreign corporation, including holding meetings of its shareholders or board of directors;
• maintaining accounts in financial institutions or offices or agencies for the transfer, exchange, and registration of securities of the foreign corporation or maintaining trustees or depositaries with respect to those securities.
• selling through independent contractors.
• soliciting or obtaining orders, whether by mail or through employees, agents, or otherwise, if the orders require acceptance outside this state before they become contracts.
• creating or acquiring indebtedness, mortgages, or security interests in real or personal property.
• securing or collecting debts or enforcing mortgages or security interests in property securing the debts, or holding, protecting, or maintaining property so acquired.
• transacting business in interstate commerce;

• conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature.

• owning and controlling a subsidiary corporation incorporated in or limited liability company formed in, or transacting business within, this state; or voting the shares of any such subsidiary corporation or voting the membership interests of any such limited liability company, which it has lawfully acquired;

• owning a limited partnership interest in a limited partnership that is transacting business within this state, unless the limited partner manages or controls the partnership or exercises the powers and duties of a general partner; and.

• owning, protecting, and maintaining, without more, real or personal property.

New York

The New York Department of State does not give opinions as to what activities constitute doing business in New York State for qualification purposes, simply saying that a foreign business corporation may apply for authority to do business in New York by filing an Application for Authority. A Certificate of Existence (aka a Certificate of Good Standing) is also required from the official who files and maintains corporate records in the jurisdiction of the corporation.

The filing fee is $225.

If the foreign corporation has been conducting business in New York State prior to filing its Application for Authority, it must also obtain the consent of the New York State Tax Commission. The entity must have a “distinguishable” name, as well.

The name of the corporation and the date it was authorized to conduct business in New York State provided on this certificate must exactly match the records of the Department of State.

Bear in mind that registering in a state is now, thanks to the CTA, only one initial step in foreign entities’ setting up business in the U.S.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author?

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA?Forty?Under 40 Award.?She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world's elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.?