Myths and Misconceptions about Business in the USA
While working with clients who plan to register a company in the USA, we often encounter a myriad of misconceptions and prejudices. Some have no real basis, while others formed 15-20 years ago and have persisted in people’s minds.
However, most of these myths arose from misunderstandings of US legislation and attempts to transfer the laws of Kazakhstan and Europe to the States. We have tried to gather the most popular misconceptions about business in the USA to understand their origins and debunk them.
Myth 1: American Offshore Companies
For a long time, rumors circulated in Kazakhstan about so-called "Delaware offshore companies," and American "offshores" were sold in Kazakhstan and Ukraine. This is all a deliberate deception by unscrupulous registrars of gullible businessmen. In reality, there have never been offshore companies in any state in the USA: regardless of where a company is registered, federal taxes must be paid.
However, until 2004, Delaware had a zero tax on net income, but after 2004, some of the highest taxes in the USA—8.7%—were introduced here. Until that happened, many Kazakhstani and Ukrainian businessmen used a trick: they registered their companies in Delaware, opened accounts in the Baltics, and operated under the assumption that the USA would not combat its own companies.
But the US government methodically discovered and shut down offshore companies worldwide because tax evasion is a crime in the USA. Furthermore, these firms did not file tax returns, thus violating the law. As a result, at one point, US authorities uncovered this scheme and closed accounts in the Baltics and Cyprus belonging to all companies that had not paid taxes in the USA and had not filed returns. Since the measures were implemented quickly, few of the dealers managed to close their firms and withdraw their funds. The money left in the blocked accounts was confiscated in favor of the USA as a penalty for unpaid taxes.
If you still believe in "Delaware offshore companies," you can find all the information on Delaware's official website. Here, detailed explanations of all the nuances regarding the tax system and penalties for missed deadlines for filing state tax returns and late tax payments are presented.
https://revenue.delaware.gov/frequently-asked-questions/corporate-income-tax-faqs/
In the USA, there are enough states where there are more favorable conditions for doing business. For example, in Nevada, Wyoming, and some other states, zero taxation is provided, and you only need to pay federal taxes and file only the federal tax return. However, there are no offshore companies in any state, even in the most favorable tax climate. So do not believe those who will try to convince you otherwise.
Myth 2: Companies in the USA Can Refund VAT
No, companies cannot refund VAT for the simple reason that it simply does not exist in the USA. And since no VAT is collected, no one can refund it. However, each state has a sales tax for retail trade. Wholesalers are exempt from this tax, but only if the purchase is made wholesale. When selling at retail, sales tax is collected without exception.
Myth 3: Registering a Company in the USA Helps Obtain a Visa
Registering a company in the USA does not affect visa acquisition unless it pertains to one of the business programs operating in America. However, in this case, you must not only create a company but also fulfill all the program's requirements. If you are interested in detailed information about business programs, you can find it on our website in the "Visas to the USA" section.
Regarding B1/B2 visitor visas, their issuance is not dependent on whether you have a company in the USA. The decision to grant a visa falls under the federal government's purview, and the final verdict depends on the State Department (the decision of the US embassy). Special visas are handled by the U.S. Citizenship and Immigration Services (USCIS). Meanwhile, individual states in the USA regulate business matters, each following its own laws. Separate states have no bearing on visa issuance or immigration matters.
Myth 4: It's Better to Register a Company After the New Year or February 23rd
This rumor belongs to the realm of fantastical myths, and there is no reasonable explanation for its emergence. It is propagated by those attempting to evade taxes and the submission of annual tax returns at the end of each year. However, this option does not work; there are three other completely legal ways to manage this.
- Choosing the end of the financial year. In the USA, this is common practice: you can register a company in December and declare October or November as the end of the financial year. Consequently, tax returns will be submitted after October or November of the following year.
- Filing a notice of inactivity. If your company’s financial year ends in December, but the firm has not operated from registration until the end of the financial year, it is sufficient to send an official notification to the IRS.
- Filing a zero return.
However, trying to "save" on taxes by delaying business registration only harms the business owner. American banks are eager to provide financing and credit to new entrepreneurs, but only to those who operate within the law. Therefore, postponing registration merely distances the entrepreneur from the opportunity to receive financial support, as no bank will want to deal with a "one-day" company. You can only prove your serious intentions and ability to run a business by providing tax returns for two years. So decide what is more important to you: dubious savings or access to legal financing.
It’s also worth noting that the US government frequently conducts state tenders and awards contracts to private companies, allowing them to become state contractors. However, only companies that have legally operated for at least seven years since registration are eligible for these tenders. So by delaying registration, you also deprive yourself of a good chance to elevate your work to a new level.
As for February 23rd, we are not even sure how to explain this date. Yes, it is significant for those born in the USSR and servicemen from CIS countries; however, in the USA, it is just another ordinary day. It does not matter what month you designate as the end of the financial year; you have 2.5 months to file tax returns. There is also the possibility of extending this deadline by six months. Simple calculations yield the following: if the year ends in December, the return for the previous year must be filed by March 15 or September 15 of the following year. And if the company was registered between January 2 and March 15, it effectively did not exist in the previous year, meaning there can be no prior year tax returns.
So do not listen to amateur consultants who spread unfounded myths. By using knowledge of the law and common sense, you can solve any problem without breaking the law.
Myth 5: It's Best to Register a Company in Washington
At first glance, this statement seems logical, as Washington DC is the capital of the USA, and in Kazakhstan, it is customary to think that the capital always has the most orders and money. Therefore, to work effectively and profitably, one should be there. But this is true for Kazakhstan; in America, things are somewhat different.
Firstly, in the USA, the capital is the District of Columbia, the city of Washington DC, which is governed by a municipal council consisting of 13 members led by the mayor. The U.S. Congress has priority over the city's authority and can overturn the council's decisions. Thus, residents have significantly fewer rights in self-government than those in other states. Until the ratification of the 23rd Amendment to the U.S. Constitution in 1961, residents of the district could not even vote in presidential elections.
There is no significant business in Washington DC aside from hotels, restaurants, and museums (the latter being hard to classify as business). This is where the U.S. government resides, along with Congress and the Supreme Court. Therefore, registering and operating a business here makes little sense unless you plan to engage in the hotel or restaurant industry or aim to become a federal contractor (for which, as we recall, the company must be registered in any other state for at least seven years).
Moreover, the District of Columbia has the highest taxes in the USA and a rather unfriendly attitude towards any foreigners wanting to engage in political activities. So, it's not worth spending time on the capital, especially since there are many other options that are much simpler and more profitable.
Each U.S. state specializes in certain activities, so it makes sense to register where your business will fit best. For example, New York is thriving in fashion and finance, Florida is perfect for tourism companies, Texas has a strong aerospace and oil industry, Massachusetts is an educational hub with all that relates to education, research, and universities, and Michigan has numerous military and automotive manufacturing facilities. California, with its Silicon Valley, is the center of technological developments, while Nevada is the world's capital of gambling and entertainment.
In summary, there is a place and conditions for every business, so don't cling to one state, even if it's the capital of a vast country.
Myth 6: You Need to Register a Company in a Big City
Not only is this unnecessary, but it's also impossible because in the USA, companies are registered by states, not cities. However, once you register your firm, you gain the opportunity to open an office and operate in any city within the state. Moreover, you are not limited to one locality; the laws allow for operation in all cities of the state simultaneously.
Myth 7: The USA Discriminates Against Citizens of the Former USSR Due to the Political Situation
In reality, the treatment of citizens from Kazakhstan, Ukraine, and other countries of the former USSR does not differ from the treatment of residents from other nations. If you work legally and follow the laws, you will be treated well. If you attempt to deceive the government and violate the rules, you will be punished, just like any violator from any country.
Of course, U.S. citizens have more rights than foreigners, but this is logical for any country. For instance, anyone can open a personal bank account, but only citizens or permanent residents of the USA can open a corporate account. This is not discrimination; it stems from the fact that illegal immigrants are not allowed to work officially, meaning they cannot receive payment through checks.
There was once a loophole: immigrants could open their own companies, and employers would hire them but pay the company, making it an official scheme. This loophole has since been closed, with tightened rules in the IRS and regarding bank account openings.
So, follow the laws, and you won't even think about discrimination. Moreover, the USA treats citizens from the former USSR much better than those arriving from Latin American countries, Africa, and some Arab nations.
Myth 8: Businessmen's Money from Kazakhstan is Always at Risk
For some reason, there is a fear that if you are from Kazakhstan, your money can be taken away at any moment, and your accounts can be blocked. It is unclear why this belief exists, as the USA has a very careful and respectful attitude toward business. Here, the government creates all the conditions for business and maximally supports entrepreneurs by introducing favorable laws and creating a conducive work environment.
This is explained by the fact that business supports the country's economy. For example, small businesses create 82% of jobs, not to mention the taxes that make up a large part of the U.S. budget. Therefore, the U.S. administration always accommodates entrepreneurs, regardless of which party is in power—Republicans or Democrats. Interestingly, a change in power usually occurs because one of the parties has "failed" to protect businesses, thereby jeopardizing the U.S. economy.
A notable situation was with President Obama. Along with the Democrats, he was in power for eight years, but they made a critical mistake by opening the U.S. market to the whole world. Due to the government's focus on trade capital and neglect of manufacturing companies, 60,000 manufacturing enterprises went bankrupt during the years of the Obama administration. As a result, the Democratic Party fell out of favor and suffered a heavy defeat in the 2016 elections. In contrast, Trump successfully became president by building his campaign on the strategy of protecting American businesses, thereby winning the support of millions of American citizens disappointed with the previous U.S. leadership.
There are other pieces of evidence that money from American businessmen, regardless of the country, is under reliable protection. For instance, the Chinese government has repeatedly sued American banks for incorrect money transfers to the USA. JP Morgan alone paid a fine of several billion dollars for illegally transferring over one hundred billion dollars from Chinese entrepreneurs to the USA, yet not a cent of the money invested in American companies returned to China.
There is information about Kazakhstani businessmen who faced sanctions but did not lose their money. According to the law, funds were frozen for six months but were not confiscated or returned to Kazakhstan.
To avoid being blacklisted and having your visas closed in the USA, you can follow the example of a number of billionaires from Kazakhstan: obtain U.S. citizenship, thus receiving official protection from all sanctions. Of course, American citizens can also face business problems, but only in cases of tax evasion or violations of the law.
The USA has straightforward financial laws, and if you follow them, your money is safe. When transferring money, you need to explain its origin. If you run a profitable business, you just need to pay taxes on time, and the government will be on your side. Even money earned illegally but invested in a legitimate business will be protected. There is a story, perhaps not the best example, but it clearly illustrates what we are talking about.
In the 1930s, there were two gangsters in the USA: Al Capone and Meyer Lansky. The former was well-known throughout the USA, and everyone knew that his money was obtained illegally. However, the gangster's influence and authority were so significant that he was completely confident in his impunity. Not to mention that he led the largest gang in Chicago, which even the police feared, part of which was bribed by Al Capone. But ultimately, the most feared mobster in Chicago ended up in federal prison for 11 years at the age of 33 for tax evasion, undermining his health so much in prison that he was released on disability and ultimately died at the age of 48. However, the remaining money after paying the required taxes and real estate remained with him and his family.
In contrast, Meyer Lansky (who, by the way, has Slavic roots) took a different path. He founded many legitimate businesses, kept accurate records, and paid taxes on time. As a result, the U.S. government could not charge him with anything, even when a tax evasion case was initiated against Lansky. Thus, the gangster lived peacefully in America until old age, using his money and real estate, which remained his property until the end of his life.
Therefore, American laws are designed to protect businesses and money. If you wonder why the government did not confiscate illegally acquired money, the answer is simple. Thousands of people worked at these two criminal figures' enterprises, and seizing assets would lead to their layoffs, meaning all those people would lose their livelihoods and ability to pay taxes. Thus, U.S. laws preserved thousands of jobs, and in that way, the government chose the side of justice, as it continues to do in contentious situations today.
Myth 9: Kazakhstanis and Ukrainians Have Complicated Procedures for Obtaining a Green Card through Business
This is not true. For those who follow clear and straightforward programs and laws, obtaining a green card is not difficult. Especially now, when the U.S. administration is doing everything to attract new investors who are ready to develop the economy and create new jobs.
Only those who simply want to buy a house in the USA or obtain a green card without making any investments will face difficulties. But no country welcomes those looking for “freebies.”
Myth 10: It’s Better to Make an Offshore Company the Founder of an American Company
This misconception is not only unfounded but also dangerous. Firstly, in most states, the founder is not the owner of the company and has no relation to its operations unless they become one of the shareholders. Only shareholders can manage the company, and the decisive vote belongs to those who own a larger share of the stock. In the USA, companies are owned by shareholders, not founders. So it doesn't matter who establishes the company. The founder's responsibilities end at the moment of the company’s establishment.
Secondly, there is an active fight against offshore companies in the USA. They are charged with very serious crimes:
- Tax evasion;
- Money laundering;
- Financing terrorism.
The last point is particularly important, as the presumption of innocence does not apply in the case of terrorism financing charges, which carry severe consequences. So it's better not to get involved with offshore entities: it's safer and more secure. Just operate within the law and don’t try to outsmart the system; then it will be on your side.
Myth 11: Registering a Company Will Ensure Investments in the USA.
This statement has a grain of truth. Foreign investors are hesitant to invest in Kazakhstani and Ukrainian companies due to the current political situation, so registering an American company will be necessary in any case.
However, even an American company will not receive financial support if it has nothing to offer investors. People who invest in business development do not just look at presentations or ideas; they focus on the team that will bring that idea to life. Investors understand that success depends 90% on people, and a strong, professional team that is passionate about their project is a sign of the company's seriousness.
Don’t believe it? Try to pitch a business angel to invest in building a spaceship, and you will, at best, receive a polite rejection. Meanwhile, Elon Musk receives fantastic funding for his company SpaceX because he and his team inspire confidence in investors.
In summary, it is not enough to just register a company in America; you also need to create a project that interests investors, assemble a team, and be able to deliver a high-quality presentation.
If you want to do business in America, be sure to filter information carefully. We have been involved in company registration in the USA for many years, consulting entrepreneurs and startups, and thoroughly studying changes in legislation. We can explain in detail how to act in various situations. Adhering to the law is the best solution if you want to build a serious company with growth potential and a good reputation.
