In the world of business, timing is everything, and for Nordic companies, the stars are aligning when it comes to expanding into the US market. Historically, the US has always been an attractive destination for Nordic businesses looking to scale. With its large consumer base, diverse economy, and access to cutting-edge technology, the potential for growth is significant.

With strengthened diplomatic and economic relationships, the opportunity for Nordic companies to expand to the US is better than ever.

Here’s what to think of when expanding to the US.

Selection of entity

When expanding a business to the US, selecting the right business entity is crucial as it determines tax obligations, liability protection, and operational flexibility. There are several entities to choose from, depending on your businesses activities, size, and needs:

LLC (Limited Liability Company) is a popular choice that provides personal liability protection while offering flexibility in taxation.
a Sole Proprietorship or a Single-Member LLC may be appropriate, with income reported on Schedule C of your individual tax return (Form 1040).
For businesses with multiple partners, a Partnership is a common structure, where income flows through to the owners via Form 1065 and K-1 schedules.
If your goal is to maintain pass-through taxation while achieving a more formal structure, an S-Corporation might be beneficial, with income reported on Form 1120-S and passed to shareholders through K-1. Note that S-Corporation is possible only for individuals who have greencard or are US citizens.
For larger operations or companies seeking to attract investors, a C-Corporation provides unlimited growth potential but is subject to double taxation (corporate tax on profits and individual tax on dividends) with income reported on Form 1120. C-Corporation is in most cases the best option for US subsidiaries.
Understanding the implications of each entity will help ensure the right balance between liability protection and tax efficiency in your US expansion strategy.

Setting up taxes & payroll

When expanding a business into the US, proper tax registrations and payroll management are critical to staying compliant with federal and state regulations and to avoid any penalties. Proper registration and payroll compliance set the foundation for a successful business expansion in the US.

The first step is obtaining a Federal Tax ID (Employer Identification Number), which is essential for tax filings and hiring employees.
Next, you’ll need to complete state registration through a foreign qualification, securing a Certificate of Authority in each state where you intend to do business
Additionally, a Registered Agent is required in every state, serving as the point of contact for receiving tax and legal documents.
For payroll, it’s crucial to ensure that all employees are eligible to work in the US, whether they hold a visa, green card, or are US citizens. Employers must also manage the shared responsibility for Social Security (6.2%) and Medicare taxes (1.45%) for both the employer and employees. However, employees on J-visas are exempt from these payroll tax contributions.

Navigating the US tax jungle

When expanding a business into the US, understanding the various tax obligations is essential for proper financial planning. Understanding the different layers of taxation—federal, state, and franchise—ensures that your business remains compliant and avoids unexpected financial burdens.

At the federal level, corporations are subject to a flat tax rate of 21%, which applies to all taxable income.
In addition to federal taxes, businesses may also face state income taxes, which vary by state. For example, New York and New York City have progressive state and local income tax rates, meaning the tax rate increases as income rises, adding a layer of complexity to your tax liability.
Beyond federal and state income taxes, many states also impose a Franchise Tax or Privilege Tax, an annual fee required for the right to operate within a particular state. This tax is often based on the business’s revenue, capital, or net worth and must be paid on top of regular income taxes.

By setting up a strong operational foundation and understanding the differences and complexities of the US taxation is key to success. We at Westmusa are your partner in navigating the US tax jungle – contact us here!