As the world increasingly prioritizes sustainable and environmental practices, CleanTech companies play a pivotal role in shaping a greener future. If you’re a CleanTech entrepreneur looking to expand your business to the United States, here are just a few things you should be considering.
Understand the U.S. Market
Before diving in, thoroughly research the U.S. market. Understand the regulatory landscape, consumer behavior, and market trends specific to CleanTech. Identify gaps and opportunities that your company can address. While the United States is still playing catch-up to a number of countries in regard to CleanTech initiatives, there is an opportunity to solve problems that may not have been addressed yet and to expand your product footprint.
Choose the Right Business Structure
Common options include:
- C Corporation: Provides limited liability protection and allows for multiple shareholders with ease of share transfer.
- Limited Liability Company (LLC): Provides limited liability, ease of startup, and no entity-level taxation.
- Branch Office: A direct extension of your existing foreign company. It operates under the same legal entity but has a separate U.S. presence.
Selecting the appropriate structure can have a significant impact on additional financing opportunities within the United States, not to mention a potential tax impact within U.S. tax law. That is why choosing the right structure is extremely important to the growth and success of your company in the United States.
Comply With Tax Regulations
U.S. tax compliance can be complex, and although changes can be made in the future, they may come at a cost, usually in the form of lost tax dollars. Some important considerations as you expand include:
Compliance
- Ensure you are filing the appropriate federal and state returns on an annual basis. Some companies will require quarterly estimates or extensions to be filed as well.
- Several foreign tax compliance forms must be filed within the United States if you’re transacting with a related party outside of the U.S. and if you’re structure includes additional subsidiaries operating outside of the U.S.
- Depending on the state and your product, sales tax could potentially apply to your products or services. The sales tax collection and remittance rules can be complex, which is why you may want to consult with a state and local tax expert.
Tax Credits and Incentives
There are many tax credits and incentives to explore and consider when filing in the U.S. For example:
- Investment Tax Credit (ITC): If your CleanTech solutions involve renewable energy (e.g., solar, wind), the ITC can provide substantial tax benefits.
- Research and Development (R&D) Tax Credit: If your U.S. subsidiary engages in R&D for innovative CleanTech products, you may qualify for this credit.
- Clean Electricity Investment Tax Credit: This credit focuses on clean energy and encourages investment in electricity generation from renewable sources such as wind, solar, and hydro. This tax credit will be replacing ITC on 1/1/25.
- Foreign-Derived Intangible Income (F.D.I.I.) Benefit: Income from foreign sources (including transfer pricing income in some instances) could be subject to a special beneficial tax rate of 13.125% as compared to the U.S. federal statutory rate of 21%.
Tax credit resources are not limited to the above named items. There are many others to consider as well.
Access Funding and Support
Plenty of startup accelerators and incubators exist that offer funding, mentorship and other resources for a new subsidiary/company to thrive. Many take multiple cohorts every year, providing ample opportunity to receive additional guidance and support on adapting or expanding your product to U.S. markets. Additionally, U.S. venture capital firms and angel investors continue to increase their investment in the CleanTech sector. This will more than likely require an investor pitch. Accelerators, incubators and advisors can help develop this pitch, if you don’t have one already, and make it more compelling for investors. Capturing the most appropriate and relevant company information and revenue metrics is critically important when demonstrating your company’s potential to investors during a pitch. An article we recently published reviews the most common pitfalls when doing so.
What Is the Solution?
Establishing a U.S. subsidiary requires careful and detailed planning. It’s important to get the proper advice from knowledgeable advisors and continue to be agile through this process. Adapting to market changes, learning from experiences and navigating the nuanced tax regulations are essential in the dynamic CleanTech ecosystem and play a critical role in finding success in the United States. With help from the right industry experts, like the professionals at Withum, your goal of U.S. expansion can be achieved.
Contact Us
For more information on this topic, please contact a member of Withum’s CleanTech Services Team.
