US Corporation doing buisness abroad

In a global economy, a U.S. corporation must compete in both U.S. and foreign markets. The latter is not a single, homogeneous market, but a multitude of national and regional (e.g., the European Union, the North American Free Trade Area) markets. Foreign markets present U.S. corporations with diverse business opportunities, varying from the export of products, technology and services to the development of indigenous foreign operations. While business opportunities govern a U.S. corporation's decision to enter a particular foreign market, the structuring of its foreign operations provides the corporation with various tax planning opportunities.

The structures available to a U.S. corporation contemplating doing business in a foreign market are-

•       doing business without a foreign legal presence;

•       foreign branch;

•       foreign partnership;

•       foreign corporation; and

•       foreign trust.

It is common for a U.S. corporation to use different structures in different foreign markets. Furthermore, the structures are not mutually exclusive and may be used in combination in a particular market.

(A) Doing Business Without a Foreign Presence

A U.S. corporation typically can make export sales, provide services, license technology or lease tangible property to unrelated dealers or customers without establishing a branch or affiliated business entity in a foreign market. The principal advantage of exporting without establishing such a local presence is that it is the simplest means of entering a foreign market. Its principal disadvantage is that the U.S. corporation may be operating with a competitive handicap in developing the local market if its activities are restricted only to those that can be carried on without an established local presence. Hence, as a foreign market develops, the U.S. corporation frequently will seek to establish a local presence to take advantage of the business opportunities.

(B) Foreign Branch

A foreign branch is part of the U.S. corporate legal entity, physically located in the foreign country. From a business perspective, a “branch” can describe anything from a sales office with just a few employees to a factory with several hundred employees. From a tax perspective, “foreign branch” describes an integral business operation carried on by a U.S. person outside of the United States.

Although branch operations typically are more substantial than simply exporting into a foreign market without a local presence, the business advantage of operating in branch form is simplicity. That is, it provides a local presence in the foreign market through an establishment that is less complex than the formation of a separate legal entity such as a corporation or partnership

C) Foreign Partnership

A foreign partnership (including a limited and general partnership) is a partnership created under the law of any jurisdiction other than the United States, except as provided in regulations. These regulations take into account factors other than where the partnership is created and apply only to partnerships created or organized after the regulations were issued . Whether a foreign partnership is subject to foreign tax on its income as an entity separate from its partners or the partners are subject to foreign tax on the partnership's income on a look-through basis depends upon the particular foreign country's laws

(D) Foreign Corporation

A foreign corporation is a corporation (including an association, joint-stock company, or insurance company) created under the law of any jurisdiction other than the United States or its states.

The use of a foreign corporate subsidiary offers the U.S. parent several foreign business and tax benefits. Like a foreign partnership, the foreign corporation may provide certain promotional benefits and operates as a separate legal entity for commercial law purposes

(E) Foreign Trust

A “foreign trust” is an entity characterized as a trust other than a trust treated as a domestic trust.. Any trust will be treated as a domestic trust if a court within the United States can exercise primary supervision over the trust's administration, and one or more U.S. persons control all substantial trust decisions.