30 Jun

Investing in Wisconsin: A How-To Guide for Foreign Investment in the Dairy State

By Firm

June 30, 2020

Wisconsin is a great place for a foreign owner to invest. When a foreigner thinks about establishing a business in the US, Wisconsin may not be the first state on the list. Locations such as New York, Chicago, and Los Angeles have long histories of foreign direct investment and sizeable foreign populations.

But Wisconsin is a good place to invest. Compared to other US states, Wisconsin has a low sales tax and relatively good corporate and property tax rates. Wisconsin is famous for its dairy industry and agriculture, but the state also houses strong leaders in the health services, information technology, and manufacturing industries (https://inwisconsin.com/key-industries-in-wisconsin/).

This article serves as a quick guide to establishing a foreign-owned entity in Wisconsin. This is not intended to be a complete guide and a foreigner interested in investing in Wisconsin should locate an experienced lawyer and accountant to assist you through the process. The teamwork between your lawyer and accountant will be key in setting up your new entity.

Step 1: Choose a method of doing business in Wisconsin.

A foreign company or individual investing in Wisconsin can choose from a variety of methods, such as a wholly foreign owned entity (WFOE), a joint venture with an existing Wisconsin business, or merely a contractual relationship. This decision will depend on the individual investment needs and purposes.

WFOE: If you are interested in setting up a wholly foreign owned entity in Wisconsin, you have several different options, including an LLC or C corporation. An LLC is a popular choice for domestic owners because it has less requirements than a C corporation and has a default of pass-through taxation, which means that as an owner you would only be taxed on the individual level. An LLC, however, may not be the best option for a foreign owner that resides outside of the US who does not want to file a US personal tax return. A C corporation may be a better option if you do not plan to reside in the US. The decision about the right type of entity for a WFOE will largely depend on the specifics of your investment and advice from an accountant.

Once you select an entity type for a WFOE, you will need to select a business name. Be careful to search the list of existing businesses with the Wisconsin Department of Financial Institutions because the agency will not allow you to set up a business with a name substantially similar to an existing company. You can search here. Names must be in English letters with Arabic or Roman numerals. No other foreign alphabets are allowed.

Keep in mind that a name must also not infringe on any tradename rights. In addition to Googling names, you may want to check for any registered names with the United States Patent and Trademark Office here, then click on the “Search our trademark database (TESS)” button.

Joint Venture: Another option for investing in Wisconsin is creating a joint venture with one or more domestic citizens or companies. The advantage of this type of arrangement is that the domestic person or entity will be familiar with how to do business in Wisconsin and how to navigate government requirements. Forming a joint venture requires a great deal of trust in your partner, but the advantages can make it worthwhile.

First, you must locate a potential partner. Next, you will need to negotiate the terms of the joint venture relationship. There are numerous ways to structure the deal. For example, the domestic partner may do 100% of the management while the foreign partner serves only as a passive investor. Alternatively, the domestic partner may only manage certain tasks while the foreign partner handles other tasks. Whatever you choose, a well-drafted contract will be essential.

Step 2: Select a registered agent.

When a business is established in Wisconsin by a foreign individual or entity, the business must have a registered agent address in Wisconsin. This may be difficult if the foreign owner does not yet have a physical location in the state. The registered agent serves as a point of contact for notice of lawsuits. Most law firms will provide this service to their clients, but there are also independent companies that offer this service for a minimal fee, such as Hubco Inc. (https://www.inc-it-now.com/index.htm). In addition, the foreign business may want to consider renting an office space in Wisconsin. The company is not required to have an office (other than a registered agent office) to organize, but you will need one for your tax application with the IRS, and you may want to begin establishing a physical presence in the state.

Step 3: File for an EIN and/or Wisconsin business tax registration number.

Most banks will require that you have an Employer Identification Number (EIN) before you can open a business bank account. You will also need an EIN if you will have any employees in the US. In order to register for an EIN, you will need either a social security number (SSN) or an Individual Taxpayer Identification Number (ITIN). This can be challenging if the foreign owner opening the account has never filed an individual tax return in the United States. You must be a citizen or permanent resident to get an SSN and you can only apply for an ITIN when you file a tax return. It is not unusual for foreign owners to have a domestic representative that provides their SSN or ITIN for this application. You may also be able to find a bank that will not require an EIN, or delay requiring one until the foreign owner has filed a tax return. 

Once you have an EIN, then you can file for a Wisconsin business tax registration number. Any company that sells physical goods in Wisconsin will need to apply for one, but some companies that only offer services may not need a Wisconsin business tax registration number. The rules on which companies need one and which do not are complicated. An accountant should be able to give guidance on this issue.

Step 4: Find a bank to open a business bank account.

In order to protect the liability of the foreign owner, the new Wisconsin company should have its own bank account. Finding a bank that will allow a foreign individual to open an account can be difficult. You would think that the nationwide banks would be easier to work with on this issue, but in my experience, they are not necessarily more accommodating than local banks. The foreign owner may need to call around to several places to find one bank that will open a business account for a foreign owner. 

Step 5:  Choose an accountant.

Tax issues with international companies and investors can be complicated. Although the company will need to file a company tax return if it does business in the US, owners that do not reside in the United States may not need to file a personal tax return. An accountant will have the most up-to-date information on the tax rules for foreign owners.

Keep in mind that an entity with a foreign owner cannot be taxed as an S corporation. Owners of an LLC or C corporation sometimes choose to tax their entities as an S corporation because of the tax advantages. This option is simply not available for a company with foreigner owners. Depending on the size of your foreign investment, however, you may qualify for a tax credit with the State of Wisconsin (see here).

Step 6: Check the US trade and foreign investment rules.

If you are considering investing in a company that imports products into the US, there are restrictions on what type of goods can be imported from certain countries. For example, importing firearms, certain weapons, ammunition, or similar devices is not allowed without written authorization from the Bureau of Alcohol, Tobacco, Firearms, and Explosives. Plants and food products are also highly regulated by the U.S. Department of Agriculture.  You will also need to determine what the tariff on those goods will be.

Be careful to make sure that your industry of investment is not subject to limitations of foreign direct investment, such as investment in companies owning ships, grazing livestock on certain lands, or mining certain types of minerals. For a fairly complete, although slightly outdated, summary of restrictions on foreign ownership in the US, look here.

Step 7: US Department of Commerce reporting requirements.

In any business where the foreign ownership in an entity in the US is greater than 10%, the business is obligated to record this fact with the federal government through a BE-13 form. There are several different versions of this form depending on the situation, but you can file a BE-13 Claim for Exemption if the foreign investment is less than $3 million. This information will remain anonymous and will only be used for internal government purposes, but there are hefty fines if you fail to record this information  ($4,000-$40,000). Overall, Wisconsin is a great place to invest, but the above steps highlight the special considerations for foreign owners. Again, this guide is not intended to be a complete list, but it will provide a new foreign individual or company with the basics to get started.