Navigating Tax Considerations for Indian Citizens Running Businesses in the United States

In this era of globalization, an increasing number of Indian entrepreneurs are expanding their footprint into the United States—attracted by its thriving market, access to capital, and innovation-friendly ecosystem. However, one of the most critical aspects of this expansion is understanding the complex U.S. tax environment.

From federal to municipal levels, tax compliance in the U.S. is multi-layered and can vary greatly depending on business structure and location. Here’s a comprehensive guide for Indian business owners navigating U.S. taxation.

1. Federal Taxation: The Core of U.S. Tax Obligations

Every business operating in the U.S. is subject to federal income tax, irrespective of the owner’s nationality.

  • Corporate Tax Rate:
    The federal corporate tax rate is currently 21% for C-Corporations, though actual liability varies by entity structure.
  • C-Corporation:
    Subject to corporate tax on profits and additional dividend tax—commonly known as double taxation.
  • S-Corporation / LLC (Pass-through):
    Income passes through to the owner’s individual tax returns, avoiding corporate-level tax. However, eligibility and filing criteria apply.

Key Forms:
Indian business owners may need to file IRS forms like Form 1120 (C-Corp) or Form 1065 (Partnerships) annually.

Tip: Work with a U.S.-licensed CPA to ensure accurate bookkeeping and avoid penalties.

2. State Taxes: Vary by Location and Structure

Unlike India’s centralized GST, state taxes in the U.S. vary significantly across regions.

  • No Corporate Tax States:
    Nevada, South Dakota, and Wyoming offer tax-friendly incorporation with no corporate income tax.
  • High-Tax States:
    California and New York impose higher corporate taxes and stricter compliance requirements.

Common State-Level Taxes:

  • Corporate income tax
  • Franchise taxes
  • Sales and use taxes
  • Employment/payroll taxes

Nexus Consideration:
Presence like warehouses, employees, or customers in a state can establish a “nexus”, triggering multi-state tax obligations.

3. Municipal Taxes: The Hidden Layer

Many entrepreneurs overlook local taxes, which can impact profitability in major cities like San Francisco, NYC, or Philadelphia.

Common Municipal Taxes Include:

  • Gross receipts taxes
  • Business license fees
  • Local surcharges

While these taxes are smaller, they can accumulate—especially in high-cost urban areas.

4. The U.S.–India Double Taxation Avoidance Agreement (DTAA)

The DTAA between the U.S. and India helps avoid double taxation and provides key tax-saving benefits.

Major DTAA Benefits:

  • Tax credits in India for U.S. taxes paid
  • Reduced withholding tax rates on dividends, royalties, and interest
  • Clearer rules for determining “Permanent Establishment” status

To Claim DTAA Benefits:

  • File Form 10F
  • Obtain a Tax Residency Certificate (TRC) from Indian authorities
  • Submit required documentation to both IRS and Indian tax departments

5. Compliance Considerations for Cross-Border Business

Owning a U.S. entity involves compliance with U.S. and Indian regulations, especially under:

  • FATCA and FBAR reporting for foreign assets
  • Transfer Pricing rules for cross-border intercompany dealings
  • Indian Income Tax filings for foreign income and foreign assets

Timely reporting and accurate disclosures are essential to avoid penalties or legal scrutiny.

6. Professional Tax Guidance is Essential

U.S. tax law is highly detailed, dynamic, and differs based on multiple factors. It’s non-negotiable to consult:

  • Cross-border tax advisors
  • U.S.-licensed CPAs
  • Indian Chartered Accountants with international experience

They help in staying compliant, reducing tax burdens, and aligning with your global financial strategy.

Conclusion: Plan for Success with Tax Strategy in Mind

Expanding into the U.S. presents incredible growth potential, but only with a tax-conscious mindset. Awareness of your federal, state, and local tax obligations, along with proper documentation and advisory support, is critical.

At Indam Advisors, we specialize in supporting Indian entrepreneurs through regulatory compliance and tax planning. Don’t let complexity hold back your business—partner with experts who can simplify your global journey.