"When considering an expansion to Texas, it’s critical to understand the legal, tax, and business requirements for a smooth transition."
Texas is quickly becoming a global business hub, with the future launch of the Texas Stock Exchange (TXSE) and strong UK-Texas trade relations. For UK businesses looking to expand into the United States (U.S.), Texas offers no state corporate income tax, a thriving and increasing financial sector (e.g., the New York Stock Exchange launching in Texas (NYSE Texas), commercial real estate growth, international trade, and access to U.S. markets.
When considering an expansion to Texas, it’s critical to understand the legal, tax, and business requirements for a smooth transition. In this month's Spearhead blog post, we discuss some key elements of expanding UK businesses to Texas.
Forming a Legal Entity
UK businesses must form a Texas legal entity before beginning operations. The most common two are:
Limited Liability Companies (LLC) - a pass-through taxation entity protecting members (owners) from personal liability and generally ideal for small and medium-sized businesses; and
Corporations - generally best for companies seeking to issue stock to their investors and take the company public, for example, via an Initial Public Offering (IPO) on the TXSE, once finalized. Corporations are preferred by foreign-owned entities and are required for an IPO.
Once a legal entity type is selected, UK businesses should request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), and file the required Certificate of Authority with the Texas Secretary of State to begin operations.
Compliance and Tax Requirements
Expanding your UK business into Texas involves important tax and compliance responsibilities. The positive aspect? Texas does not impose a state corporate income tax, making it an appealing location for businesses aiming to enhance profits. Nonetheless, companies might still be liable for the Texas Franchise Tax, which is determined by annual revenue rather than net income. Furthermore, Texas sales tax is distinct from UK VAT, requiring businesses selling goods or services to register with the Texas Comptroller of Public Accounts and collect relevant state and local sales taxes. For UK-based businesses, it is crucial to navigate U.S. federal tax laws and comprehend U.S.-UK tax treaties to prevent double taxation. Effective tax structuring, including the decision to operate as an LLC, C-Corp, or foreign entity, can greatly influence tax obligations and compliance requirements.
Employment
Your UK business may intend to hire locally in Texas or transfer employees. Unlike the UK, Texas adheres to an at-will employment doctrine, allowing employers to terminate employees at any time, except for unlawful reasons such as discrimination or retaliation. Furthermore, businesses must properly classify workers—misclassifying an employee as an independent contractor can result in penalties under U.S. labor laws. UK businesses transferring employees from the UK to Texas must obtain the appropriate work visas, such as the L-1 Visa for intracompany transfers or the E-2 Investor Visa for business owners investing in the U.S. Additional considerations involve minimum wage, overtime pay, and required human resources policies in remaining compliant with Texas laws.
Import/Export and Trade Regulations
As a key U.S. trade hub, Texas offers strong business opportunities for UK companies in industries like energy, technology, and manufacturing. However, import/export laws, tariffs, and trade agreements can significantly impact cross-border transactions. If your business ships goods between Texas and the UK, understanding post-Brexit trade policies and U.S.-UK tariffs is critical to avoid penalties and delays. Additionally, companies operating in regulated industries (such as pharmaceuticals or defense) must comply with special licensing requirements before importing or exporting goods. This includes adherence to Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR), which govern the export of sensitive technologies and defense-related articles. Furthermore, businesses should be aware of Committee on Foreign Investment in the United States (CFIUS) regulations, which review foreign investments for national security implications.
Trade agreements and supply chain contracts should also be reviewed to protect your interests in international business transactions.
Additional Considerations
Beyond legal formation and compliance, UK businesses expanding to Texas should also consider intellectual property protection, commercial real estate, and capital-raising opportunities. Trademark laws differ between the UK and the U.S., so registering your brand with the U.S. Patent and Trademark Office (USPTO) is essential to prevent infringement issues. If your business handles customer data, U.S. data privacy laws differ from GDPR, and Texas has introduced new consumer protection regulations that may impact compliance. On the real estate side, securing commercial property in Texas—whether through leasing or purchasing—requires careful contract negotiation, as Texas lease agreements often favor landlords. Finally, with the TXSE opening new capital markets, UK businesses may have opportunities for venture capital, private equity, or even IPOs, though compliance with SEC and foreign investment regulations is necessary.
Looking to expand to Texas?
Setting up a business in Texas requires careful planning, contracts, and compliance. Our firm specializes in Texas business formation, regulatory compliance, cross-border contracts, trade law, real estate dealings, investment transactions, and securities compliance. Book a free consultation or contact us for more information.
Comments