Why Should a SAAS Business Start a Company in the U.S. (or Not) ?

Common Questions Answered:

• What are the advantages and disadvantages of starting a business in the US?
• Why should I consider expanding my business into the US?
• What funding and financial opportunities are available in the US?
• What are the tax benefits of operating a business in the US as a foreigner? 

• Intro
• Benefits
• Market Size and Potential
• Pricing Advantages in a Global Market
• Innovation Ecosystems and Networks
• Funding and Financial Opportunities
• Available Collections and Payment Systems
• Tax Benefits
• Business-Friendly Regulatory Environment
• Easy Company Setup Process
• Global Recognition and Credibility
• Disadvantages
• Not knowing how to operate in the U.S.
• Higher admin costs
• Strict laws and compliance requirements
• Competitive market
• Lack of Local Network
• Should You Open a Company in the US?

There are many advantages of starting a business in the US as a foreigner. The US offers a favorable market for SAAS (Software as a Service) and PAAS (Platform as a Service) businesses. But, where do you start?

The US is ideal for growing your business, from a promising market landscape to beneficial tax structures and investor attraction. 

There are also some watch-outs and disadvantages, especially for non-US and foreign founders, though all can be overcome based on your preferences.

As Tukel, Inc. Accounting, we specialize in SAAS/PAAS businesses in the U.S. owned by non-U.S. people. If you need any support in setting up your U.S. company, managing its compliance with IRS and state authorities, accounting, taxes, payroll, or even legal matters, we can assist you as your one-stop-shop, outsourced finance team in the U.S. You can easily schedule a free discovery Zoom call from this link.

This blog will help you start by exploring the cons and pros of starting a SAAS/PAAS business in the US. Let’s jump in!

The US is the center of all things SAAS/PAAS. When you start a small business in the US, you’ll have plenty of opportunities to succeed. In the United States alone, revenue in the SAAS market is estimated to reach 141.40 billion USD during 2023. Other SAAS/PAAS market sizes pale in comparison, with the SAAS market in Europe an estimated 62.69 billion USD and in China an estimated 14.53 billion USD.

_{SAAS Market Size (2023 Estimate)}

Simply put, there’s no market as big or full of as much potential for SAAS/PAAS as the United States. Given the massive market size, there’s plenty of room for you to build your business in the US. 

While SAAS is the leader in the cloud services market, PAAS businesses have plenty of potential too. In 2023, revenue in the PAAS market will reach 60.67 billion USD. PAAS revenue is expected to reach a market volume of 115.30 billion USD by 2028.

In comparison, Europe’s PAAS market size is only an estimated 28.08 billion USD in 2023, while other key regions for the PAAS market like Germany are only an estimated 3.66 billion USD. Compared to other PAAS markets, the US is undoubtedly the one with the most potential for you.

You can still sell your product to the U.S. market from your own country, with suitable collection systems (e.g. Stripe, PayPal, Chargebee, Paddle, etc.) for a B2C business.

But a B2B business may have challenges selling to U.S. businesses as they prefer U.S. vendors and U.S. bank accounts to make the payments. Many B2B businesses do not pay by card but prefer bank wires.

_{PAAS Market Size (2023 Estimate)}

2) Pricing Advantages in a Global Market

US businesses have massive pricing advantages compared to many other countries in the global market, thanks to its high GDP, per capita income and consumption habits. Subscription prices and fees are significantly different in the United States compared to developing countries, making the US ideal for your business startup, as you can earn more on subscriptions.

An example of the US pricing advantages you’ll encounter is Netflix’s subscription fee by country. Premium Netflix subscription 19.99 USD per month in the US. compared to developing countries - in most cases US pricing is more than double that of other countries.

In summary, you have a far better pricing advantage in the US market vs others.

3) Innovation Ecosystem and Network

The US provides an innovative ecosystem and network for SAAS/PAAS business owners to thrive. Huge business incubators in the US help SAAS/PAAS entrepreneurs build their small businesses, such as the following:

• Y-Combinator, which has helped develop over 4,000 businesses and turned small operations into massive successes.
• 500 Global, which offers an acceleration program for startups and small operations
• Innovation Works, which provides help for software, hardware, and life sciences startups
• TechStars, which is the largest pre-seed investor worldwide
• … and you can more.

Outside business incubation centers, the U.S. is home to tech hubs like Silicon Valley and Austin. There are more tech hubs in other states as well.

Silicon Valley and the other Tech Hubs are full of opportunities to start, grow, and profit from your SAAS/PAAS business as the global center for technology innovation. They are hubs for venture capital firms and all types of investors. Entrepreneurs have easier access for funding for their startups, allowing them to develop and scale their ideas more rapidly than in many other places. Their diversity fosters cross-cultural collaboration and innovative thinking. People from all over the world bring unique perspectives and ideas, enriching the region's innovative ecosystem. They also attract highly skilled engineers, IT and business professionals to the creation of innovative products and services.

By building a community and network in the US, SAAS/PAAS business owners have achieved their professional dreams – and you may try too!

4) Funding and Financial Opportunities

Funding and finances are among the biggest barriers to success in the SAAS/PAAS market, and there are several reasons why investors and venture capital companies want to invest in US companies over other businesses, such as:

• The US has greater market size and diversity than other countries, making it ideal for investors,
• The US has a well-developed capital market, meaning investors already have ample access to different types of funding and financial resources,
• The US is a hub for innovation and technological advancements, with places like Silicon Valley and other Tech Hubs attracting investors seeking a significant return on investment,
• The US economy is known for its stability and resilience, which can offer a safe investment environment, especially during times of global economic uncertainty,
• The US has relatively business-friendly regulatory environments in comparison to some other countries. This will facilitate faster business growth and investment.

If you would like to understand the various funding options (e.g. seed funding, venture capital, angel investor), their advantages and disadvantages, and how to match them with your startup’s stage of growth, check out our blog post “What Are the Types of Funding for Startups?”.

One of the advantages of starting a business in the US as a foreigner is access to US lending tech companies. Lending tech allows you to get possible loans and meet your cash needs. If you are bootsrapping your company, it enables quick and easy access to capital instead of traditional banking services. This process uses technology to allow lenders to issue loans through digital platforms. SAAS funding companies and communities are as follows:

• Founderpath
• Silver Capital
• Capchase
• Levenue

On the one hand, if access to venture capital and lending tech companies don’t help you achieve your business goals, consider other US funding possibilities, such as platforms like AppSumo, Kickstarter, Indiegogo or Wefunder. By the way, you don’t have to have a US company to use those tools; they may support different companies as well, you may need to check but the US is one of the countries often benefiting from their features.

• AppSumo: is a digital marketplace where you can create deals and digitally sell your products and services to buyers. This may help you to increase your sales and brand awareness/visibility in the market.
• Kickstarter and Indiegogo: are crowdfunding platforms that allow creators to raise funds for their projects by receiving pledges from backers in exchange for rewards. You can make your idea real without putting any money upfront. Also, you can better understand what's working and what needs to be improved thanks to backers’ feedback on early stages of your growth, so you can focus on making your product or service more successful. 
• WeFunder: is a crowdfunding platform that allows startups and small businesses to raise funds from a community of investors. WeFunder lets investors own a small stake in your company, while Kickstarter and Indiegogo allow you to sell products. 

These platforms can help you get the capital to grow your business.

Several available collections and payment systems in the US simplify running your SAAS/PAAS business. Plenty of these tools have native integrations, allowing your business and financial information to flow between applications.

These payment systems provide important solutions for SAAS/PAAS businesses for a single source of truth and insights. Some of the collections and payment systems you can use to monitor and operate your financial processes in the US include:

• Stripe Payments
• PayPal 
• Paddle
• Chargebee
• Clover
• PaySimple
• Square Payments

You can take a load off your plate when you choose the right payment system. These platforms can handle processes like payments, checkouts, subscriptions, renewals, invoices, tax compliance, reporting, and more. Additionally, all of your systems can easily integrate with each other when your business operates in the US, meaning that all of your financial operations are that much easier!

Foreign business owners should also consider starting their SAAS/PAAS business in the United States for some tax benefits available. 

Like all countries, the U.S. has corporate income tax requirements and as of 2023, it is 21% on taxable income (taxable profit) for corporations at the federal level. Compared to many other countries, it is still on the low side.

• Tax Treaties: The US has tax treaties with many countries to prevent double taxation and provide certain benefits. You may benefit from double taxation regulations when starting a US business. Double taxation occurs when your income is taxed in two countries, meaning international business owners often face this issue. To prevent this issue, the US limits international business taxation to avoid double taxation problems. This regulation means that you can be protected from damage caused by double taxation as an international business. 
• No sales tax (some states): Other potential tax benefits depend on where you locate your business. For example, states like Delaware don’t impose a state sales or corporate income tax on out-of-state operations, making it a beneficial option for foreign business owners.
• No state income tax (some states): Some states do not have a state-level corporate income tax, such as Wyoming, which makes the state attractive for incorporation. But, you still pay federal income tax to the IRS.
• Additionally, foreign tax credits can be beneficial to a foreign business owner. This option allows you to claim foreign tax credits for taxes paid in your home country, mitigating double taxation risks that can arise from earning income in the United States while still being subject to your home country’s taxes.

Operating a US-based business as a foreign business owner unlocks potential benefits by providing the flexibility to choose the type of entity and business location that suits your tax preferences and needs. 

Different entity types–such as corporations, LLCs, sole proprietorships, and partnerships–each have their own tax implications, giving you ample opportunity to choose an appropriate structure for your business.  If you're considering starting a business in the US and are uncertain about the ideal entity type to select, we're here to provide assistance. Feel free to schedule a free call, allowing us to better understand your needs and guide you accordingly.

The US has a business-friendly regulatory environment, perfect for foreign business owners looking to start their SAAS/PAAS company in the United States. The US business regulatory environment involves regulations, laws, taxes, and other important information businesses must follow. These regulations ensure that your business is sustainable. The regulatory framework allows for relatively easy business formation, access to funding, protection of intellectual property, and market entry. 

• Easy business formation: You can operate your business 100% online, with a lack of governmental bureaucracy, no need to visit the US to setup your company, open a bank account, hire an employee etc.)

• Well established legal system: The US has a well-established legal system and case law for startups and SMBs to handle possible issues and disputes that arise. An example of how the US favors SAAS/PAAS businesses and entities in other markets is Delaware’s Court of Chancery, intended for working out business disputes of many companies where many global commercial affairs are conducted. This high level of business knowledge means you’ll have the help you need if anything goes wrong for your business. This is one of the important reasons why investors want companies to incorporate in Delaware.

• Consistency and predictability: Businesses thrive when they can make long-term plans with confidence. Regulatory stability and predictability allow businesses to invest and expand without fear of sudden regulatory changes.

• Small business tax incentives: The IRS and certain states provide many tax exemptions and incentives, especially to help small and medium businesses (SMBs). That can be R&D support, COVID recovery incentives and aids, income tax exemptions, etc.

Starting your business is a complicated process. When you operate your SAAS/PAAS business in the US, you can simplify the process because everything is available online. You don’t need to visit the USA to operate your business and thrive. Even opening a bank account can be completed without the need to travel to the US. Do you know how? For more information, you can read our blog post “How to Open a Bank Account in the U.S. as a Non-US Resident”.

Services like Tukel, Inc. Accounting can assist you with company formation advisory to set up your US business. We can guide you on choosing the right business structure, state and bank account opening processes and how to be compliant. We can also help you to choose efficient systems and tools to improve business operations. Beyond the setup process, Tukel, Inc. Accounting keeps your books and delivers essential financial reports to help you with the following processes:

• Bookkeeping / Accounting
• Taxes
• HR and payroll
• CFO advisory services

One of the biggest reasons non-US business owners choose to start a business in the US is the possibility of global recognition. As a hub for SAAS/PAAS operations and the home of some of the largest tech companies in the world, the US is undoubtedly one of the best places to grow your small business into a large corporation.

When you operate in the US, you also open opportunities to create a sense of trust between your brand and a new audience of consumers. The US has a massive market for SAAS/PAAS services, and consumers are likelier to trust your offerings if you operate within the country. The US is an attractive market for everyone, making it perfect no matter who you sell to.
 

Disadvantages

• Not knowing how to operate in US: Before you put anything into starting a business in US, make sure you understand consumer preferences, demand, industry standards and norms. It's essential to understand U.S. business culture, consumer behavior, and regional differences as well since cultural misunderstandings can lead to miscommunication potential business missteps. 
•  Higher admin costs:. Starting and operating a business in the U.S. can be expensive, especially in prime locations. Even you just started your business, there are some costs such as rent, utilities, salaries, insurance, legal, tax and compliance-related expenses to consider. If you're considering hiring in US (yes, US provides a rich talent pool), just to give you an idea, as of January 1, 2024, California mandates a minimum annual salary of $66,560 ($5,546.67 monthly) for full-time exempt employees. Even if Federal guidelines suggest a lower amount, it's essential to be compliant both federal and state regulations.
• Strict laws and compliance requirements: US has a complex legal system with federal, state, and local regulations, specially for foreigners unfamiliar with the U.S. legal landscape. Taxes and legislation vary from state to state and businesses must ensure compliance with the regulations of every state they operate in or have connection with to avoid legal issues and penalties. Additionally, as a foreigner, it's important to be aware that if you have a source of US income, it could lead to personal liability, potentially requiring you to pay personal taxes in the U.S. Thus, it's advisable to familiarize yourself with the U.S. legislative and taxation systems.
• Competitive Market: The U.S. market is highly competitive across various industries. As a non-U.S. owner, entering this market can be challenging and requires overcoming established competition, who may have better brand recognition, customer loyalty, and existing distribution networks. Building brand awareness, gaining market share, and acquiring customers can be costly and time-consuming, especially for newcomers entering an already saturated market.
• Lack of Local Network: Building a network is crucial for business success. Foreigners might start at a disadvantage without established local contacts or knowledge of the local business community. It may echo like a familiar refrain, but its significance is truly monumental.

These disadvantages highlight some of the challenges that non-U.S. owners may face when starting a business in the United States. However, with proper planning, market research, and understanding of the local business landscape, these challenges can be mitigated, and the potential benefits of operating in the U.S. market can be realized.

Should you open a company in the U.S.?

United States has been a popular destination for entrepreneurs from around the world looking to establish their businesses. In most instances, it is favorable to open a company in the US for the advantages we tried to summarize. But… It will also depend on your business, operating model, personal facts and circumstances.

A B2C business can expand to U.S. market and start selling from its own local country without setting up a U.S. company, though may not benefit from some of the advantages we mentioned above. To start expanding to the U.S. market from your own country may be a lower cost solution and then you may consider setting up a company there when you have some scale or need the other benefits of having a U.S. company.

A B2B business will have a bigger challenge expending into U.S. business environment as many U.S. companies prefer to work with a U.S. vendor and make bank wire transfers to U.S. banks.
 

SAAS (Software as a Service) and PAAS (Platform as a Service) business owners have many possibilities when starting a business in the US. From untapped financial opportunities to the possibility of global recognition, there are many benefits to running your business in the United States. However, you must comply with US business regulations as a foreign business owner.

Tukel, Inc. Accounting can help your business meet all U.S. accounting and tax regulations. Our thorough services help you easily navigate financial processes for a successful business. Schedule a free discovery call with our team to discuss your needs and requirements. 

As a partner of Xero, we are proud to offer a comprehensive suite of financial management tools that empower small business owners like you to take control of your finances and grow your business with confidence. With Xero, you have access to payroll, expense claims, budgets, and financial reporting, all designed to provide real-time financial insights. By making informed decisions quickly and easily, Xero helps you take control of your business's future and achieve your growth objectives.

_Disclaimer:

_{This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation.}

_{Tukel Inc. is not responsible for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Tukel Inc. does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.}

_{Earnings Disclaimer: Tukel, Inc. has certain referral & partnership agreements with the institutions, companies, tools mentioned or recommended in this article, and may gain commission income. Regardless, we only recommend the institutions, companies or tools that we trust or have positive experience directly or through our clients.}