Launching a startup in the United States is a strategic move for many Ukrainian entrepreneurs. The U.S. offers access to one of the largest consumer markets in the world, abundant investment opportunities, and a strong reputation as a global tech hub. However, behind this appeal lies a complex and often underestimated system of tax regulation.
In a recent webinar featuring an international tax advisor (author of the US Startup Tax Guide) and a legal expert assisting Ukrainian startups with U.S. incorporation, participants discussed common mistakes made by foreign entrepreneurs and the risks of operating under U.S. jurisdiction for tech businesses. Below are key insights and practical recommendations.
It’s true that starting a company in the U.S. can take just a few days and be done online. But this low barrier to entry creates a deceptive sense of ease, overshadowing the real legal and tax consequences. Among the most frequent mistakes are:
Administrative penalties for late filings can reach up to $25,000 — regardless of the company’s size or revenue. This is the paradox: the system is open, but it is unforgiving toward negligence.
Many entrepreneurs default to creating a C Corporation — a legal entity taxed both at the corporate level and again when dividends are distributed to shareholders. Double taxation may only make sense under certain conditions:
For smaller international startups, alternatives like LLCs, partnerships, or hybrid structures using IRS Form 8832 to elect tax classification can be more suitable.
Many founders follow the principle: “Let’s make money first, then deal with taxes.” While this might work in less-regulated countries, it’s a risky strategy in the U.S.
The U.S. tax system requires:
Failing to file even one form can lead to penalties, audits, or disqualification in the eyes of investors.
Even if your company is not incorporated in the U.S., economic presence alone can trigger U.S. tax obligations. Effectively Connected Income (ECI) arises if:
The IRS pays close attention to IT businesses operating under SaaS, consulting, or know-how transfer models. In these sectors, it’s easy to unintentionally cross the line between “exporting services” and “establishing economic presence.”
Many startups opt for an LLC as a simple business form. But in the U.S., an LLC is a “pass-through” entity — it doesn’t pay taxes itself, but its income is taxed on the owners' personal returns. In other countries (such as Ukraine), LLCs may not be recognized as pass-through entities, creating hybrid mismatches and regulatory conflicts.
This may result in:
In the software industry, five common monetization models each carry different U.S. tax implications:
Each model requires its own structure — from both a tax and IP strategy perspective, considering IRS requirements and investor expectations.
The U.S. tax system isn’t your enemy — but it won’t forgive sloppiness. For Ukrainian startups entering the American market, it’s not enough to have a strong product and a bold idea. A solid legal foundation is essential. The “let’s make money first” approach only works until the first IRS notice arrives. From there, it’s not just about money anymore — it’s about reputation, investor confidence, and your right to stay in the game. That’s why tax planning isn’t optional — it’s vital.
How to Pay Taxes in the USA Correctly? AVITAR & iFindTaxPro
How to Pay Taxes in the USA Correctly? AVITAR & iFindTaxPro (Part II)
How to Pay Taxes in the USA Correctly? AVITAR & iFindTaxPro (Part III)
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Violetta Loseva
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