What Startups Need to Know About U.S. Tax Traps in 2025

Planning to raise U.S. investment? Launching a startup and looking to enter the U.S. market? Be warned: in recent years, American tax law has become significantly less friendly to innovation-driven businesses. Some Congressional decisions have even begun pushing R&D activity outside the U.S. altogether.

This article offers a concise, clear, and practical overview from the webinar “How to Pay Taxes in the USA Correctly?”, highlighting hidden risks for tech companies expanding globally. If you deal with intellectual property, U.S. investors, or product development outside the States — this is a must-read.

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What Changed: A Tax Blow to R&D

As of 2022, the U.S. introduced sweeping changes that upended the rules:

R&D expenses can no longer be fully deducted immediately.
Now, foreign R&D must be amortized over 15 years, meaning only about a third of the costs can be deducted within the first 5 years.

This is a disaster for startups, which often rely on rapid product development and early-stage fundraising.

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The Fallout: Investors No Longer Favor LLCs

Previously, investors were happy to invest through LLCs (pass-through entities), allowing them to deduct their share of R&D expenses in their personal tax returns. If the startup succeeded — great. If it failed — there was at least a tax benefit.

That model no longer works. Even with an LLC, R&D costs cannot be deducted upfront anymore. As a result, U.S. investors have grown much more cautious about funding international startups.

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The Solution: How to Structure Your Startup to Survive

If you're a global founder with only partial U.S. presence, don’t jump straight into a C-corporation. Why?

You’ll face immediate U.S. taxation.
You can’t deduct R&D.
You’ll face complex reporting obligations (e.g., CFC, FDAP, ECI).

Instead, consider a hybrid structure:

US LLC (holding company)

C-Corporation (sales blocker in the U.S.)

Operating company outside the U.S. (owns IP, handles development)

This approach:

Shields your global business from excessive U.S. tax exposure;
Enables better IP management;
Remains transparent for U.S. investors.

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What About IP Protection?

There’s a tradeoff between low taxes and strong IP protection.

Jurisdiction I IP Protection I Tax Benefits

USA I 5/5 I High taxes, no IP box

Ireland I 4/5 I IP box, tax-friendly

Cyprus I 3/5 I 2.5% IP income tax

Switzerland I 5/5 I Best for mature companies

Malta I 1/5 I Not recommended

The U.S. offers the strongest legal protection for IP, but Ireland and Cyprus win from a tax perspective.

2025 Strategy: Where Should You Hold Your IP?

Tips from practitioners:

Locate R&D in countries with favorable tax treatment;
Hold IP in jurisdictions that balance protection and cost;
Avoid U.S.-based development — unless you gain significant advantages.

Lawyers say the U.S. has effectively pushed IP out of its borders. Companies are offshoring development — and the U.S. is losing innovation. But for you, this is an opportunity to optimize your structure and preserve your competitive edge.

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