Global Entrepreneurs "Insourcing" Jobs to Northern California

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein, Rogoff, Olsen & Co., LLP

What goes around comes around, especially with outsourcing. It looks as if a new wave of entrepreneurs from China, Russia and Europe are creating new jobs in Northern California – including the East Bay. Even India, which ironically has run into some job management problems, is encouraging their entrepreneurs to look here.

It seems everyone from just about everywhere wants to tap into the Bay Area’s vast intellectual capital base and technological expertise. And while many governments around the developed world have policies that discourage offshore investors, the United States — the largest economy in the world — remains relatively open, if not a total bargain, to foreign startups.

Companies like Honda, Sony and Unilever long ago realized the upside of insourcing jobs to California, particularly in manufacturing. According to the Organization for International Investment (OFII), U.S. subsidiaries support more than 126,000 manufacturing jobs in the Golden State. Pittsburg is just one example of a California city benefiting from insourcing: U.S. Steel and Korea-based POSCO recently agreed to jointly operate a new steel mill there that will create 175 new jobs.

Now, entrepreneurs of all types are weighing their U.S. insourcing options. A recent report, “A World of Opportunity Understanding & Tapping the Economic Potential of Immigrant Entrepreneurs” http://www.nycfuture.org, revealed that immigrants have become the major driving force behind job creation in America’s largest cities. However, the “perfect” part of this storm can quickly develop dark clouds. Language barriers and unfamiliarity with U.S. laws and customs are just some reasons why these promising entrepreneurs are making mistakes that can shorten their reach for the American Dream.

My friend, Henry Yin, a successful Northern California-based entrepreneur who came here from China 30 years ago and is now a U.S. citizen, thinks part of the problem is that “passion clouds the need to prioritize.” He says entrepreneurs often are too driven by their idea, and so, their energy is focused only on that part of the challenge. This approach ends up shortchanging other matters essential for success, like setting up proper business models and positioning systems to fit well within tax laws.

I have personally noted several mistakes that are far too common among foreign entrepreneurs looking to do business here. One is a failure to understand tax treaties between countries. Even seemingly obvious issues, such as whether to set up residency here, can present taxing problems to fledgling businesses.

The U.S. government requires disclosure on special reporting forms, and a failure to file this paperwork can result in huge penalties. If, eventually, immigrant entrepreneurs do choose to become residents, transferring their assets makes them subject to gift and estate taxes. The wrong corporate structure could make the business subject to unnecessary tax withholdings, or even double taxation on assets.The most common mistake: Not understanding the U.S. tax structure. Even seemingly inconsequential issues can carry heavy fines if ignored. It is common knowledge that smaller businesses provide the majority of jobs in this country. We just have to make sure foreign entrepreneurs understand the rules so their businesses have a better chance of long-term success — for their sake, the American economy and our employment picture.

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