The typical path runs like this. A New Zealand software company picks up US customers inbound, invoices them from the New Zealand entity in USD, and someone starts spending a week a month in San Francisco. A US investor takes an interest. A first sales hire lands in California. Somewhere in that sequence the company acquired obligations in several states, a federal filing position, and a structural decision it has now already made by default.
The scale trap
New Zealand founders are generally alert to the fact that the United States is foreign. What they underestimate is how many times each obligation repeats. There is a federal income tax regime, and then there is a separate income or franchise tax regime in most states. There is no national sales tax; there are state sales taxes with local district rates layered on top of them. There is federal employment tax, and then a separate registration, withholding account and unemployment insurance account in every state where you employ someone.
So the question is never "what does the United States require". It is "which states have I touched, and what does each of them require". A company with customers in twenty states and staff in three has a compliance surface that looks nothing like an Australian subsidiary's, and the cost of running it is a real operating line, denominated in USD, that most New Zealand budgets set at roughly a third of what it turns out to be.
The geography matters too. San Francisco and the wider Bay Area is where a technology, AI or web3 company will end up, because that is where the investors, the engineering market and the customer reference base sit — and it is also the most expensive and most regulated place in the country to employ people. A media, entertainment or consumer brand business generally lands in Los Angeles instead, where the talent market and the union and guild environment are different again, and where the state-level obligations are identical because both cities are in California.
Entity choice, and getting registered
For a New Zealand company intending to raise venture capital in the United States, the default is a Delaware C-corporation, and the reasons are practical rather than fiscal.
Delaware has the most developed body of corporate case law in the country, so the answer to a governance question is usually already known. The standard financing documents that US venture investors use assume a Delaware C-corp. Institutional investors are frequently structured in a way that makes an investment in a flow-through entity actively unattractive to them, so an LLC is not merely unfamiliar to them — it can be unacceptable. And a C-corp supports the standard US equity toolkit: an option pool, incentive stock options, and the qualified small business stock rules discussed below.
| Structure | Suits | Advantages | Watch for |
|---|---|---|---|
| Sell from the NZ entity | Early inbound sales, no US staff, no US presence | Nothing to set up; one set of books; treaty protection against US federal income tax while there is no permanent establishment | State-level nexus can attach without a permanent establishment; some enterprise customers will not contract offshore; sales tax obligations are not covered by the treaty |
| Delaware C-corp subsidiary of the NZ company | US staff, US contracting, a US presence ahead of a raise | Liability ring-fenced; standard for customers and employees; the structure US investors expect to see at the point of investment | Federal and state compliance stack; transfer pricing with the NZ parent; investors may still require a flip before funding |
| US LLC | A joint venture, a property holding, a services vehicle with no venture ambition | Flexible, flow-through for US members, lighter formalities | Generally wrong for a venture-track company: flow-through treatment creates US filing obligations for its owners, it does not support incentive stock options or QSBS, and most institutional funds will not invest in it |
Once you have an entity you need two things immediately. A registered agent in the state of incorporation — a routine, low-cost annual service, but a legal requirement, and the address at which the state and any litigant will serve you. And an EIN, the federal employer identification number, which is the key to a bank account, a payroll provider, a merchant processor and almost every contract counterparty's vendor onboarding form.
Budget properly for the EIN. Where the responsible party has a US social security number, the application is quick. Where they do not — which is the position of most New Zealand founders at the outset — the process is slower and less predictable, and it is a common cause of a US launch slipping. Start it early, treat the timeline as uncertain, and do not build a go-live date around an EIN you have not yet received.
The flip
The flip-up is the transaction in which the New Zealand company stops being the parent and becomes a subsidiary of a newly formed US holding company, with existing shareholders exchanging their New Zealand shares for shares in the US parent. Most US venture investors will require it, or something close to it, before they fund.
A flip is a change of ownership of the whole group. It has New Zealand tax consequences for the company and potentially for every shareholder, it needs shareholder approval, it requires a defensible valuation, and it is expensive and slow to unwind once done. Deciding it under time pressure inside a live financing — with a term sheet signed and a closing date set — is how founders end up accepting a structure that suits the investor and not them. Form a view on the flip before you open a US raise, and price it into the plan.
The costs are legal and advisory in both jurisdictions, valuation work, and management time, and they are incurred in USD and NZD respectively. The triggers are the part to get advice on: a share-for-share exchange can crystallise consequences for shareholders depending on their circumstances, employee option holders need their instruments rolled into the new parent's plan, and the New Zealand company's tax attributes and shareholder continuity position need to be checked before rather than after. Where research and development incentives or intellectual property sit in the New Zealand entity, the flip needs to be designed around them.
The counter-case is real. If the company's customers, revenue and staff are predominantly in New Zealand and the raise is domestic or Australian, flipping imports a US compliance burden and a US tax residence for no commercial return. The question is not "should we flip eventually" but "does the capital we actually intend to raise require it".
Nexus drives everything
Nexus is the concept that determines whether a state can require you to register, file and pay. Almost every US state question resolves back to it.
Physical presence creates nexus: an office, inventory held in a warehouse, an employee, and in many states a contractor or a travelling salesperson. That much is intuitive. The part that is not intuitive is economic nexus. Following the Supreme Court's decision in South Dakota v. Wayfair in 2018, states may impose sales tax obligations on remote sellers based on their volume of sales into the state alone, with no physical presence at all. Most states now do. The thresholds are set state by state and are revised, so they must be checked against current rules rather than assumed.
Selling into a state can create obligations in that state without you ever setting foot in it. Nexus is tested separately for each state and, in some states, separately for sales tax and income tax. This means your compliance footprint is a function of where your customers are, not where your company is — and it expands silently as revenue grows. Track sales by state from the first US invoice, because reconstructing that history later is the expensive version.
Sales tax, state income tax and franchise tax
The most damaging misconception is that US sales tax is GST with a different name. It is not, and the differences run in the wrong direction for a seller.
Sales tax is imposed at state level, with counties, cities and special districts adding their own rates on top, so the applicable rate depends on the delivery address rather than on the state alone. Taxability is determined product by product: software delivered as a service is taxable in some states, exempt in others, and treated differently again where it is bundled with support or professional services. There is no input credit mechanism. If you fail to charge sales tax you were required to collect, the liability is yours, you generally cannot recover it from customers after the fact, and it comes with interest and penalties. Getting it wrong is a straight cost, not a timing difference.
Separately, states impose income tax, franchise tax, gross receipts tax or some combination, each with its own nexus test and apportionment formula. Two mechanics catch New Zealand companies repeatedly.
| Obligation | What triggers it | Mechanism | Where it bites |
|---|---|---|---|
| State and local sales tax | Physical presence, or economic nexus based on sales into the state | Collected from the customer and remitted; rate set by delivery location; taxability varies by product | No input credit — an uncollected liability is absorbed by the seller with interest |
| State income or gross receipts tax | Nexus in the state, tested separately from sales tax | Group income apportioned to the state by a statutory formula | Filing obligations in states where profit is small but the formula still produces a return |
| Delaware franchise tax | Incorporation in Delaware, regardless of activity there | Annual report plus a tax calculated under one of two methods; the default method keys off authorised shares | A company that authorised a large number of shares and never revisited it can receive a bill out of all proportion to its size; the alternative method usually produces a much smaller figure but must be elected and calculated |
| California minimum franchise tax | Doing business in California, or being registered there | An annual minimum payable whether or not the company is profitable | Applies to a Delaware company operating in California too — incorporating in Delaware does not avoid it |
California deserves separate attention because it is where most New Zealand technology companies land. It takes expansive positions on what constitutes doing business in the state, it will look through to a Delaware entity operating from a San Francisco office, and its minimum annual franchise tax is payable by loss-making companies. A Los Angeles media business faces exactly the same state position; the difference between the two cities is in the labour market and the local business tax and permitting regime, not in the state tax exposure.
Payroll, benefits and the California overlay
Employing in the United States is not one process repeated in different places. Each state is its own registration stack, and a single hire opens the whole stack in that state.
- Federal. Income tax withholding, Social Security and Medicare contributions with an employer share, and federal unemployment tax.
- State registration. A withholding account and an unemployment insurance account with the relevant state agency, obtained before the first pay run in that state.
- State unemployment insurance. Rates are experience-rated and vary by state and by employer history.
- Workers' compensation. Mandatory insurance, arranged state by state, with a monopoly state fund in a small number of states.
- Local taxes. Some cities and counties impose their own payroll or business taxes on top.
The remote-employee problem follows directly. One engineer hired in a state where you have no other presence creates a registration, a withholding account, an unemployment account, a workers' compensation policy, and in most cases an income tax nexus position in that state. It is not a marginal decision. Hiring policy is a tax decision, and it should be run past finance before an offer is made rather than after the person starts.
Health insurance is the cost line New Zealand founders most consistently under-budget. In the United States employer-sponsored medical cover is an expected component of a professional compensation package, not a fringe benefit, and candidates will compare plans as closely as they compare salary. It is a material, recurring, USD-denominated cost per employee, it rises annually, and a compensation model built by converting a New Zealand salary at spot rate will understate the true cost of a US hire by a wide margin. Model total employment cost — salary, employer taxes, insurance, benefits — not salary.
California adds an overlay that is materially more prescriptive than the rest of the country: stricter tests for classifying someone as a contractor rather than an employee, detailed meal and rest break rules for non-exempt staff, narrow criteria for treating an employee as exempt from overtime, wage statement content requirements with statutory penalties, mandatory paid sick leave, pay transparency obligations, and final pay that is due immediately on termination. Non-compete clauses of the kind that appear in New Zealand employment agreements are generally unenforceable in California and their inclusion carries its own risk. Do not run a US employment agreement through a New Zealand lawyer's template. Use a US employment specialist for the state you are hiring in.
Equity compensation
US staff expect equity, and the US equity machinery has requirements with no New Zealand analogue.
A 409A valuation is an independent valuation of the company's common stock, used to set option exercise prices. It is required because issuing options below fair market value creates adverse tax consequences for the recipient, and the point of a qualifying valuation is the safe harbour it provides. It is refreshed periodically — broadly annually — and again after any material event, a financing round in particular. Grant options off a stale valuation and you have created a problem for your employees, not for the company.
Incentive stock options are available only to employees of a corporation and carry more favourable tax treatment for the holder if statutory conditions are met, including holding periods. Non-qualified options can be granted more broadly, including to contractors and advisers, but are taxed on exercise as ordinary income with withholding. Most plans use both. The choice is per grant, and it needs to be recorded correctly at the time.
The 83(b) election. Where a founder or employee receives restricted stock, an 83(b) election filed with the IRS within a short statutory window — commonly described as 30 days from the grant or purchase date, and to be confirmed against current rules — elects to be taxed on the value at grant rather than as the restrictions lapse. Miss the window and there is no remedy, no extension and no retrospective fix; the holder can face tax on value they cannot yet sell. Calendar it in days from the grant date and confirm the filing was made.
Qualified small business stock is the reason entity choice is personal to founders rather than merely administrative. Where stock in a qualifying C-corporation is acquired at original issue and held for a minimum period, and the company satisfies a set of tests over that period, a shareholder may be able to exclude a substantial portion of the gain on eventual sale from US federal tax. Only C-corporations qualify — an LLC does not — and the tests are applied at the company level over the whole holding period, so structuring choices made now determine eligibility years later. The interaction with New Zealand tax residence is a separate question and needs advice on both sides.
Cross-border pricing, banking and reporting
Once there are two entities, everything passing between them must be priced as if they dealt at arm's length: development services performed in New Zealand, the licence of intellectual property, intercompany loans, management recharges, and the cost of founders' time. The IRS takes an active interest in inbound structures, particularly where a US entity books the revenue and pays a related offshore party for the substance behind it. Inland Revenue has the mirror interest. Decide which entity owns the intellectual property, write down which entity performs which functions and bears which risks, document the method, and then actually raise the invoices. A policy that exists only in a memorandum is worse than no policy.
Payments crossing the border can attract US withholding tax. Dividends, interest and royalties paid to a New Zealand entity are subject to withholding at a statutory rate unless the New Zealand–United States double tax agreement reduces it, and access to treaty rates depends on providing a correctly completed Form W-8BEN-E to the US payer before payment, together with satisfying the treaty's limitation on benefits provisions. Expect US customers to request one during vendor onboarding. Getting it wrong means over-withholding on your own revenue and a refund process you do not want.
Banking is the item that stops more expansions than tax does. Opening a US bank account for a foreign-owned entity is genuinely difficult: providers apply anti-money-laundering and beneficial ownership requirements that assume a US-resident director with a US social security number and a US address, and several will simply decline. It requires the EIN, formation documents, ownership documentation and often an in-person or verified-identity step. Start the process at the same time as incorporation, run more than one application in parallel, and consider a provider that specialises in foreign-owned US entities. Merchant processing has its own version of the same problem, and revenue that cannot be collected is a more immediate issue than tax that has not yet fallen due.
Finally, reporting. The New Zealand group reports under NZ IFRS; the US subsidiary will be expected to produce US GAAP figures the moment a US investor, lender or acquirer is in the room, and revenue recognition, leases and share-based payment are the areas where the two most often diverge in practice. You will be running two bases at once. Set the chart of accounts up so that both can be produced from one ledger, with the GAAP differences held as identified adjustments rather than as a parallel set of books maintained by hand.
The sequence
Adjusted for how quickly the commercial side is moving, but the order rarely changes.
| When | Do | Because |
|---|---|---|
| Before first sale | Decide whether to invoice from the New Zealand entity. Start tracking revenue by ship-to and bill-to state. Take a view on sales tax nexus and on the taxability of your product in the states you sell into. | Economic nexus accrues on sales alone, and the liability is not recoverable from customers after the event |
| Before first hire | Incorporate, appoint a registered agent, obtain the EIN, open banking, engage a US payroll provider, register for withholding and unemployment in the hire's state, arrange workers' compensation and a health plan. US employment agreements drafted for that state. | Each of these is required before the first pay run, and the EIN and bank account are the long poles |
| Before first intercompany transaction | Transfer pricing model and method documented, intercompany agreements executed, W-8BEN-E prepared for US payers | Retrospective documentation carries little weight with either revenue authority |
| Before first US raise | Settle the flip question, obtain a 409A valuation, clean up the cap table and confirm every 83(b) election was filed, close out any unregistered state exposure | These become diligence findings that reduce price or delay closing, and the flip decision is far worse made under term sheet pressure |
| Ongoing | Sales tax returns on state-specific cycles, federal and state income tax filings, Delaware and California franchise tax, quarterly payroll filings, annual 409A refresh, monthly consolidation and intercompany reconciliation | The compliance calendar is now a federal calendar plus one calendar per state |
None of this argues against the United States. It remains the market that changes the trajectory of a New Zealand technology company, and the capital, customers and comparables are there in a depth that nowhere else offers. But it rewards sequencing and punishes drift, and the companies that struggle are the ones that discovered in year two that they had been accruing obligations in eleven states since year one.
XLCFOWe run cross-border groups end to end — entity setup, multi-state compliance calendars, transfer pricing support, US GAAP bridging and monthly consolidation — alongside US specialists where a licensed practitioner is required.
