Like many Israeli start ups, your company is targeting the US market. You are about to start sales in the US, and you currently accept both credit card and PayPal payments. On the expense side, you’re making payouts to suppliers in the US, but the Israeli banks are charging you outrageous fees and it takes time for transactions to complete, exposing you to currency volatility. Some questions arise:
- Should the Israeli start up open a US bank account?
- Which bank is recommended?
- Can the start up open a US bank account if it has no physical presence in the US?
- Is it possible to complete the process online online?
The question of whether an Israeli start up should open a US bank account probably comes up in many Israeli start ups.
Joshua Nowack, Chief Numbers Guy at Nowack Strategic Business Advisory & CPA, answered these questions on LinkedIn’s Q&A Service, and I thought it would be good to share them with the readers of VC Cafe.
1) Yes, you can maintain a US-dollar denominated account in the US without having a physical presence.
2) Due to patriot act issues (dealing with the US effort to fight money laundering especially with terrorists), they usually want to see you in person with ID. You might need to have a US tax ID number as well. Not sure if the bank would require it.
3) HSBC would be a great choice from the standpoint of its strong international presence not just here, but everywhere in the world (considering your future growth). Bank Leumi also maintains a US presence, I believe in New York. (VC Cafe: Silicon Valley Bank operates both in the US and Israel, with a service tailored for start ups. Read more at: Silicon Valley Bank Named Top Bank for Cleantech Companies).
4) The implications of opening account are somewhat limited, but things to consider should include:
- Israel VAT issues – I’m not an Israeli VAT expert by any stretch, but be mindful about whether or not VAT is a consideration on your products being sold in the US – also consider if there is a VAT issue selling to Israeli citizens living abroad. Conversely, you may have US import duties do which would be a tariff imposed on imported goods (into the US). The US sales tax (kind of like a VAT) does not apply on goods that cross state lines.
- Tax issues – Any interest earned on these accounts, if > 10 USD, would receive an interest income statement for use in reporting earnings to the US taxing authority (Internal Revenue Service). Tax rates here are much lower than in Israel so not a big deal, but something nonetheless.
- You might also have a matter relating to incorporation and registering with a particular state depending on state law. (VC Cafe: If you are planning to incorporate in the US, Delaware is the place to go due to the favorable corporate laws in the state, Delaware Intrercorp, has lots of info on its website. The state of incorporation is also valued by investors and potential acquirers)
Bottom line is the bank itself is one piece of the puzzle. Bank Leumi/HSBC/SVB should be able to offer you some additional insight into the matter.
Bottom line #2 is: use the resources available to you for information. LinkedIn Q&A is a great example.