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What Is a Domestic Corporation?

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  • Written By: Alexis W.
  • Edited By: Heather Bailey
  • Last Modified Date: 30 November 2014
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A domestic corporation is a corporation that does business within the country where it was established, headquartered or based. For example, if a company opens in the United States, then within the United States that particular company is considered a domestic company. If a company opens and was incorporated in Italy, however, and then does business within the United States, then it is considered a foreign corporation. A company's status as either a domestic or foreign corporation can have an impact on its tax liability in some cases.

When a corporation is created, articles of incorporation must be filed within the United States, and similar articles or paperwork must be filed in other countries as well. These articles of incorporation stipulate the name of the organization, its purpose, and other relevant factors such as who the corporate officers are. Articles of incorporation can create different types of corporation, such as a C-corporation, an S-corporation, or a limited liability corporation (LLC). While each of the different types of corporation has different tax implications, in every situation, the corporation becomes a separate legal entity that is distinct from its owners, and that corporation is considered to be registered or incorporated in the state in which the articles of incorporation were filed.

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The corporation is not limited to doing business in the state, or even in the country, where the articles were filed. The corporation, however, is considered a domestic corporation as long as it does business within the country where it filed its incorporation papers. This means a company that files its papers in Delaware, California, New York or any other state is considered a domestic corporation within the United States.

A company that is considered a domestic corporation is generally entitled to do business throughout the country in which it was incorporated without paying import and export duties on its products. If a company sends products to another country, however, it may face an additional import tariff or may face other barriers to trade, such as different foreign laws or restrictions on its product or sales volumes. While these barriers to trade do not always exist for a foreign corporation — if two countries have free trade agreements, for example, there may be no barriers or additional tariffs — the barriers can make it more expensive for a foreign corporation to do business in a given area than it is for a domestic corporation.

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anon277446
Post 5

Thank you so much for posting this. It helps me a lot to understand about foreign and domestic corporations. In my class, I didn't understand some of our discussions about management so I prefer to list important words, then do research.

NathanG
Post 4

@Charred - We should not forget that domestic corporations also migrate from one state to another based on taxes. They don’t all go to Switzerland. Sometimes they just move down the block, where a neighboring state offers lower business tax rates and a lower income tax rates.

Right now there are a number of high tax states that are leeching businesses for this very reason alone. We should start providing incentives at both the federal and state level so that businesses can stay put and prosper where they’re planted.

MrMoody
Post 3

@SkyWhisperer - That’s a good point, but let’s not forgot that we’ve been on the receiving end of some outsourcing as well. When an alien corporation like Honda decides to open up plants in the United States, we have no complaints.

Those plants are employing American workers. You might argue that it’s not helping the American car makers like GM or Ford a whole lot but it is employing American workers, and for that we should be grateful.

By building Hondas here, we’re avoiding tariffs as well. I’m sure there are a lot of tax breaks and incentives as well. I don’t know if they pay our tax rates or theirs, but at least they’re contributing to the economy.

Charred
Post 2

@SkyWhisperer - What you said about tax rates is correct. I watched a program on television about the astonishingly low corporate tax rates in foreign countries as opposed to the United States.

Big multinationals save billions of dollars by relocating offices overseas and paying these reduced rates. A domestic profit corporation that doesn’t have this advantage is stuck paying our high corporate tax rates.

I think one way to bring more money into the treasury and also improve our employment picture is for the United States to bring its corporate tax rates down to levels comparable to other countries like Switzerland. Once we do that, these jobs will come back to the United States.

SkyWhisperer
Post 1

I think that many times a large company that starts out as a domestic business corporation can wind up becoming a multinational when it serves their interests. Multinationals not only enjoy a certain degree of tax benefits, but they also have the added advantage of employing labor at reduced costs.

I think the big controversy over NAFTA in the 1990s exposed this more than anything else. With open borders companies were able to export jobs to Mexico and pay reduced wages to their workers.

They were able to make products cheaper, which was good for the United States, but they off shored our labor, which was bad for our job market.

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