From time to time, founders based outside the US will form a US holding company above their non-US operating company in what is known as a “flip” transaction. Founders typically pursue a flip transaction to facilitate or attract investment by US-based venture funds and investors. For these same reasons, non-US founders sometimes begin operations with a US holding company, even if the company’s activities are largely outside the US.
Occasionally, founders may wish to “flip-back” by creating a new non-US holding company on top of a US holding company. They typically do this at the request of non-US investors who may be subject to restrictions on investing in companies organized outside their own country. Other times, founders respond to tax incentives under their domestic laws.
While a flip transaction into the US is common and often tax-neutral, a flip-back transaction from the US into another country is more complicated from a US tax perspective and can have unintended consequences.
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