Guide to Starting a Home-Based Business

The Family Liaison Office



Guide to Starting a



Home-Based Business













Published by the Family Liaison Office
U.S. Department of State
November 2005

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The Family Liaison Office Guide to Starting a Home-Based Business


PREFACE

The Family Liaison Office (FLO) has demonstrated its profound concern for
family member employment issues that continue to plague the spouses of
Foreign Service personnel during overseas assignments. The Employment
Section of the Family Liaison Office continually seeks new ideas and initiatives in
an effort to bring more options to career spouses wishing to continue their
personal career development.

Recently, several new employment initiatives received State Department funding.
First, the Strategic Networking Assistance Program (SNAP), which is now
located in more than 30 posts, was initiated in 2001. The next program to be
funded was the Global Employment Strategy that is now building partnerships
with large multinational companies and NGOs in order to open employment
doors for spouses with development and/or business experience who wish to find
valuable employment while posted overseas. The most recent initiative, funded
by the Cox Foundation, is the E-Entrepreneur training that has been offered in
the Washington DC area several times in 2005 and that will be offered at each of
the SNAP posts in September of this year. This latest initiative is one of FLO’s
responses to the growing interest by spouses overseas in starting a home-based
business. Thus, this Starting a Home-Based Business Guide is part of the
continuing commitment of FLO to respond to the needs of spouses.

In consulting this guide, spouses interested in starting and operating their own
businesses can find answers to the many questions that spring forth in
undertaking such an endeavor. We’ve even included the specific questions to
ask of post management, in the event this is your first attempt at operating a
business and you are unsure of what you need to know. The emphasis in this
guide is on information that is particularly relevant to the diplomatic status of so
many spouses living overseas. The resources section abounds with general
business start-up background Web sites and books, as well as many sources
that provide post-specific information.

As FLO continues its efforts to conceive of and offer innovative programs to
serve our clientele, we hope that this guide will prove useful to aspiring
entrepreneurs among our family members, and serve as a reminder of our
commitment to furthering their employment endeavors.








The Family Liaison Office
Ann DeLong Greenberg, Director
Donna Ayerst, Publications Coordinator
Written by Debra M. Thompson

March 2006

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The Family Liaison Office Guide to Starting a Home-Based Business

INTRODUCTION 1
Where to Start
1
Questions to Ask
1
HOME-BASED BUSINESS AND THE IRS
3
REGULATIONS 6
Areas of Concern
6
Permission
6
Immunity
6
Use of USG rented housing
6
Pouch, APO/FPO, and USPS Use
8
INTERNET RESOURCES FOR SPECIFIC POSTS
10
Azerbaijan
10
Belgium
10
Bolivia
11
Canada
11
Costa Rica
12
Czech Republic
12
Egypt
12
El Salvador
13
Germany
13
Great Britain
13
Guatemala
14
India
14
Israel
14
Kazakhstan
14
Korea
14
Mexico
14
Poland
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The Family Liaison Office Guide to Starting a Home-Based Business

Portugal
15
South Africa
15
HOME BUSINESS SUCCESS STORIES
16
Animal and House-Sitting Service, Geneva, Switzerland
16
Clinical and Consulting Psychologist, Berlin, Germany
17
Consultant, Warsaw, Poland
17
Freelance Market Analyst Consultant, Seoul, Korea
17
Internet Services Consultant, Almaty, Kasakstan
17
Online Car Dealer, South Africa
18
CONSIDERATIONS FOR SELLING A PRODUCT OR SERVICE
19
Selling to the Diplomatic Community Exclusively
19
On the Local Market
19
Direct Sales
20
CONSULTING 21
USAID Consulting and Contracting
21
Independent Consulting
23
GUIDELINES FOR STARTING A CONSULTING BUSINESS WHILE LIVING
OVERSEAS 25
Self-Assessment
25
Market Research
25
Networking
25
Organizing
26
Determine Status of Business
26
Naming your Business
26
Determining Fees
26
Marketing Consulting Services
28
Building a Foundation
29

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The Family Liaison Office Guide to Starting a Home-Based Business

Writing a Proposal
30
Writing a Contract
30
YOUR STATUS WITH THE IRS
32
Employee or Independent Contractor
32
Record Keeping
33
WORK PERMITS & IMMUNITY
35
Work Permits
35
Immunity
35
E-BUSINESSES 36
ebay
36
e-Entrepreneurs
37
RESOURCES 39
Consulting
39
E-Business
39
Expatriate Websites
40
General Home Business
40
Marketing
41
Market Research
42
Newsletters
42
Printed Materials
42
Taxes
42
Writing
43
Women in Business
43

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The Family Liaison Office Guide to Starting a Home-Based Business


INTRODUCTION

While taking the initiative to start your own business is a huge step in your career
management, there is a great deal of free and inexpensive assistance available
to you worldwide. However, one area that isn’t covered by any of this available
information is the specific concerns a diplomatic spouse must address. This
section will discuss these concerns and provide specific FAM citings where
applicable.

Many spouses around the world are trying their hand at home-based businesses.
This type of endeavor allows the individual to keep busy, maintain professional
skills and earn an income while staying at home. This is often a quite attractive
situation for spouses with skills that are easily marketed via the Internet or
through artisan galleries, bazaars and expatriate communities. Spouses are
limited only by their own interests and finances in the scope of the business they
decide to enter.


Where to Start

If you are considering opening a business in your home, you need to start with
the Management Officer at post. It is vital to determine what host country
government procedures you must follow; the source of that information is the
Management section of your mission. It is possible that you will not have to
register your company, obtain a work permit or even pay local taxes, but that is
not normally the case. Generally, the only time these requirements do not apply
is when your entire business involves only individuals with diplomatic status or
when you conduct all business via the Internet and do not collect or disburse
funds from a local account or in the local currency. However, you should still
check with your Management Officer before proceeding.

Additionally, all businesses to be operated from U.S. government owned or
leased property must be approved prior to proceeding. When checking on the
host country requirements, be sure to request authorization from the
Management officer to conduct business from your home. This is generally just a
formality, as 6 FAM 725.7 does grant permission to use the housing to conduct a
private business for personal financial gain. There are some restrictions and the
final decision is left to the Management Officer. Because spouse employment is
a serious concern for the Foreign Service, Management Officers generally make
every attempt to allow the business operation.


Questions to Ask

Often spouses who do not have a business background are interested in starting
a small or medium-sized business. However, they are almost always uncertain
about what questions to ask before initiating a business. Below you will find a list
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The Family Liaison Office Guide to Starting a Home-Based Business

of questions that will help you in obtaining the information you need to create a
legal enterprise in your host country. The Management Officer may not know the
answers to all of these questions, but s/he will know which staff member will have
the answers.

1. What are the relevant local laws, concerning a small-business startup and
operation?
2. Can a spouse operating a business hire other people? Does s/he have to
pay local taxes on employees? Depending on whether those hired are
diplomats, expatriates, or locals, are there different rules?
3. If a spouse serves only diplomats, does s/he have to register the business
locally?
4. Have you had to restrict the types of businesses to be operated from a
USG-owned or leased home? Please explain.
5. Are legal requirements for home-based or small businesses for diplomats’
spouses different from those of other third-country nationals? How do the
requirements change for a spouse who is also a host-country national?
6. What are the specific insurance requirements for home-based
businesses?
7. Do spouses starting their own businesses need work permits?
8. How is immunity restricted for a spouse who is freelancing or operating a
home business? If the immunity is restricted, is this done officially?
9. Does a spouse have to register his/her business with a local trade office or
government agency?
10. If a spouse has a telecommuting position with a U.S. or foreign firm and
does all the work online, does s/he have to receive host country Foreign
Affairs permission?
11. Who is the point of contact in your mission for spouses wishing to start a
business?
12. What fees are charged to spouses of diplomats in registering and opening
a local home-based business?
13. What restrictions would be applied to a diplomatic spouse selling locally
made products to international customers via an Internet business?

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The Family Liaison Office Guide to Starting a Home-Based Business

HOME-BASED BUSINESS AND THE IRS

Even if you are not required to register your business with the host government,
you may still want to register with the U.S. government. Remember, if you are
out of the U.S. for at least 335 days per year, you can claim up to $80,000 of
Foreign Earned Income for which you are not taxed. If your company is
registered in the U.S., it will be easier to substantiate from where your income
originated. You may also want to pay into your Social Security Account quarterly
so that you continue to earn credits toward retirement.

The following statement was taken directly from the www.irs.gov Website
and does not include USG employees’ income from the USG while working
and living overseas on assignment.

What is foreign earned income? Is it income from a foreign source or
income paid by a U.S. company while living abroad?
Earned income is pay for personal services performed, such as wages, salaries,
or professional fees. Foreign earned income is income you receive for services
you perform in a foreign country during a period when your tax home is in a
foreign country and during which you meet either the bona fide residence test or
the physical presence test. It does not matter whether earned income is paid by a
U.S. employer or a foreign employer. Foreign earned income does not include
the following:
• The previously excluded value of meals and lodging furnished for the
convenience of your employer.
• Pension or annuity payments, including social security benefits.
• Payments by the U.S. Government, or any U.S. Government agency or
instrumentality, to its employees.
• Amounts included in your income because of your employer's
contributions to a nonexempt employee trust or to a non-qualifying annuity
contract.
• Recaptured unallowable moving expenses
• Payments received after the end of the tax year following the tax year in
which you performed the services that earned the income.

IRS References:
• Tax Guide for U.S. Citizens and Resident Aliens Abroad, Publication 54
• Foreign Tax Credit for Individuals, Publication 514
• Foreign Earned Income, Form 2555 (PDF)
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The Family Liaison Office Guide to Starting a Home-Based Business

• Foreign Earned Income Exclusion, Form 2555EZ (PDF)
• Foreign Tax Credit, Form 1116 (PDF)
• Foreign Earned Income Exclusion - General Tax Topic 853,
Do I have to meet the 330-day presence test or have a valid working-
resident visa to meet the requirement for foreign income exclusion?
To claim the foreign earned income exclusion, the foreign housing exclusion, or
the foreign housing deduction, you must have foreign earned income, your tax
home must be in a foreign country, and you must be one of the following:
• A U.S. citizen who is a bona fide resident of a foreign country or countries
for an uninterrupted period that includes an entire tax year,
• A U.S. resident alien who is a citizen or national of a country with which
the United States has an income tax treaty with a nondiscrimination article
in effect and who is a bona fide resident of a foreign country or countries
for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a
foreign country or countries for at least 330 full days during any period of
12 consecutive months.
U.S. tax law does not specifically require a foreign resident visa or work visa for
this purpose, but you (must/should) comply with the other country's laws.
If you are required to pay host country taxes, you can receive a credit for the
taxes paid when filing your U.S. taxes. This will eliminate the double tax burden.

Why Choose the Credit?
The foreign tax credit is intended to relieve you of the double tax burden when
your foreign source income is taxed by both the United States and the foreign
country. Generally, if the foreign tax rate is higher than the U.S. rate, there will be
no U.S. tax on the foreign income. If the foreign tax rate is lower than the U.S.
rate, U.S. tax on the foreign income will be limited to the difference between the
rates. The foreign tax credit can only reduce U.S. taxes on foreign source
income; it cannot reduce U.S. taxes on U.S. source income.
Although no one rule covers all situations, it is generally better to take a credit for
qualified foreign taxes than to deduct them as an itemized deduction. This is
because:
• A credit reduces your actual U.S. income tax on a dollar-for-dollar basis,
while a deduction reduces only your income subject to tax,
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The Family Liaison Office Guide to Starting a Home-Based Business

• You can choose to take the foreign tax credit even if you do not itemize
your deductions. You then are allowed the standard deduction in addition
to the credit, and
• If you choose to take the foreign tax credit, and the taxes paid or accrued
exceed the credit limit for the tax year, you may be able to carry over or
carry back the excess to another tax year. (See Limit on the Credit under
How to Figure the Credit, at www.irs.gov .)


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