The United States remains one of the most attractive markets for international expansion. However, its tax and compliance framework is complex, particularly when it comes to economic and fiscal nexus. 

Many international companies unintentionally trigger U.S. tax obligations without having a legal entity, office, or employees in the country. Therefore, understanding when and how nexus arises is essential to avoid unexpected tax exposure, penalties, and operational disruption. 

Below, you can access the most common questions international companies ask when assessing their U.S. nexus risk. 

What is “economic nexus” in the United States? 

Economic nexus refers to a situation where a company creates U.S. tax obligations based on economic activity rather than physical presence. This means that even without offices, staff, or incorporation in the U.S., a foreign entity may still be required to file tax returns, register for taxes, collect and remit sales tax, or withhold payroll or other taxes. 

Economic nexus is assessed at both federal and state levels, with rules varying significantly across jurisdictions.  

But Nexus only relates to U.S. entities, right? 

No. A foreign company can create fiscal nexus without forming a U.S. subsidiary or branch. Common examples include remotely selling goods or services to U.S. customers, providing digital or SaaS solutions into the U.S. market, generating recurring or significant U.S.-sourced revenue, or using U.S.-based agents, contractors, or platforms. 

In many cases, nexus arises before a company formally enters the market. 

How can revenue alone trigger nexus? 

At the state level, many U.S. states apply economic thresholds based on annual revenue generated in the state or the number of transactions with in‑state customers. Once these thresholds are exceeded, companies may be required to register for state taxes, file income or franchise tax returns, and collect and remit sales tax -even if all operations are conducted from outside the U.S. 

Can employees or contractors create U.S. nexus? 

Yes. Having even one person working from the U.S. can create “Nexus”. This includes employees working remotely from the United States, sales representatives or business developers, executives or directors operating from U.S. locations, and long‑term or economically dependent contractors. 

It can pertain to an independent contractor when they’re working most of their hours for your business or even a staff member who is hired through a third party such as an Employer of Record (EOR). These situations often trigger obligations related to payroll tax withholding, social security contributions, and even state income or employment taxes. 

Do digital businesses face nexus risk in the U.S.? 

Absolutely. Digital and technology‑driven companies are among the most exposed to economic nexus risk. This includes businesses offering SaaS and subscription services, digital platforms or marketplaces, online services billed to U.S. customers, and licensing of intellectual property used in the U.S. 

Some states assert nexus solely based on digital usage or IP exploitation, even when services are delivered entirely from abroad. 

Can using U.S. partners or platforms create nexus? 

Yes. Nexus may arise through attribution or agency relationships, including sales agents with authority to negotiate or conclude contracts, fulfillment partners storing inventory in the U.S., marketplace platforms facilitating U.S. sales, and U.S.‑based banking or payment arrangements. 

How does nexus differ at federal and state levels? 

U.S. nexus rules operate on multiple layers. At the federal level, the focus is on whether a company is engaged in a U.S. trade or business and earns effectively connected income. 

At the state level, broader economic nexus standards apply, often based on revenue thresholds or commercial activity. Some cities also impose local business or gross receipts taxes. As a result, a company may have state tax obligations without federal income tax exposure, or vice versa. 

Are U.S. nexus risks really enforceable for international companies? 

It is not uncommon for international businesses to assume that U.S. tax exposure is low risk in practice, especially when the amounts involved initially appear limited. A frequent line of thinking is: “What are the authorities realistically going to do? Pursue a foreign company in another country for a relatively small tax amount?” 

While enforcement may not always be immediate, this approach often overlooks a critical point: tax exposure does not disappear—it accumulates. 

When does undisclosed U.S. tax exposure become a real issue? 

U.S. nexus issues most commonly surface during trigger events—such as a sale of the business, a merger or acquisition, a capital raise, private equity investment, or internal restructuring. During due diligence, unresolved U.S. tax exposure often appears as a contingent liability, which can reduce valuation, lead to escrow or price adjustments, delay or derail transactions, or require costly remediation under tight timelines. 

Why is early action usually the better option? 

Addressing U.S. nexus proactively gives companies far greater control. Early assessment allows businesses to quantify exposure while it is still manageable, use voluntary disclosure or remediation programs where available, and present a cleaner, more transparent profile during due diligence. 

In many cases, the cost of early compliance is significantly lower than the cost of fixing issues when a transaction is already underway. 

Key takeaway 

Economic nexus in the United States is no longer tied to physical presence. For international companies, revenue, digital activity, people, and partnerships are often enough to create U.S. tax obligations. 

Understanding nexus early should be seen not only as a compliance exercise but as part of exit readiness and value protection. 

If you need to assess your U.S. nexus risk or want to ensure your international expansion in the United States is tax-compliant, our team is here to help. Contact us through our form for a personalized consultation. 

At Auxadi, we offer comprehensive services in accounting, tax, payroll, transfer pricing and corporate legal services to multinationals and funds. With experience since 1979 and a presence in over 50 countries, including 26 proprietary subsidiaries, our advanced technological platform, MySPV, and proven methodology enable us to guarantee efficient management in compliance with local regulations. 

Author:

Willem Wolfs

Business Development Director – NL