Even as local regulatory, compliance and employment rules evolve, the United States of America remains very attractive for companies looking to invest and operate locally.
The USA is a reliable and consistent economy with a long-standing history of growth. The country represents a quarter of all global economic activity, and FocusEconomics forecasts its nominal GDP to reach USD 25.3 trillion in 2024. For companies looking to invest and operate in the USA, there are number of key factors to understand and consider.
1.Starting a business
The USA ranks 55th in the world for ease of starting a business according to the World Bank. However the process of starting a business varies by state, and sometimes even by city. All 50 states have their own rules and regulations. It can be a challenge to determine which state of incorporation provides tax or commercial benefits while decreasing legal exposure for a particular industry or type of business. States like Wyoming and Nevada are rising in popularity due to their lack of state corporate income tax. However, many businesses choose to incorporate in the state of Delaware because of the numerous protections Delaware's laws and courts offer.
Entities need additional registrations in each state in which a legal or physical nexus is established. Ultimately, an entity will need to remain complaint in all states in which it operates.
The US has a complex array of federal, state and local taxes. In fact, there are more than 80,000 different tax jurisdictions nationwide. The IRS is known for strictly enforcing tax rules.
In under five years, the country has undergone major tax and financial changes. From the Tax Cuts and Jobs Act of 2017 which led to the 2018 tax reform to the largest stimulus passed in US history – the $2.2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act of March 2020 – and the second-largest, $1.9 trillion stimulus package, passed in March 2021.
While the full impact of the CARES Act and subsequent Covid-related stimulus is yet to be seen, entities will need to account for the extension and expansion of the Employee Retention Credit.
Major federal tax bills and increases in state tax rates will come into effect during 2021.The number of upcoming changes and those over a few short years is uncommon for well-established economies such as the USA. During this time of great change, it's highly recommended that companies and their advisors meet regularly to assess the impact of evolving rules and regulations.
The Covid-19 pandemic resulted on a host of legislation related to issues such as employee leave (mandatory paid leave via a tax credit for Covid-related issues). Other non-pandemic related topics such as raising the minimum wage, retirement plans, joint employment, worker classification (independent contractor), and healthcare reform remain subject to pending changes.
Work from home mandates give rise to a series of legal and tax questions for businesses with personnel in the USA. For example, if an employee spends extended periods of time outside the state of the employer's place of business, has that employee created a physical nexus for their employer?
Many states have given businesses reprieve from establishing a nexus, however such relief is not permanent and the real impact of the current remote work situation for many companies remains uncertain. What does seem to be certain is the lasting effect of teleworking on compliance-related matters. From HR policies to employee/employer taxation, watch this space.
4.New compliance regulation
Anti-corruption legislation called the Corporate Transparency Act (CTA) was enacted into law on 1 January 2021 as part of the USA's larger National Defense Authorization Act. Due to be in effect before the end of this year, the CTA will require certain corporations and LLCs to file beneficial ownership information to the US Department of Treasury's Financial Enforcement Network (FinCEN).
The new legislation will eliminate anonymously owned and controlled legal entities in the US over a two-year implementation period. Hefty fines for non-compliance are expected. While the beneficial ownership information will not be available to the general public, FinCEN has the authority to share this information with international counterparts.
5.Trading across borders
The US has two border trade partners, Canada and Mexico, with different laws for each border. The longstanding North American Free Trade Agreement (NAFTA) was renegotiated in recent years and replaced with the US-Mexico-Canada Agreement or USMCA. Some of the key focuses of the renegotiation was balancing the various interests in the automotive and farming industries, as well as ensuring protection of intellectual property, labour and environmental rights.
Recent tax changes have also focused on regulating international trade, with the USA taking a more combative stance to protect US industry and maximise US tax receipts. Still, the US is an attractive market for foreign companies looking to gain access to the world's largest consumer market and US firms continue to "eye" foreign M&A/partnerships to gain access to new markets, technology and skills.
Canada remains the US's top trading partner in terms of US export sales. China is the country for which the greatest trade deficit remains year after year. At the time of publishing, tariffs imposed by the previous administration remain in force. It is expected that a review of such policies will take place during 2021 to reduce the effects of the trade war.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.