There are many lucrative business opportunities in the United States. Foreign direct investment to the United States was $258 billion in 2018, according to the International Monetary Fund. China is second with $204 billion. The US market is an attractive investment because of its skilled workforce, large consumer market and leading technology.
As with any foreign investment, it is important to know the rules of the road, in terms of business structure options and taxes. Income of a foreign company conducting business in the U.S. is treated as income from sources within the United States. However, depending on the characterization of U.S. business (foreign branch, agent, or U.S. company), U.S. sourced income can be categorized as either Effectively Connected Income or FDAP income, which are taxed differently.
These and many other factors to be considered by investors require the skills and judgment of an international tax attorney to sort out.
For example, registering and incorporating a business in the United States has legal and tax implications that extend into the future and can affect the profitability of the investment
Other important considerations include:
Where will be the place of effective management? This will go a long way to determining under which regime the investment will be taxed. If major decisions are made in Switzerland but production and/or operations are in the United States, the company’s income could be subjected to double taxation because under the Swiss law, income may be taxed in Switzerland and in the U.S. under the U.S. tax law.
How will the investment be structured? An investment can be structured as a loan that will be repaid by the new venture, or as equity distributed to investors based upon the amount invested. There are significant differences in that decision, because debt service paid to investors is counted as income and taxed as such, but dividends to equity partners are not taxed. This can potentially make a difference in the attractiveness of the investment.
More sophisticated question of how to structure the company group in light of the new investment also has a strong tax component. Often company groups will use the new investment as an opportunity to take a step back and review if their tax structures across the group are optimal, and perhaps move some of the capital around to reflect the possibilities inherent in a new investment. THEVOZ Attorneys can work with your company to optimize your tax liability in all the countries that the company operate in.
A new venture often provokes new thinking on the part of investors and other stakeholders. THEVOZ Attorneys can help work through all the issues, and all the opportunities, that come with growth. We have offices in the US and Switzerland, which gives us a unique perspective not many international tax law firms have.
Some other issues we can help with include:
- Sourcing rules
- Withholding tax on payment to non-residents
- Withholding agent and payee obligations
- Income tax treaties