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January 19, 2018

New US Tax Law: Good For Foreign Entrepreneurs?

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On December 22, President Trump signed a new US tax law that may be very beneficial to foreign entrepreneurs seeking to start or expand a business in the US.

Tax Cuts and Jobs Act 2017 EffectsOn December 22, President Trump signed a new US tax law that may be very beneficial to foreign entrepreneurs seeking to start or expand a business in the US. The law, titled Tax Cuts and Jobs Act of 2017 (TCJA), is the result of an ambitious project by the US congress led by Republicans to reform the US tax code.  It has been more than three decades (1986) since tax laws have seen changes as significant as this tax bill, even though bills aiming at reforming federal tax laws had been introduced to congress time and time again, without success.

trump tax cuts 2017
President Donald Trump holds an example of what a new tax form may look like during a meeting on tax policy with Republican lawmakers including House Speaker Paul Ryan of Wis., and Chairman of the House Ways and Means Committee Rep. Kevin Brady, R-Texas, right, in the Cabinet Room of the White House, Thursday, Nov. 2, 2017, in Washington. (AP Photo/Evan Vucci)

The TCJA is not a tax reform per se, but the new US tax law brings big changes to the US federal taxation for individuals and corporations.

What are the changes made by the Tax Cuts and Jobs Act to corporate tax?

One of the main changes brought by the TCJA was to replace the graduated tax rates for corporations, currently at a maximum rate of 35%, with a flat rate of 21%, beginning in January 2018.

One of the main arguments for a reform of the US tax system was the lack of competitiveness of the US to attract or maintain businesses in the US, due to its high income taxation for corporations in comparison to other countries such as  the UK (19%), Australia (30%), Germany (29.65%), and Luxembourg (29.22%).  It follows that US companies were incentivised to set up subsidiary facility in countries with lower tax rates, or move their headquarters to countries that have a lower corporate rate such as Ireland (12.5%) or Switzerland (17.92%). By lowering the US tax rate to 21%, the US congress hopes to incentivize US companies to remain in the US, or bring back the capital invested in those lower tax countries, which will in turn lead to economic growth.

The new US tax law also eliminates the corporate alternative minimum taxes (AMT), which was a supplemental income tax imposed on corporations that had exemptions or special circumstances allowing them to lower their standard income tax.

So what does this new US tax law mean for foreign entrepreneurs seeking to start or expand a business in the US, as of 2018?

Tax Cuts and Jobs Act DetailsTax is arguably one of the main expenses that every company has to face. Taxes have a huge impact on the overall revenue of a company. By lowering the corporate tax, the US has now positioned itself as a very competitive country for foreign companies to start or expand businesses.  Indeed, with a flat tax of 21%, the US has now enacted one of the lowest corporate tax rate amounts among highly developed industrialized nations, which in turn makes the cost of running a business in the US much lower than comparable countries.

Lower taxes means companies gross more revenue. Surplus of profits can then be used to grow your company by investing in development, hiring new employees, and expanding your business. This should make America an attractive destination for foreign corporations and entrepreneurs.

Last but not least, it is anticipated that the new us tax law will affect the stock market; to date, the market has reacted positively to the current administration’s economic initiatives, and due to reduced regulation, is creating a more business-friendly climate, another big plus for foreign companies seeking expansion or relocation to the US.

The economy is steadily expanding, the US market is seeing steady job growth, and the stock market is booming; these factors suggest that it is prime time for entrepreneurs to start or expand their businesses in the US.

Prewitt Law Firm is excited to be part of this new chapter of our global economy, by supporting foreign entrepreneurs and businesses that seek to establish or expand productivity in the US. We specialize in processing the spectrum of visas required for companies and individuals to join the US market, including but not limited to the E Visas, L Visas, H Visas, and O Visas. Our firm also handles business entity setup, a vital piece to many companies seeking expansion, as well as real estate transactions and contracts. Contact us via phone at (+1) 646.583.1206 or email info@prewittlawfirm.com today to set up a free consultation to discuss your needs.  foreign investments in US

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