Doing Business in the United States Key Corporate, Regulatory and Tax Concerns February 8, 2018
William L. Nash III Managing Partner, Abu Dhabi +971-2-651-5905 email@example.com
Lindsay FainĂŠ Tax Partner, Abu Dhabi +971-2-651-5925 firstname.lastname@example.org
Summary of Presentation Doing Business in the United States
(Do You Need) A Business Presence in US
Establishing a Business Presence
Selection of Business Entity
Employment Issues and Immigration
Other Topics to Consideration
US-Oman Free Trade Agreement
US Taxes and Recent Tax Reform
US Taxation Overview
Major Changes Affecting Businesses
Illustrative Impacts on Non-US Investors
(Do You Need) A Business Presence in the US Options for Doing Business in the US Sell directly to US customers from outside the US
Hire a sales agent in the US
Contract with a US distributor or reseller to purchase and resell the business’ products
Establish a subsidiary or other controlled entity in the US through which to conduct business in the US
Form a joint venture or strategic partnership with an existing US company
(Do You Need) A Business Presence in the US (continued) Carefully Research the US Market Who and where are your potential customers and how do they currently purchase similar products?
Who and where are your major competitors and how do they market their products?
Have you designed your products so that they will be accepted in the US market?
Will your US customers require you to have a US presence before taking your products seriously?
Can the US market for your products be managed from overseas either with or without the assistance of US sales agents or distributors?
Can you effectively manage employees or subcontractors in the US?
Do you have or can you afford to acquire internal and external professional expertise to manage a US business?
How will you offer effective customer service for your products in the US?
Have you established a home market strong enough to absorb the costs of expanding sales into the US?
Is your home market strong enough to support the cost of establishing a new company or business in the US?
(Do You Need) A Business Presence in the US (continued) Establishing a US Trading Company or Business – Key Advantages
Good local contact with US customers
Credibility with US customers
Maximum control over how the brand name and image are established in the US
Good forecasting regarding production and delivery of products
Establishing a US Trading Company or Business – Key Disadvantages
Establishing and staffing a company or business in the US can require a major investment of time and capital
Profits from a US company or business will be subject to US federal, state and local taxes
The cost of renting offices, hiring employees, obtaining adequate insurance, acquiring immigration visas and complying with all US trading regulations can be substantial
With the long distances and different time zones involved, managing a US company or business from outside the US can be a major challenge
Establishing a Business Presence Registration and Business Location Incorporation state vs location of entity’s offices (can be different) • Choice of incorporation state will depend on a states flexible and
well-developed business entity laws (e.g., Delaware) while choice of offices will depend on proximity to customers and suppliers Location of headquarters Factors: customers, employees (sales, service, R&D), tax implications (burden, incentives), long-term cost implications, etc.
If location of headquarters different from incorporation, must qualify to do business in state in which headquarters is located and other states where it establishes “minimum contacts”
Office space Business factors / understanding lease arrangements squirepattonboggs.com
Selection of a Business Entity
(1) C Corporation (2) S Corporation (3) Limited Liability Company (4) Branch Office of a Non-US Corporation (5) Sole Proprietorship
(6) Limited Partnership
Employment Issues and Immigration
Laws Prohibiting Discrimination Wage and Hour Laws
Employee vs. Independent Contractor Employee Retirement Income Security Act
Intellectual Property Generally Copyright
Patent Trademarks and Service Marks
Trade Secrets and Confidential Information
Other Topics to Consideration CFIUS Review and Process Committee on Foreign Investment in the United States Insurance Product liability
Anti-trust Environmental Disputes / Litigation Private Attorney General lawsuits
US Discovery System
The US Civil Jury
Lawyers’ Fees – Not Usually Awarded to the Winner
Mandatory Arbitration and Mediation Agreements
US-Oman Free Trade Agreement Entered into force on January 1, 2009 New Market Access for US Industrial, Agricultural, and Textile Products Broad Commitments to Open Services Markets An Open and Competitive Telecommunications Market
Intellectual Property Rights Copyrights
Patents & Trade Secrets
Strong Government Procurement Disciplines
Streamlined and Transparent Customs Procedures Commitments and Cooperation to Protect the Environment Commitments and Cooperation to Protect Worker Rights squirepattonboggs.com
US Taxes and Recent Tax Reform Overview of Key Business Provisions For Non-US Investors
US Taxation Overview Federal Government
US federal government levies a variety of taxes on US businesses, non-US businesses trading in the US, and business owners and their employees
Such taxes include corporate franchise tax, income tax, capital gains tax on long-term sales, income tax on dividends and interest, income tax on partnership profits and employee payroll taxes
Under some international treaties, non-US companies can be exempt from federal income taxes if they do not create a “permanent establishment” in the US
Once a company takes certain steps to establish a business in the US, such as paying office rent, hiring US employees etc. it may lose this exemption
Transfer Pricing Rules
US federal government requires related parties to transact business using arm’s length pricing
If the US federal tax authority determines that related party transactions are not priced at arm’s length, they will have the ability to “readjust” the prices to achieve an arm’s length price
US Taxation Overview State and Local Government
Business activities within a state may be subject to the state’s business and personal income tax, payroll tax, sales tax, franchise tax, property tax and other taxes
Some local governments, such as counties and cities, may impose their own taxes
If a business has sales or employees in more than one location, these state and local taxes generally will be prorated depending on the percentage of income, number of employees and other factors associated with each location
Individual Tax Exposure
An employee of a non-US company who spends long periods of time in the US may unwittingly establish US residency for personal income tax purposes
Result: Employee may be subject personally to US federal, state and local income taxes
US Taxation Overview US FDAP Withholding 30% US federal withholding tax on passive types of income (e.g., dividends,
interest, royalties, etc.). Ex. - Omani Co purchases shares of Amazon. Amazon pays a dividend of $100.
Omani Co receives dividend of $70 and Amazon pays over $30 to the US Internal Revenue Service.
Effectively Connected Income Income effectively connected with a US trade or business is subject to regular
corporate income tax and return filing requirements. Ex. - Omani Co acquires an interest in a medical device company that is organized
and operates in the United States. Medical device company operates in passthrough form. Medical device company earns a profit and Omani Co is allocated and is taxable on its pro rata share of the profit. Omani Co must file a US federal and likely state income tax returns and pay tax on those profits at regular corporate federal and state income tax rates (and possibly the branch profits tax).
Tax Reform – Corporate Impacts Tax rate lowered from 35% to 21% Immediate expensing of certain capital expenditures Phases out over 4 years Most equipment – no structures
Limitation on use of new “net operating losses” (NOLs) Limited to 80% of taxable income going forward
Limitation on interest deductions 30% of EBITDA for 5 years, 30% of EBIT thereafter
Repeals the corporate AMT
Tax Reform – Pass-through Impacts Individuals (through S corporations, partnerships, LLCs) get a 20% deduction on “qualified business income” lowers effective tax rate from 37% to 29.6%
Complicated limitation on the deduction Basically a combination of the business’s W-2 payroll and capital Severely limited for most service providers
Carried interest (think hedge fund / PE funds) Congress finally addresses this area of perceived overreach New three-year holding period requirement
Maybe not much impact
Tax Reform – International Impacts Move to a “territorial” tax system One-time tax on offshore profits • Estimated at 2.5 – 3 trillion dollars • 15.5% tax on cash / 8% tax on non-cash • Valuation and audit issue
No tax on offshore dividends brought home to US • This turns traditional planning on its head
Protection from “base erosion” BEAT tax on certain payments to related foreign entities GILTI tax on high-return offshore business activities
FDII – incentive for US ownership of global IP Disposition of partnership interest by non-US person could be ECI Hybrid limitations squirepattonboggs.com
Tax Reform – Illustrative Impacts on Non-US Investors Rate reductions Effect on values of US corporations, but impact may vary with a corporation’s leverage, its
capital expenditure profile and other factors. Reduced rate of tax on foreign persons (including corporations) that are subject to US tax on
ECI and certain US real estate gains. But one-time transition tax could have immediate impact on valuations.
Real Estate Real estate businesses (as defined) may elect to avoid 30% interest expense limitation.
Limited benefits from new cost recovery rules. Tax-free treatment of like kind exchanges generally preserved for real property. No material changes to FIRPTA rules, but rate reduction benefits available.
Capital Structures of Investing Entities (Leveraged US Blockers) Impact of 30% net interest expense limitation and BEAT. Absence of “grandfather” for existing debt may impact structures put in place before enactment.
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