From Oman to U.S.A. - February 8, 2018

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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

Lindsay FainĂŠ Tax Partner, Abu Dhabi +971-2-651-5925

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

Intellectual Property

Other Topics to Consideration

US-Oman Free Trade Agreement

 US Taxes and Recent Tax Reform 

US Taxation Overview

Major Changes Affecting Businesses

International Aspects

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


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

 Immigration


Intellectual Property

 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 

Contingency Fees

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


IPR Enforcement

 Strong Government Procurement Disciplines

 Streamlined and Transparent Customs Procedures  Commitments and Cooperation to Protect the Environment  Commitments and Cooperation to Protect Worker Rights


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


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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