1. Why the United States Of America
The US as a country is the largest economy in the world.
2. Legal Framework
Although the US legal system is based on English common law, it has several layers such as the Constitution, statutes, treaties, and administrative regulations. The US federalism system provides specific powers to the federal government, allowing the 50 states to retain significant autonomy and authority. Thus, laws can be made at both federal and state levels. A company therefore, must comply with the state law of where it chooses to incorporate or does business. However, public-traded corporations must also comply with federal securities law.
3. Banking
The Federal Reverse System is the central bank of the US. It conducts the US's monetary policy, supervises and regulates banking institutions, maintains stability of the US financial system and provides financial services to depository institutions, the US government and foreign official institutions.
4. Financial Regulatory Authority
Many governmental agencies are charged with various aspects of the US financial system, including US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Reverse System, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NSUA) and Office of Thrift Supervision (OTS).
5. Taxation
5. a. Corporate Tax
US corporations (corporations formed under the laws of one of the 50 states or the District of Columbia) are generally subject to a federal corporate level income tax on their world-wide income at rates ranging from 15% to 35%, subject to applicable foreign tax credits. Dividends received from US corporations are eligible for dividend received deductions. Dividend distributions to shareholders are not deductible against corporate income. Anti-deferral regime exists for income generated by non-US corporations controlled by US persons.
5. b. Personal Tax Rates
US tax residents are taxed on their world wide income, subject to applicable foreign tax credits. US citizens are always subject to US income tax regardless of the location of the actual residence or the time spent in the US. The federal personal income tax rates on ordinary income currently range from 15% to 35% and the current maximum long-term capital gains (gains on capital assets held for over one year) rate is 15%.
5. c. Social Security
All employed and self-employed individuals are required to participate in the US social security system. The social security tax for 2010 is 6.2% of the wages up to $ 106,800 for employees and employers and 12.4% of the earnings up to $ 106,800 for self-employed individuals. A separate Medicare tax for 2010 is 1.45% on wages for employees & for employers and 2.9% of the earnings for self-employed individuals. In essence, an employer pays 50% of its employee's social security tax and Medicare tax while a self-employed individual pays 100% of the applicable taxes.
5. d. Customs & Excise Duties
Many items imported into the US commerce are subject to an import tariff at rates provided in the official harmonized tariff schedule.
5. e. V.A.T.
The US does not charge a VAT, though many states and local governments imposes a sales/use tax on the purchasers of taxable goods and services.
5. f. Tax Incentives
Many tax incentives currently in force are geared towards economic stimulus such as credits for hiring certain new employees, exclusion of gains on the sale of small business shares and accelerated depreciation schedules and certain incentives for renewable energy. In addition, many established tax incentives reflect US social philosophies such as charitable gift deductions, home mortgage interest deductions and limited exclusion of gains on the sale of primary residences.
6. Main Types of Corporate Forms
- Corporations, limited liability Companies and Partnerships are the most common corporate forms.
- Corporations are most commonly used and can have any number of shareholders whose assets are protected from the company's creditors. A shareholder's liability is limited to the amount of the investment in the company.
- Corporations are, however, subject to double taxation's profits are taxed first as income to the corporation and then as income to the shareholder when distributed as dividends. Corporations with no more than 100 shareholders can elect S-Corporation status and are generally not subject to a corporate level tax; instead, income is "passed-through" to shareholders.
Shareholders in S-Corporations must be US citizens or residents individuals, and in limited circumstances, certain trusts. Limited Liability Companies (LLCs) combine the corporate advantages of limited liability with the partnership advantage of pass-Through taxation. Members of an LLC can be managers of the company while not exposing their personal assets to claim of general creditors of the LLC.
LLCs may be treated as corporations, partnerships or disregarded entities for US tax purposes depending on the number of members or the existence of an entity classification election (commonly known as the check-the-box election). LLCs also provide a greater level of flexibility in terms of management and the allocation of profits and losses if they are treated as partnerships for tax purposes. LLCs are also not subject to the ownership restrictions of S-Corporations, so they are potentially ideal for foreign investors. Partnerships fall into 3 general forms General Partnerships, Limited Partnerships and Limited Liability Partnerships. In a general partnership, general partners share equal rights and responsibilities in connection with management of the business, and any individual general partner can bind the entire group to a legal obligation. Each individual general partner assumes full responsibility for all of the business's debts and obligations.
Limited partnerships allow each partner to restrict his or her liability to the amount of his or her investment, however, at least one participant must accept general partnership status, meaning full personal liability for the partnership's debts and obligations. Limited partners do not participate in management decisions. Limited liability partnerships have the tax advantages of the partnership form, but offer personal liability protection to the participants. In some states only certain specified professions may use the limited liability partnership form.
7. Company Incorporation
Entities can be formed in any US state, however, Delaware continues to be the forum of choice for formation - Delaware has a well established and accepted body of laws and regulations which are regularly updated. Formation of any type of entity can usually be achieved in 24-48 hours and typically limited information is required. Post formation, shareholder agreements in the case of C Corporations and LLC Agreements in the case of LLCs may be entered into, neither of which is filed with the state. There may be circumstances when formation in another state is warranted and determinations such as that are made based on the facts and in consultation with a US adviser.
8. Reporting & Auditing
All US corporations, partnerships or sole proprietorship's are required to file an annual income tax return with the Internal Revenue Service may select random taxpayers for audit depending on its current audit priorities.
9. Special Notes / Country Update
The maximum personal income tax rates are expected to be 39.6% for ordinary income and 20% for long term capital gains starting 2011. The Internal Revenue Service continues to focus on US taxpayers with unreported offshore bank or financial accounts and corresponding unreported non-US sourced income.
10. Double Taxation Agreement
USA has double taxation treaty with the following countries:
- Austria
- Bulgaria
- China
- Cyprus
- Czech Rep.
- France
- Germany
- Hungry
- India
- Indonesia
- Israel
- Italy
- Japan
- Mexico
- Morocco
- Netherlands
- Poland
- Portugal
- Romania
- Russia
- Slovenia
- Spain
- Switzerland
- Tunisia
- Turkey
- UK
- Venezuela
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