A successful business will always be looking to keep costs down so that as little of its revenue is eroded away as possible in order to sustain high profits. One way of doing this is for a business to incorporate in an area with business-friendly taxation. Following President Joe Biden’s inauguration in January 2021, he quickly imposed a number of changes to corporate income tax.
These changes, which included a 7% increase in the taxation rate and the imposition of a 15% minimum tax for big corporations, have stirred concerns about whether the U.S. is still attractive to foreigners who are looking to start a business. Although the U.S. has seen better days taxation-wise, not many viable alternatives exist. This article will explore the reasons many entrepreneurs are attracted to America over its competitors?
Difficulties with Europe
The main reason many foreigners forego incorporating their businesses in Europe is the high levels of VAT this region encompasses. Almost all small businesses will be required to bear in mind the VAT of multiple jurisdictions, which can be extremely costly and off putting. Some businesses are witnessing as much as 22% increases on their manufactured goods.
Another paramount difficulty with establishing a business in Europe, especially when compared with the U.S., is the minimum capital requirement enforced in many of the countries that make up this economy. However, this condition is not present in the U.S. The effect of this is that an additional barrier to entry is placed in the path of entrepreneurs looking to incorporate in Europe.
For example, in Germany, a minimum capital requirement of €50,000 needs to be demonstrated for a company to be able to be incorporated, and this requirement is present across the majority of European countries.
Another factor that frequently turns entrepreneurs away from incorporating in Europe is the comparative difficulty with which venture capital can be generated, particularly with reference to the American economy. Furthermore, the U.S. is recognized as one of the easiest countries in the world to find venture capital from a variety of sources.
Finally, many businesses find the U.S. an attractive place to incorporate in comparison to Europe because of the consumption disparity. In the startup industry, in particular, American consumers spend over eight times as much as their European counterparts. By incorporating in such an economy, businesses gain access to a market that simply spends more than Europe.
Difficulties with China
Another strong economy that many businesses will choose to waive in favor of the U.S. is China. The primary reason for this is Chinese protectionism and the tariffs they have imposed in order to keep its own businesses not just competitive, but at the top.
As a result of a tumultuous relationship with the previous administration, further hikes in the tariffs on imported goods were witnessed on both sides. These tariffs remained in place with Biden, who has refused to lift them until at least the end of the year. However, due to how deeply rooted protectionism is in the Chinese economy, it is unlikely any foreign business will ever be as competitive there as they would be in the U.S.
Furthermore, while it is true that some global companies do operate there, this is only the case for a number of specific industries. For example, luxury goods, cars, and mobile phones sell in extremely high volumes in China, but accessibility to these markets by global companies is largely limited to these select industries.
As if this tariff barrier to trade wasn’t enough, it is compounded by “the great firewall of China”, which represents perhaps the country’s biggest non-tariff barrier to trade. Moreover, as a result of this trade barrier, the finance industry has remained one of the most protected industries in the country to date.
The only thing that has managed to open it up even slightly was a 2012 ruling by the World Trade Organization (albeit marginally). This allowed global companies such as Visa and Mastercard to enter the financial space in China. That being said, regulators in the country have been resistant to allowing outsiders to inaugurate their businesses here since then.
Our Thoughts
On balance, America is still an extremely attractive jurisdiction for foreigners to incorporate their businesses in despite having more business-friendly taxation in the past. It has a plethora of other benefits that draw these global entrepreneurs, including its substantial angel investment, particularly in the startup industry, no capital minimum requirement for incorporation, excessive consumer spending, and low VAT.
All of these factors coalesce to create an ideal jurisdiction that is extremely attractive for business creation. That being said, there are advantages to all of these economies, hence why they are strong alternatives. Ultimately, it is up to the business owner to decide which jurisdiction is best suited to the needs of his business. For information on LLC providers, please refer to the attached link.
