US TAX OUTLOOK FOR 2024
Each state's tax laws are the set of legal “rules” that determine how much tax is collected by state, local, and federal governments each year. They cover procedures, policies, and penalties for everything related to taxes. For business owners interested in company registration in the USAyou should know that Congress has drawn up tax code (IRC), which regulates the collection of taxes, compliance with tax rules and the issuance of tax refunds. Internal Revenue Service (IRS) is a government agency within the U.S. Treasury Department charged with carrying out these functions.
The United States ranked 21st in the 2021 Global Tax Competitiveness Index. The strength of the US tax system is that States fully cover the cost of business investments in equipment. Corporations can deduct property taxes when calculating taxable income. Some weaknesses of the American tax system: The tax burden on property is one of the highest in the OECD.
Main sources of revenue to the state treasury
Opening a business in the USA is currently a fairly popular request among foreigners. The Tax System in America 3-tier. The government receives the majority of national revenues from income tax.
Federal | Regional | State Taxes |
Corporate income tax | ||
Personal Income Tax | ||
Tax payments on certain types of products (excise taxes) | Inheritance tax | |
Customs duties | Property tax | |
Inheritance tax | Vehicle Tax | Ecological tax |
Social security contributions | Sales tax | |
Tax regime for non-residents
If you are an alien engaged in a trade/business in the United States, you are subject to tax on your income after allowable deductions at the same rates as residents of the United States. If you are not engaged in a trade/business, U.S. taxes apply only to income from sources in this jurisdiction that is nonrecurring or recurring, subject to a flat rate.
US Company Registration: Latest Tax Changes
The tax reform law passed on December 22, 2017 (PL 115-97) moved the United States from a “worldwide” tax system to a “territorial” tax system. Among other things, PL 115-97 reduced the CIT rate from 35% for resident corporations to a flat rate of 21% for taxable years beginning after December 31, 2017. The income of nonresidents of the United States is taxable based on whether the income is connected with the United States and the extent of the nonresidents’ presence in the United States.
Changes in the corporate income tax from 2021 | Indiana has been gradually reducing the CIT rate since July 2012, and the latest scheduled phase of this reduction took effect in July 2021, when the rate fell from 5.25% to 4.9%. If you are interested in registering a company in Montana, Please note that the state is among the growing states that use a prorated CIT formula that takes into account sales more than payroll and property. The state has also taken steps to reduce the income tax rate and make other reforms. |
Sales and Use Tax and Gross Receipts Tax Changes in 2021 | Florida. As of July 1, 2021, Florida joined a growing number of states requiring remote sellers and marketplace operators to remit state sales taxes if annual sales exceed $100,000 (Senate Bill 50, passed in April 2021). Missouri, the only state without such a requirement, passed similar legislation in May 2021. Kansas. In July of this year, the Kansas Remote Seller and Marketplace Facilitator Economic Negotiation Act went into effect. The law requires remote sellers and marketplace operators to collect state and local sales taxes if their annual gross sales in the state exceed $100,000. New Mexico. There have been some notable changes to the sales tax when incorporating a business in New Mexico. These include the so-called gross receipts tax and, in some ways, a hybrid traditional retail sales tax. Under current law, sales of tangible property are taxed at the state rate of 5.125%, with an appropriate offsetting tax (use tax). |
How are US companies taxed with CIT?
Corporate income tax (KPN) is a tax levied on the net profit of corporations and calculated as the difference between revenues and expenses. All states levy a corporate income tax, but rates vary from country to country.
PL 115-97 also made fundamental changes to the way the U.S. taxes multinational corporations and their foreign-source income. Before the Act, dividends distributed by foreign subsidiaries to their U.S. parent companies were taxed in the United States, taking into account any foreign taxes paid on their profits—the “worldwide” system. Now, 10% of the profits from certain investments in qualified business assets are exempt from further taxation in that jurisdiction—the so-called “territorial” system.
CIT rate by state
At the state level, the CIT varies from 1% to 12%. Some states do not charge it. If you are interested in registering a corporation in the United States, you should know that corporations are subject to CIT on their worldwide profits. Corporate income of a C/S Corp is subject to double taxation (corporate tax and dividend tax). Initially, taxes are paid on the corporation's profits, and then dividends are paid to shareholders, which are subject to capital gains tax. Dividends must be reported on the shareholder's personal tax return. When registering an LLC in the United States, the double taxation system does not apply, and taxes are paid only on income that is earned in the States.
Important!
Registering an S corporation in the United States allows you to obtain an exemption from paying CIT if the S-Corp has up to 100 shareholders who meet certain requirements. However, foreign entrepreneurs can register a C corporation in the United States, but cannot be founders of an S corporation. The highest CIT rate in the United States is shown in the chart below.
The highest CIT rate in the USA
US Capital Cost Reimbursement Allowances
Taxable income of foreign companies is calculated based on effectively connected income (ECI) from a U.S. trade/business or sale of real estate by the foreign entity. Exemption from ECI taxes may be available through a tax treaty. Foreign companies pay a branch income tax of 30% on ECI that is not invested in a U.S. trade/business and a 30% withholding tax on U.S. source income that is not ECI (e.g., dividends, rent). Other arrangements may be made through tax treaties.
Having decided to register a company in the USA, pay attention to the fact that CIT is paid in 44 states. In the vast majority of states, regional taxes are significantly lower than federal ones.
When registering a business in New Jersey, the CIT is paid at the highest rate of 11.5%, followed by Minnesota (9.8%), Illinois (9.5%). The CIT in North Carolina (2.5%) is considered the lowest. Registering a company in Delaware or Virginia entails paying a gross income tax in addition to the CIT. South Dakota and Wyoming do not levy either a CIT or a gross receipts tax.
Business in the USA: Individual Taxation
Personal taxes play a key role in raising revenue in America. This tax is levied on citizens and residents on their worldwide income. Nonresident aliens are taxed on their U.S. source income and income connected with a U.S. trade/business (there are exceptions). For individuals, the maximum income tax rate for 2024 is 37%, excluding long-term capital gains and qualified dividends. PL 115-97 reduced both the individual tax rates and the number of tax brackets.
When planning to open a company in the United States, keep in mind that personal income tax is levied in 42 states. The top states (or jurisdictions) with the highest income tax for 2024 are:
Only 7 states do not have personal income tax (Wyoming, Tennessee, Texas, South Dakota, Nevada, Florida, Alaska). The tax burden of individuals in the United States is shown below.
Consumer Taxes for US Companies
In the United States, VAT is the most common consumption tax. Sales tax is a tax imposed on the retail sale of tangible personal property and certain digital products and listed services. Although the form of the tax may vary, it is generally levied directly on the receipts from the retail sale of the taxable item.
Sales and use taxes are the primary source of revenue for states. Rates range from 2.9% to 7.25%. Most states allow a “local option,” which allows cities and counties to levy an additional percentage on top of the state tax. If you’re interested in doing business in the United States, you should know that 45 states (except Oregon, New Hampshire, Montana, and Delaware) and the District of Columbia impose a sales tax. Alaska charges the lowest rate, at 1.76%.
Taking into account the combination of state and average local sales tax, the five highest states for overall sales tax, as ranked by the Tax Foundation, are:
Property Taxes in the USA
Each state has its own way of assessing taxes that finance various budget items. Property taxes are considered one of the key sources of income for local governments. This tax applies to the assets of individuals and legal entities. After registering a company in the United States, property taxes are paid at specific intervals (for example, annually).
Customs duties and import tariffs
All goods imported into the United States are subject to entry and are duty-free or duty-free according to their classification in the Harmonized Tariff Schedule of the United States. Classification determines eligibility for special programs and preferential rates under the free trade agreement. Liability for duty and other customs charges becomes fixed at the time of filing an application with U.S. Customs and Border Protection (CBP).
Opening a company in the USA: how are excise taxes and stamp duties paid?
Excise taxes (including retail excise taxes) are generally levied at both the federal and state levels on a wide range of goods and activities, including the manufacture/importation of certain goods (e.g., firearms and ammunition) and the retail sale of certain goods (e.g., heavy vehicles). Excise tax rates vary, as do the goods and activities on which they are levied.
Corporations in the United States generally do not pay stamp taxes at the state level, with the exception of the federal stamp tax imposed on the transfer of firearms under the National Firearms Act (NFA).
Other Taxes for Business in the USA
Other taxes that a government may impose in lieu of or in addition to corporate income taxes include franchise taxes and corporate capital taxes. Taxes are deductible expenses for federal CIT purposes.
Tax systems in some countries of the world: comparison
Comparing tax systems across countries reveals some interesting similarities and differences between individual jurisdictions and groups of countries. Of course, to compare and contrast how governments collect revenue, you first need to decide which metrics to consider.
To clarify a bit for entrepreneurs interested in setting up a business in the US, here is how the US compares to other developed countries in terms of overall tax revenue. A common metric for this is total tax revenue per GDP. Another possible metric is tax revenue per capita. There are some interesting trends to be observed for both metrics.
Over the past 20 years, the average tax burden for OECD countries has been around 33.3%, with a range of 32% to 34%, with no significant increases or decreases. Countries like Germany and France top the list, collecting between 34% and 46% of GDP in tax revenue. Mexico’s tax burden is at the lowest, with only 11% to 16.6%. The US tax burden was 24.3% in 2019.
As a percentage of total tax revenue, the United States, Canada, Switzerland, and Australia rely most heavily on CIT, with averages of 46%, 45%, 47%, and 57%, respectively. Other taxes, such as social security and property taxes, also vary considerably between countries, which is also important to consider when choosing a country to incorporate a company.
One of the contentious issues in America has been the corporate income tax. The Tax Cuts and Jobs Act (TCJA) reduced the CIT from 35% to 21% and introduced some provisions that should increase the repatriation of foreign earnings. Another issue to consider is at what level of taxation the government collects the majority of tax revenue. The more centralized the country, the more taxes are collected at the national/federal level. More decentralized countries collect taxes at the local and state level. Countries like Canada, the United States, and Switzerland collect about 34-49% of their revenue at the subnational level.
Tax treaties
The United States has tax treaties with a number of foreign countries. Under these treaties, residents of foreign countries may be entitled to pay reduced rates of tax or receive an exemption on certain items of income they receive from sources in the United States. The provisions of the treaty are generally reciprocal (apply to both countries that are parties to the treaty).
Conclusion
The article provides introductory information. To get answers to your questions, you can contact YB Case representatives and order a consultation on the specifics of registering a company in the USA.
