United States Foreign Direct Investment: It’s All Good Now

Late last year, the United States Congress passed the most comprehensive revision of the US tax system in more than three decades, and President Trump signed that reform into law. The new tax law significantly changes the US tax system and foreign companies looking to do business in the United States are going to benefit. Our attorneys who focus on foreign investment into the United States have already seen a tremendous increase in interest from foreign companies (mostly from Europe, Asia and Latin America) looking to set up United States companies to take advantage of the United States’ newly lowered corporate tax rates — which in nearly every instance, are considerably lower than what these companies are paying in their home countries.

Key elements for foreign companies of tax reform include a substantial reduction in the federal corporate income tax from 35% to 21% and an immediate tax deduction on certain capital investments. The new law also shifts the United States from a global tax system to a territorial tax system. The reform also lowers individual tax rates, albeit temporarily.

So far, investors have reacted positively. The anticipated business boom for the US has helped to boost the stock market and made the United States even more attractive as an investment target due to tax cuts for investors.

For most EU companies, the United States is the most important location for foreign direct investment and it is widely believed the current reform will encourage significantly greater foreign direct investment in the US– especially from high-tax countries. Foreign companies with US subsidiaries should expect to pay less tax on their US operations. Considering how strong most currencies are right not against the dollar, in addition to the lower taxes, U.S. assets are essentially on sale right now.

Bottom Line:  United States tax reform has improved the economic conditions for foreign investment in the United States, leaving little doubt foreign direct investment in 2018 will be higher than it has been in decades.