Doing business in the United States: anticipating the possible impact on your company
The election of the new president, Democrat Joe Biden, is likely to significantly change the American economic and fiscal environment;
Do you do business in the United States?
Do you own property in the United States?
Stay on the lookout, as expected changes to tax legislation as well as in connection with increased protectionist measures could affect your operations, the profitability of your US business, and even your personal financial situation.
That's why it's vital to enlist the help of US tax experts to help you target the tax strategies that will enable you to manage the opportunities and avoid the risks that will emerge from this new presidency;
ASSESS THE IMPACT ON YOUR OPERATIONS
Did you know that US corporate tax rates are likely to increase and reduce your profitability?
Indeed, the Biden plan calls for an increase in the corporate tax rate from 21% to 28%. Such an increase would reduce US corporate tax rates to levels higher than those applicable in Canada. To lessen the impact on your profitability, it therefore becomes essential that your business be structured in such a way as to reduce or eliminate liability to Uncle Sam's federal taxes.
If your company pays tax in the United States, your tax advisor can help you adapt your structure so that you pay less tax overall. For example, if your taxable income is $1 million, 80% of which is generated in the US company, it would be worth analysing tactics that would allow you to transfer a portion of the income to the Canadian company and thus limit the tax impact;
On the other hand, if you do business in the United States using a pure export strategy, the possible application of protectionist measures such as "Buy American Act" could complicate, or even eliminate, your ability to sell to your American customers with your current business model.
Whatever your situation, your US tax expert will be able to help you implement the best possible strategy. For example, to avoid compromising your company's financial position or reducing its future wealth, he or she could, among other things, point you in the direction of :
Thecreation of a US company allowing you to bypass protectionist measures
Thediversification of your international customer base to reduce your dependence on the United States
ASSESS THE IMPACT ON YOUR PERSONAL FINANCIAL SITUATION
If you own one or more properties in the United States, whether for investment purposes or simply for you and your family, the tax changes anticipated following Joe Biden's election could have a significant financial impact.
The anticipated increase in the top marginal individual tax rate from 37% to 39.6% as well as the elimination of preferential rates for large capital gains will affect the financial profitability of your US real estate investment.
In addition, in the event of death, the probable reduction in the estate tax exemption limits and the increase in the applicable rates will have the effect of resulting in the payment of estate taxes for many Canadians owning property in the United States or stock in American public companies. Currently, Canadians whose worldwide estate value at death does not exceed US$11.7 million are not at risk of having their estates reduced as a result of these estate taxes. Under the Biden administration, this threshold could be reduced to US$3.5 million.
In the light of this information, have you considered the advisability of transferring your US property to a trust?
Your tax advisor will be able to help you to see things more clearly;
KEEPING YOUR TAX COMPLIANCE UP TO DATE
The pandemic has had the effect of considerably increasing the US public debt. Over the next few years, the US federal government, and the states in general, will have to find additional sources of revenue to reduce this debt;
Subsequently, tax audits targeting foreign companies could be on the increase; what better way for a government to increase its tax revenues than by a levy on foreign companies that are not owned by their constituents!
What to do. Make sure you update your tax compliance to avoid any nasty surprises in the event of an audit by the US tax authorities.
Have you checked that :
Your sales are not subject to U.S. sales taxes?
Your income is not subject to U.S. taxes?
Rely on the advice of an expert in the field to ensure that your tax compliance is up to date, while optimising your financial portfolio.
Be proactive. By consulting a US tax expert, you will be able to adapt your operational and sales structures in order to maintain and maximise your profitability for the proper continuity of your US business. What's more, if you've invested in US real estate, it's important to know how to minimise the impact of any measures on the value of your investments.
At Mallette, our experts are well equipped to support you through this phase of questioning and uncertainty. What's more, thanks to the full range of our professional services, we can provide you with comprehensive support if you need strategic planning, business model optimisation, or help buying or selling a business. Our experts are well-equipped to support you through this phase of questioning and uncertainty.
Before a US tax authority contacts you, take action. Contact us today.