Setting-up shop in the US – tax aspects www.pwc.bg Setting-up shop in the US – tax aspects Atanas Sabev, Tax Manager, PwC Bulgaria 9 April 2019

US Tax System Main features Contents US Tax System Main features Based on three layers: federal, state and local level Overly complicated system (70,000 + pages of rules and regulations) Used to be among the countries with highest corporate rates …. … until 2017 TAX CUST AND JOBS ACT! Local State Federal Setting-up shop in the US – tax aspects 3

US Tax System 2017 Tax Jobs and Cuts Act Contents US Tax System 2017 Tax Jobs and Cuts Act Introduces a flat rate at 21% (close to OECD average) Transition to a territorial tax system New base erosion measures (CFC, Interest limitation, BEAT, GILTI) Any business in any of the 50 states, subject to federal corporate income tax Setting-up shop in the US – tax aspects 4

US Tax System State Income Taxes Contents US Tax System State Income Taxes Levied by each individual State’s government (in place in 48 states) The most common taxable base is federal taxable income modified for state tax purposes and allocated to a state on the basis of sales and/or assets and/or payroll cost States with no income taxes (WY, SD) Other considerations: Sales taxes Local State Federal Setting-up shop in the US – tax aspects 5

US Tax System Top Marginal State Income Tax Rates as of Jan. 1, 2019 Contents US Tax System Top Marginal State Income Tax Rates as of Jan. 1, 2019 Source: Tax Foundation, 2019, https://taxfoundation.org/ Setting-up shop in the US – tax aspects 6

US Tax System Local taxes Contents US Tax System Local taxes Property taxes: Main source of revenue for localities City income and sales taxes: States may allow cities, counties, and municipalities to levy their own separate individual income and/or sales taxes Local State Federal Setting-up shop in the US – tax aspects 7

US Tax System 2019 State Business Tax Climate Index Appendices Executive Summary Agenda US Tax System 2019 State Business Tax Climate Index The 10 best states: 1. Wyoming 2. Alaska 3. South Dakota 4. Florida 5. Montana 6. New Hampshire 7. Oregon 8. Utah 9. Nevada 10. Indiana The 10 lowest ranked states: 41. Vermont 42. Ohio 43. Minnesota 44. Louisiana 45. Iowa 46. Arkansas 47. Connecticut 48. New York 49. California 50. New Jersey Setting-up shop in the US – tax aspects 7

Setting-up shop in the US (1/2) Contents Setting-up shop in the US (1/2) US Company Federal income tax at 21% State income taxes` from 0% to 12% (deductible for federal tax purposes) 30% withholding tax on dividends (down to 5% under the Bulgaria-USA income tax treaty) BG Company Dividends income taxable at 10% in Bulgaria BG Company 100% Dividends US Company (Active business) Setting-up shop in the US – tax aspects 8

Setting-up shop in the US (2/2) Contents Setting-up shop in the US (2/2) Other considerations New base erosion measures Chapter III withholding on interest, royalties, annuities Treaty benefits limitation clause Transfer pricing BG Company Interest, Royalty, Services fees US Company Setting-up shop in the US – tax aspects 9

Contents Summary Overly complicated and dynamic tax environment (recently underwent the largest tax reform in over 30 years). Multi-layered and geographically diverse (federal tax rules “sitting on top” of 50+ state and city income tax regimes). Number of unique features from a EU perspective (e.g. sales taxes, local property taxes). Setting-up shop in the US – tax aspects 10

Thank you! Atanas Sabev Tax Manager +359 895 333 617 Atanas.Sabev@pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Bulgaria EOOD, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2019 PwC Bulgaria. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Bulgaria EOOD which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Add legal and copyright disclaimers here.