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

2. US Tax System Main features
Contents
US Tax System Main features
Based on three layers: federal, state and local level
Overly complicated system (70, 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

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

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

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,
Setting-up shop in the US – tax aspects 6

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

7. US Tax System 2019 State Business Tax Climate Index
Appendices
Executive Summary
Agenda
US Tax System 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

8. 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

9. 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

10. 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

11. Thank you! Atanas Sabev Tax Manager +359 895 333 617
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