Bharat Chamber of Commerce (BCC) recently organised a discussion on legal complications and pitfalls to be considered before investing in the U.S.
Michael Kraus, Partner, Smith, Gambrell and Russell, LLP, USA was the keynote speaker. He pointed out that the investors should consider important factors like labour laws, product liability, risk of litigation and the tax regime before planning a venture in the U.S.
Kraus stated, “The taxation system in the U.S. is unfortunately very complex. There are 51 tax jurisdictions in the U.S. for each of the 50 states and for the District of Columbia. This means that the company has to be registered in whichever state it operates.
Besides, the state tax laws are formulated by each individual state and highly varied. The sales tax in the U.S. is paid at the final stage of transfer of the product.
The current developments in the U.S indicate towards a protective trend domestic employment policy. As a consequence of the Buy American Hire American (BAHA) policy – work visas are difficult to process. Extreme vetting of each application leads to delay.
The investors should also apply discretion while labeling their products. As per the California Proposition 65, every product that contains any ingredient that might be cancerous should bear a warning label.
Kraus also pointed out some positive elements. Investment in the U.S. offers certain strategic advantages. The best way to start a venture or operate in the U.S. for a foreign company is by establishing a Limited Liability Partnership or a Corporation. According to him, operating through a branch is not recommended. From the tax calculation perspective, it leads to complications and added costs.
The Federal Tax base on the other hand, which has been lowered from 35 to 21% offers potential of making more profits than in the past. The U.S. market is huge and could be profitable but entering it involves time and expense. He further added, “If you want your company to be successful, you have to stay there to understand the system.” Since the cost of litigation is high and time consuming, he suggested foreign investors should venture with extreme caution.
In his welcome address, Sitaram Sharma, President, Bharat Chamber of Commerce mentioned that exploring global markets has become imperative to take business to greater heights. However, he pointed out that often people suffer heavily for being ignorant of the legal issues operative in a foreign land. He emphasised, “The best way to handle disputes is to do your best to prevent them in the first place”.