FEMA Provisions for offshore subsidaries

FEMA PROVISIONS:

AUTOMATIC ROUTE

In terms of Regulation 6 of the Notification, an Indian party has been permitted to make investment in an overseas joint venture (JV) / wholly owned subsidiary (WOS) by submitting form ODA, duly completed, to a designated branch of an authorized dealer bank, unto 200 per cent of the net worth of the Indian party as on the date of the last audited balance sheet. This ceiling will not be applicable where the investment is made out of balances held in Exchange Earners' Foreign Currency

OBLIGATION OF INDIAN ENTITY

An Indian entity which has made direct investment abroad is under obligation to (a) receive share certificate or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity and (c) submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification.

VALUATION

In case of partial / full acquisition of an existing foreign company, where the investment is more than USD 5.00 million, valuation of the shares of the company shall be made by a Category I Merchant Banker registered with SEBI or an Investment Banker / Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or a Certified Public Accountant. However, in cases of investment by way of swap of shares, in all cases irrespective of the amount, valuation of the shares will have to be by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will also be a precondition.

POST INVESTMENT CHANGES/ADDITIONAL INVESTMENT IN EXISTING JV /WOS

A JV / WOS set up by the Indian entity as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity subject to the Indian entity reporting to the Reserve Bank, the details of such decisions taken by the JV / WOS within 30 days of the approval of those decisions by the competent authority concerned of such JV / WOS in terms of local laws of the host country, and, include the same in the Annual Performance Report (APR) required to be forwarded annually to the Reserve Bank.

IMMEDIATELY AFTER REMITTANCE

Immediately after effecting the remittance, the AD banks are required to forward a report on remittance in the revised form ODR, in duplicate (format enclosed) to the Chief General Manager, Foreign Exchange Department, Overseas Investment Division, 3rd floor, Amar Building., Mumbai - 400 001. AD banks may ensure that the remittances on account of investments by a partnership firm / proprietorship firm are reported with the superscription “Remittance by partnership firm/ proprietorship firm". In cases where the investment is being made jointly by more than one Indian entity, form ODA is required to be signed jointly by all the investing entities and submitted to the designated branch of the AD bank. AD banks should forward to the Reserve Bank a consolidated form ODR indicating details of each party. The same procedure should be followed where the investment is made out of the proceeds of ADR / GDR issues of an Indian entity in terms of Regulation 6(5) of the Notification. The Reserve Bank would allot only one Unique Identification number to the overseas project.

ALLOTMENT OF UNIQUE IDENTIFICATION NUMBER
On receipt of the form ODR from the AD bank, the Reserve Bank will allot an unique identification number to each JV or WOS abroad, which is required to be quoted in all the future correspondence by the AD banks or the Indian entity with the Reserve Bank. AD banks may allow additional investment in an existing overseas concern set up by an Indian party, in terms of Regulation 6 only after the Reserve Bank has allotted necessary identification number to the overseas project

 

Summary of Master Circular on Investments by Residents in JV and WOS abroad

SECTION A

Objective of Circular:

Regulate acquisition and transfer of a foreign security by a person resident in India i.e. investment by Indian entities in overseas ‘joint ventures and wholly owned subsidiaries’ (said companies) as also investment by a person resident in India in shares and securities issued outside India.

Prohibition in investment

Indian parties are prohibited from making investment in a foreign entity engaged in real estate or banking business, without the prior approvalof the RBI.

General Permission: A general permission is granted for purchase of securities as follows:

1.      Out of funds in RFC a/c

2.      As bonus shares issued on existing foreign holdings

3.      When not permanently resident in India, out of their foreign currency resources outside India.

SECTION B – DIRECT INVESTMENT OUTSIDE INDIA

Automatic Route (not applicable to investment in Pakistan):

1.      Ceiling: Investment to a max of 400% of net worth (as per last audited balance sheet) of company or person making investment. This ceiling is not applicable if investments are made out of EEFC a/c or out of funds raised from ADR’s and GDR’s. (Form ODI to be filed<30 days)

2.      Ceiling applies to:

a.      Investment as above in said companies

b.      Loan to said companies

c.       100% guarantee given on behalf of said companies.

3.      Conditions for Investments

a.      It should be within the ceiling as above.

b.      Amount and period of guarantee to be specified upfront.

c.       Corporate guarantees to be reported to RBI (Form ODI-Part II)

d.      Specific approval from RBI is required for charge on immovable property or pledge of parent company shares given in favour of foreign entity.

e.       Indian party’s name is not in specified lists (Exporter’s caution list, defaulter’s list, etc)

f.        Any transaction with said companies should be routed through a single branch of a bank.

g.      If investment > $ 5 million, shares to be valued by merchant banker/investment banker, etc

h.      If investment > $ 5 million, shares to be valued by CA or CPA.

i.        If investment is by way of share swap, valuation to be only by Merchant banker and FIPB approval to be obtained.

j.        If investment is made by Indian firm, the partners should hold such shares is regulations so require.

k.      Investment, also through SPV, is permitted subject to above ceiling and conditions.

4.      Acquisition of shares by issue of ADR’s and GDR’s to selling company:

a.      It should be issued according the specified scheme

b.      ADR and GDR should be listed on recognised stock exchange.

c.       Indian company should back the issue of ADR and GDR with underlying fresh equity shares.

d.      Number of ADR and GDR < Prescribed Sectoral cap as per FDI regulations.

e.       Valuation of shares:

                                      i.      Listed Shares: based on the current market capitalisation of the foreign company arrived at on the basis of monthly average price on any stock exchange abroad for the three months preceding the month in which the acquisition is committed and over and above, the premium, if any, as recommended by the Investment Banker in its due diligence report in other cases.

                                    ii.      Unlisted Shares: As per authorised merchant banker.

5.      Investment in unincorporated entities overseas in oil sector

a.      Approval by competent authority is required.

b.      No limit on investment by specified companies.

c.       Other companies are subject to that 400% ceiling.

6.      Method of funding:

Investment can be made out of the following sources:

a.      Foreign exchange from Indian bank

b.      Capitalisation of exports

c.       Share swap

d.      Proceeds of ECB / FCCB.

e.       Exchange of ADR’s / GDR’s as specified above.

f.        Out of balance in EEFC a/c (ceiling not applicable)

g.      Proceeds of funds raised through ADR/GDR (ceiling not applicable)

7.      Capitalisation of Export and other Dues:

a.      Dues that can be capitalised: Dues towards exports, fees, royalties, etc for supply of technical knowhow, consultancy, managerial and other services.

b.      Software Companies: Indian software exporters as permitted to receive 25% of export value to overseas start-up software company in the form of Shares without a JV agreement but with RBI permission.

8.      Approval of RBI

a.      Prior approval of RBI to be obtained.

b.      RBI would approve after considering certain parameters.

9.      Overseas Investment by Proprietorship or partnership firm

a.      Prior approval of RBI required.

b.      Following conditions to be fulfilled:

                                                  i.      Firm should be a DGFT recognised star export house.

                                                ii.      Bank should be satisfied that the firm is KYC compliant.

                                              iii.      Overdue Exports < 10% of avg export realisation for past 3 FY.’s

                                              iv.      Exporter was not given any adverse notice by CBI, etc.

                                                v.      Amount of Investment =< lower of (10% of avg export realisation for past 3 FY.’s or 200% of net owned funds of the firm)

10. Overseas investment by registered trust / society

a.      Trust deed / memorandum should permit such overseas investment

b.      Proposed investment should be approved by trustees / governing body.

c.       It should be KYC compliant

d.      It is been in existence for >= 3 years

e.       It has not received adverse notice from CBI, etc.

11. Post investment changes / additional investment in said companies

a.      The JV/WOS can diversify its activities or set up a subsidiary in overseas.

b.      The Indian entity should notify the same to RBI within 30 days.

12. Obligation of Indian entity

a.      It should receive the share certificate/other document as evidence of investment.

b.      It should repatriate to India, the dues receivable from foreign entity.

c.       It should submit documents/APR as per the regulation 15 of notification.

13. Transfer by way of sale of shares of JV/WOS by Indian entity

a.      Disinvestment can be made without prior approval of RBI if:

                                                              i.      JV/WOS is listed overseas, or

                                                            ii.      Indian entity is listed and net worth >= 100 crores, or

                                                          iii.      Indian entity is not listed and investment =< USD 10 Million.

b.      Conditions for disinvestment:

                                                              i.      Sale does not result in write off of investment made.

                                                            ii.      Sale is affected through a stock exchange where shares of JV/WOS is listed

                                                          iii.      In case of unlisted shares, the share price >= price as per CA, CPA ascertained as per latest audited balance sheet.

                                                          iv.      Dues to Indian entity by JV/WOS = 0

                                                            v.      JV/WOS has been in operation >= 1 year and APR is filed

                                                          vi.      Indian party is not under investigation by CBI, SEBI, etc.

14. Pledge of shares of JV/WOS by Indian entity

a.      Pledged with bank or PFI in India – Regulation 18 on notification to be complied.

b.      Pledged with overseas lender – Allowed if the lender is a regulated and well supervised bank and the total financial commitment of Indian entity is within the limit specified by RBI for overseas investment.

15. Hedging of overseas investment

a.      Hedging of forex risk is permitted subject to verification of exposure by bank.

b.      Cancellation is also permitted. However, 50% of such cancelled contracts may be allowed to be rebooked.

SECTION C – OTHER INVESTMENTS IN FOREIGN SECURITIES

1.      General permission for purchase of foreign securities by individuals who is a person resident in India:

The following transactions are allowed:

a.      To foreign securities as gift person resident outside India.

b.      To acquire shares:

                                                              i.      Under ESOP scheme issued by company outside India.

                                                            ii.      By way of inheritance from person resident outside India.

c.       To purchase equity shares offered by foreign company under ESOP based on certain criteria. Such shares can also be transferred provided the proceeds are remitted within 90 days from date of such sale.

d.      Foreign companies can repurchase shares issued under ESOP provided:

                                                              i.      Shares were issued as per FEMA regulations

                                                            ii.      The repurchase is as per initial offer document.

                                                          iii.      An Annual return is submitted through bank giving specified details.

e.       In any other case apart from above, individual should obtain permission of RBI.

2.      General permission for residents to acquire foreign securities:

Residents are permitted to acquire foreign securities if it represents:

a.      Qualification shares for becoming director provided:

                                                              i.      It is =< 1% of paid up share capital

                                                            ii.      Consideration paid =< USD 20,000.

b.      Right shares acquired by virtue of holding existing shares of the company.

c.       Purchase of shares by JV/WOS of an Indian Company engaged in field of software subject to ceiling on the purchase price and other conditions.

d.      Purchase of foreign securities under ADR/GDR linked stock options provided the consideration does not exceed USD 50,000.

 

Offshore Company in UAE

1. Why The United Arab Emirates

The U.A.E are politically stable, economically strong and socially open minded. An excellent business infrastructure, a zero tax environment and a liberal labor law complete the U.A.E.'s profile for an ideal business location. The U.A.E with its member Emirates Dubai and Abu Dhabi are centrally located in the middle of the Gulf region . Dubai International Airport ranks top in the provision of worldwide direct flight connections. Travel distances (hours of flight) from and to major places of business are within comfortable reach.

-  Europe 6 hours

-  Hong kong 8 hours

-  Bombay 2 hours

2. Legal Framework

When contrasted with other Arab states, such as Saudi Arabia for instance, the UAE has comparatively very liberal laws. The country has a civil law jurisdiction. However, Shari's or Islamic Law is applied to aspects of family law, inheritance and certain criminal acts. A federal court system applies yo all emirates except Dubai and Ras Al Khaimah, which are not fully integrated into the federal judicial system. All emirates have secular courts to rule about criminal, civil, and commercial matters, and religious disputes.

In the UAE the establishment of the civil and criminal courts resulted in diminishing the role of the Sharia Courts. Nevertheless, the competence of the Sharia Courts in some emirates, particularly Abu Dhabi, was substantially expanded later on to include, in addition to matters of personal status, all types of civil and commercial disputes as well as serious criminal offences. Therefore, in addition to the Civil Courts. each of the seven emirates maintains a parallel system of Sharia Courts which are organised and supervised locally.

3. Banking

There are around 50 banks in the U.A.E. international as well as local banks, as HSBC, Citibank, Standard Chartered, Barclay's, Deutsche Bank, EmiratesNBD, National Bank of Abu Dhabi, offering large range of state of the art banking services. The U.A.E. have no restrictions on import and export funds to and from the country.

4. Financial Regulatory Authority

The Central Bank Law establishes five principal categories of institutions in the UAE - commercial banks, investment banks, financial establishments, financial intermediaries, and monetary intermediaries - all of which must be licensed by both the central bank and the local licencing authorities. In addition to these five categories, current practice in the individual Emirates permits the licencing of financial or investment consultants. These consultants are not required to obtain a central Bank Licence.

5. Taxation

5. a. Corporate Tax

There is no corporate taxation with in the UAE except for foreign bank branches, oil and petrochemical companies.

5. b. Personal Tax Rates

There is no personal tax with in the UAE.

5. c. Social Security

There is no social security system with in the UAE. The only mandatory insurance is a medical insurance for the employees of the company.

Research incentives - In case any UAE National is employed in the private sector, then the employer must pay monthly contribution to a pension fund at the rate of 17.5% of the contribution salary (12.5% by the employer and 5% by thew employee).

5. d. Customs & Excise Duties

Under the terms of the Gulf Co-operation Council (GCC) regulations (comprising the member states of UAE, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain), a unified customs tariff of 5% of the c.i.f. value applies to the taxable imports. All existing taxes and duties on imports with in the GCC member states have been abolished. Tobacco and tobacco products are subject to a 100% customs duty, and for alcohol the rate is 50%. There is no Central Excise Duty.

5. e. V.A.T.

There is no VAT in the U.A.E.

5. f. Tax  Incentives

Free Zones - There are more then 25 Free zone with in the U.A.E offering various benefits such as: 

- 100% foreign ownership

- 100% capital and profit repatriation

- no import or export (outside the GCC)

- guarantee of no personal or corporate income tax for 15/50 years (renewable)

- no foreign exchange controls 

- no trade barriers or quotas

- liberal labour laws

Offshore Company - For offshore companies there is no taxation at all. They are not allowed to carry out business activities within the U.A.E.

6. Main Types Of Corporate Forms

Limited Liability Companies (LLC) is the most common form for a local company. Free zone companies are usually Free zone Company (FZCO - two or more shareholders). Since several years some of the emirates allowing the incorporation of Offshore Companies (LTD). The LLC is a legal person, its partners (at least 51% UAE Nationals) are not personally liable for the company or the other partners. The share capital has to amount to a minimum of AED 150,000 depending on the Emirates, each share has to amount to AED 1,000.

       The FZE or FZCO are legal persons with in one of the U.A.E.'s Free zone, shareholders are not liable for the company, the share capital has to amount to minimum of AED 150,000 according to the regulations of the Free zone.

       The LTD is a legal person with in one of the U.A.E.'s Free zones allowing the registration of Offshore Companies, Shareholders are not liable for the company, the share capital has to amount to minimum of AED 10,000 according to the regulations of the Free zone. Shares can have nominal values. Bearer shares are not allowed.

7. Company Incorporation

The LLC legally comes into being with the entry into the corporate register. Next to an application form containing all company-relevant information, signed by all shareholders and attested to by notary, several documents are necessary such as the articles of association. After the notarial attestation are signed, the entry of the LLC in the corporate register takes one to two weeks.

      The FZE or FZCO legally comes into being with the entry into the corporate register. Next to an application form containing all company-relevant information, signed by all shareholders (there is no need for a notarization; for an FZCO the articles of association are necessary). The entry of the FZE or FZCO in the corporate register takes several days.
    The LTD legally comes into being registered with the regulator. The entry of the LTD in the corporate register takes 1 day.

8. Reporting & Auditing

Local Companies have to have the annual financial statement audited and reported to the Government. Most Free zones require an audited financial statement submitted to the Free zone Authority.

Offshore Company in Mauritius

Offshore Company in Mauritius

1. Why Mauritius?

The attraction to Mauritius comes as a premium to the level of business that can be done on the island or through its system. It has about 37 Double Taxation Avoidance Treaties amongst which growth nations such as India, China, South Africa and mature economies such as UK, France And Germany. In its annual survey the World Bank has ranked Mauritius 17th and number 1 in Africa as the place to do business.

2. Legal Framework

Mauritius has the Legal system that is derived from the British. The Legal framework is a mix of British and France texts. Most laws are in English, including the Mauritius constitution. The Civil Code is based on the old French Law, the ' Code Napoleon '.

3. Banking

The banking sector is regulated by the Bank of Mauritius. The globally known banks such as Barclay's, HSBC, Standard Bank, Standard Chartered, Caissed'Epargne, Deutsche Bank are present Banking regulations follows Basle II model.

4. Financial Regulatory Authority

The Financial Services Commission (FSC) is the regulator for all non-banking Financial Services.

5. Taxation

5. a. Corporate Tax

Domestic companies having activities in Mauritius 15%, global companies which are tax resident 3% , international companies which are not tax resident are exempt from Income Tax.

5. b. Personal Tax Rates

15% Individuals are exempt annually Rs 255,000 and Rs 465,000 varying on number of dependents.

5. c. Social Security

Employers' contribution of basic salary up to Rs 975. Employees contribution of basic salary up to Rs 459.

5. d. Custom & Excise Duties

Luxury goods can attract up to 100% customs duty. Electronic goods between 15% & 30%. No VAT on basic essential foodstuff.

5. e. V.A.T.

VAT is 15%.

5. f. Tax Incentives

Companies having a Global Business Licence have an automatic tax credit of 80% on the base tax of 15%, hence leaving a rate of tax payable of 3%. Domestic tax Law may also recognize as credit all actual foreign tax paid.

6. Main Types Of Corporate Forms

• Company limited by shares
• Company limited by guarantee
• Limited life company
• Protected cell company
• Company with a Global Business Licence 1 (offshore)
• Company with a Global Business Licence 2 (international co)
• Partnership
• Trust

7. Company Incorporation

It takes minimum 3 days to incorporate a domestic company which can trade and have activities on the island. The cost of setting up is around Euro 700. For a Global Business Licence 1 (GBL 1) (cannot trade on the island) company it takes about 3 weeks to incorporate with a cost of about EUR 6,000. A Global Business Licence 2 (GBL 2) company (international company) is incorporated with in about 2 weeks at cost of about Eur 3,000.

8. Reporting & Auditing

Mauritius has been one of the first countries in the world to adopt IFRS since 2001. Domestic companies with turnover of less than Rs 50m ( Eur 1.25m) need not prepare full financial statements under IFRS. GBL 1 need full IFRS compliant financial statement. However, GBL 2 need prepare only a prescribed financial summary. The Auditing framework is International Standards on Auditing.

9. Special Notes / Country Update

Mauritius is the Largest medium for FDI into India because of the double tax avoidance treaty agreement which it has with India. The main incentive with this being that the company investing in India is not Liable to Capital Gains Tax. The Mauritius Rupee is stable vis a vis the major currencies such as the US Dollar (US D 1 : Rs 30) and EURO (Eur 1: Rs 40). There is no exchange control in Mauritius. 

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Tax Havens May be Told to Recover Dues From Indians

Tax Havens May be Told to Recover Dues From Indians

Going All Out After Evaders: Govt. to also keep tabs on those frequenting such tax jurisdictions

THE government will ask tax havens to recover taxes from Indian nationals who have stashed undeclared income there as it intensifies efforts to tackle the menace of black money. It is also keeping tabs on those frequenting such tax jurisdictions. "We can ask these countries to recover taxes, "a finance ministry official said. The tax information exchange agreements and revised double taxation avoidance agreements (DTAAs) entered into with some of these jurisdictions have a provision for providing assistance in recovery and the income-tax department plans to use this provision. The Central Board of Direct Taxes has opened income-tax units in some of these jurisdictions to facilitate information exchange and coordinate recovery of taxes. Two such income-tax units have been set up within Indian missions in Singapore and Mauritius and one each is proposed to be set up in the US, the UK, the Netherlands, Japan, Cyprus, Germany, France and the UAE. Further, income tax officials are also being posted in some of the tax havens. India recently signed tax information exchange agreements with Bahamas, Bermuda, British Virgin Islands and Isle of Man for access to information on bank accounts of Indian nationals there. Based on the information received, the department will step up the recovery process here. Those found to have evaded taxes will have to pay 100% interest on the tax and penalty up to 300%.Back home, the department is keeping a close watch on visits by Indian nationals to tax havens and those suspected to have bank accounts there. Investigation directorates have collected data from agents and officials of foreign banks offering services and soliciting opening of foreign banks accounts. They are also receiving data from the financial intelligence unit in India that has begun to receive data from other FIUs. As part of the drive against black money, the income-tax department had recently issued show-cause notices to some of the foreign account holders in addition to those in the list given by Liechtenstein. Black money has taken political center stage with the BJP launching a scathing attack on the UPA and the Supreme Court calling the menace a "plunder of the nation". Different estimates like the one by a BJP task force pegged the amount of black money between $500 billion and $1.4 trillion while another international estimate placed such flows at $462 billion.

No Escaping at Home or Abroad

Some provisions that will turn up heat on tax evaders

On Domestic Front


Dedicated info exchange in works Online info exchange with treaty partners Foreign Tax Division collect info about citizens having bank accounts abroad New plan for taxation, transfer pricing

On International Front

India joins Financial Action Task Force Taken membership of the Eurasian Group Upgrading Double Taxation Avoidance Agreements and signing Tax Information Exchange Agreements

Under the New DTC

A reporting requirement to make it obligatory to furnish details of ones investment and interest in any entity outside India Taxable assets to include deposits in banks located abroad

Offshore Company in United States of America (USA)

1. Why the United States Of America

The US as a country is the largest economy in the world.

2. Legal Framework

Although the US legal system is based on English common law, it has several layers such as the Constitution, statutes, treaties, and administrative regulations. The US federalism system provides specific powers to the federal government, allowing the 50 states to retain significant autonomy and authority. Thus, laws can be made at both federal and state levels. A company therefore, must comply with the state law of where it chooses to incorporate or does business. However, public-traded corporations must also comply with federal securities law.

3. Banking

The Federal Reverse System is the central bank of the US. It conducts the US's monetary policy, supervises and regulates banking institutions, maintains stability of the US financial system  and provides financial services to depository institutions, the US government and foreign official institutions.

4. Financial Regulatory Authority

Many governmental agencies are charged with various aspects of the US financial system, including US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Reverse System, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NSUA) and Office of Thrift Supervision (OTS).

5. Taxation

5. a. Corporate Tax

US corporations (corporations formed under the laws of one of the 50 states or the District of Columbia) are generally subject to a federal corporate level income tax on their world-wide income at rates ranging from 15% to 35%, subject to applicable foreign tax credits. Dividends received from US corporations are eligible for dividend received deductions. Dividend distributions to shareholders are not deductible against corporate income. Anti-deferral regime exists for income generated by non-US corporations controlled by US persons.

5. b. Personal Tax Rates

US tax residents are taxed on their world wide income, subject to applicable foreign tax credits. US citizens are always subject to US income tax regardless of the location of the actual residence or the time spent in the US. The federal personal income tax rates on ordinary income currently range from 15% to 35% and the current maximum long-term capital gains (gains on capital assets held for over one year) rate is 15%.

5. c. Social Security

All employed and self-employed individuals are required to participate in the US social security system. The social security tax for 2010 is 6.2% of the wages up to $ 106,800 for employees and employers and 12.4% of the earnings up to $ 106,800 for self-employed individuals. A separate Medicare tax for 2010 is 1.45% on wages for employees & for employers and 2.9% of the earnings for self-employed individuals. In essence, an employer pays 50% of its employee's social security tax and Medicare tax while a self-employed individual pays 100% of the applicable taxes.

5. d. Customs & Excise Duties

Many items imported into the US commerce are subject to an import tariff at rates provided in the official harmonized tariff schedule.

5. e. V.A.T.

The US does not charge a VAT, though many states and local governments imposes a sales/use tax on the purchasers of taxable goods and services.

5. f. Tax Incentives

Many tax incentives currently in force are geared towards economic stimulus such as credits for hiring certain new employees, exclusion of gains on the sale of small business shares and accelerated depreciation schedules and certain incentives for renewable energy. In addition, many established tax incentives reflect US social philosophies such as charitable gift deductions, home mortgage interest deductions and limited exclusion of gains on the sale of primary residences.

6. Main Types of Corporate Forms

• Corporations, limited liability Companies and Partnerships are the most common corporate forms.
• Corporations are most commonly used and can have any number of shareholders whose assets are protected from the company's creditors. A shareholder's liability is limited to the amount of the investment in the company.
• Corporations are, however, subject to double taxation's profits are taxed first as income to the corporation and then as income to the shareholder when distributed as dividends. Corporations with no more than 100 shareholders can elect S-Corporation status and are generally not subject to a corporate level tax; instead, income is "passed-through" to shareholders.

Shareholders in S-Corporations must be US citizens or residents individuals, and in limited circumstances, certain trusts. Limited Liability Companies (LLCs) combine the corporate advantages of limited liability with the partnership advantage of pass-Through taxation. Members of an LLC can be managers of the company while not exposing their personal assets to claim of general creditors of  the LLC.

LLCs may be treated as corporations, partnerships or disregarded entities for US tax purposes depending on the number of members or the existence of an entity classification election (commonly known as the check-the-box election). LLCs also provide a greater level of flexibility in terms of management and the allocation of profits and losses if they are treated as partnerships for tax purposes. LLCs are also not subject to the ownership restrictions of S-Corporations, so they are potentially ideal for foreign investors. Partnerships fall into 3 general forms General Partnerships, Limited Partnerships and Limited Liability Partnerships. In a general partnership, general partners share equal rights and responsibilities in connection with management of the business, and any individual general partner can bind the entire group to a legal obligation. Each individual general partner assumes full responsibility for all of the business's debts and obligations.

Limited partnerships allow each partner to restrict his or her liability to the amount of his or her investment, however, at least one participant must accept general partnership status, meaning full personal liability for the partnership's debts and obligations. Limited partners do not participate in management decisions. Limited liability partnerships have the tax advantages of the partnership form, but offer personal liability protection to the participants. In some states only certain specified professions may use the limited liability partnership form.

7. Company Incorporation

Entities can be formed in any US state, however, Delaware continues to be the forum of choice for formation - Delaware has a well established and accepted body  of laws and regulations which are regularly updated. Formation of any type of entity can usually be achieved in 24-48 hours and typically limited information is required. Post formation, shareholder agreements in the case of C Corporations and LLC Agreements in the case of LLCs may be entered into, neither of which is filed with the state. There may be circumstances when formation in another state is warranted and determinations such as that are made based on the facts and in consultation with a US adviser.

8. Reporting & Auditing

All US corporations, partnerships or sole proprietorship's are required to file an annual income tax return with the Internal Revenue Service may select random taxpayers for audit depending on its current audit priorities.

9. Special Notes / Country Update

The maximum personal income tax rates are expected to be 39.6% for ordinary income and 20% for long term capital gains starting 2011. The Internal Revenue Service continues to focus on US taxpayers with unreported offshore bank or financial accounts and corresponding unreported non-US sourced income.

10. Double Taxation Agreement

USA has double taxation treaty with the following countries:

• Austria
• Bulgaria
• China
• Cyprus
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Italy
• Japan
• Mexico
• Morocco
• Netherlands
• Poland
• Portugal
• Romania
• Russia
• Slovenia
• Spain
• Switzerland
• Tunisia
• Turkey
• UK
• Venezuela