Regulating business in the U.S.
Business regulation tends to be less burdensome in the United States than in most other countries—generally, there are fewer restrictions, they are easy to understand and are applied equally, and there is limited bureaucracy encountered in the course of compliance. However, this is not to say that companies will encounter a totally laissez faire environment, or that they will not at times be surprised and confused by the regulatory structure.
Some of the areas of regulation are briefly mentioned below. Others are described more extensively throughout this website in content focused on employment considerations, taxes and business organization.
- Currency regulation. In general, there are no U.S. exchange controls or restrictions on the exchange or remittance of business income or capital, except on transactions involving a short list of countries to which restrictions apply for political reasons.
- Zoning and building codes. Land use and building code requirements are adopted and enforced by local governments at the municipal, county and state levels. In general, there is no federal (national) oversight of commercial and manufacturing operations. Exceptions can arise in heavy industry, power generation and other uses affecting the environment. Also, installations located on federal lands are generally subject to federal regulation instead of local oversight.
- Environment. All industrial facilities must comply with environmental protection laws that limit emission, chemical and radiation sources, and regulate waste disposal. Both federal and local laws can apply in these situations.
- Product safety. Federal and state consumer safety laws apply to the design, packaging and labeling of many products.
- Food and drug regulation. The regulations of the federal Food and Drug Administration (FDA) apply to the import and marketing of food, drugs and cosmetics, which are subject to inspection at the point of entry into the United States.
Clearance may be sought in advance by submitting samples to the FDA.
- Agriculture. Imported plant and animal products are subject to federal quarantine regulations, and fresh produce imports must meet standards of size, grade and maturity. Some states, such as California, Arizona and Florida, also regulate the movement of certain agricultural products across state lines in order to limit the introduction or spread of pests and plant diseases.
With limited exceptions, the United States promotes and practices free trade. Most goods and products can be imported into the United States under favorable terms and minimal restrictions. As in most other countries, however, many agricultural products and derivatives continue to be subject to import restrictions in the form of duties, exclusions and quotas. Restrictions also exist regarding the conduct of licensed professionals in, for example, medicine, law and engineering.
The United States has many bilateral trade and tax treaties. In addition, federal legislation provides trade concessions to a number of geographic blocks, such as the neighboring Caribbean region, in order to promote economic development and stability.
While the United States has been slow to adopt other regional treaties, both Canada and Mexico have advanced in this area. In 2000, Mexico entered into a NAFTA-like treaty with the European Union, and both Mexico and Canada have bilateral or multilateral trade pacts with South American countries and regions like Chile and Mercosur, an economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela. In many cases, these treaties can provide a favorable, backdoor means of access into the U.S. market.
Of course, any company considering the export of goods into the United States should research tariff rates and possible import restrictions.
As in most export-import situations, the specific characterization of a product determines the tariff rate applied. Incorrect characterization can result in very significant penalties. Companies can request a formal advance ruling from the U.S. Commissioner of Customs. Such a ruling is binding on both the importer and the U.S. government. Also, if goods imported into the United States are subsequently exported, the importer may be eligible for tariff drawbacks.
The United States has strong anti-dumping laws, and these are vigorously enforced. These laws apply in cases where it is deemed that products are offered in the United States at less than fair value, as calculated by the U.S. International Trade Commission. Counteracting this restriction to some degree is the U.S. Generalized System of Preferences (GSP). The GSP is a program designed to promote economic growth in the developing world. It provides duty-free entry for thousands of products from 120 designated beneficiary countries and territories. The GSP program was instituted Jan. 1, 1976, with congressional authorization recently extending the program until Dec. 31, 2020.
- Duty-free zones. Duty-free or foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board at which special customs procedures may be used. FTZ procedures permit goods from abroad to be warehoused or altered as if they were outside U.S. Customs territory. Subzones are special-purpose zones, usually at manufacturing plants. Goods stored in FTZs enjoy duty-free status until they enter the Customs territory of the United States, and they can also be transferred from one FTZ to another without duty charges being assessed. Duty is paid only on goods ultimately imported into the United States.
- Maquiladoras. Over 3,000 companies operate under special provisions of Mexican law permitting duty-free, in-bound manufacturing, typically for re-export to the United States. Under the maquiladora program, components are imported duty-free into Mexico for processing or assembly and then shipped back to the United States. Mexican law allows these operations to bring in most capital equipment and machinery from abroad. U.S. duties are collected only on the value added in Mexico. Most maquiladora facilities are located along the U.S.-Mexico border, though plants in central and southern Mexico have become more popular in recent years.
Many Caribbean and Central American countries have also implemented maquiladora regimes and actively market these to U.S. and foreign manufacturers seeking low production costs and favorable access to the U.S. market.
With the exception of a limited number of strategic items, goods exported from the United States are not subject to export licenses or regulations of any kind. It is always prudent, however, to research in advance to determine whether restrictions apply with regard to specific items or specific countries.
Business formation in the United States is easy, and businesses can be organized without regard to the citizenship or residency of the owner. As stated earlier, there are many different types of legal entities available in most U.S. jurisdictions. The entity type most often used by companies from abroad is the business corporation, but other entity types may also have a role.
Consultation with an experienced international tax specialist is advisable and can often result in very significant, long-term global tax savings. Once an entity choice has been made, the process of registering the entity can be very fast—as quick as one day. An attorney should be enlisted to perform this function and to advise on other legal requirements applying in the jurisdiction where the entity is established.
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