I. GENERAL DATA
A few countries provided the lion’s share of the $2.9 trillion in cumulative foreign direct investment in the United States by the end of 2014.
The United States of America is a constitutional federal republic composed of 50 states, a federal district, five major self-governing territories, and various possessions.
The U.S. territories are scattered about the Pacific Ocean and the Caribbean Sea where nine time zones are covered.
The geography, climate and wildlife of the country are extremely diverse. It is one of the world’s most ethnically diverse and multicultural nations, and is home to the world’s largest immigrant population.
The U.S. ecology is megadiverse.
And the U.S. Census Bureau estimated the country’s population to be 323,425,550 as of April 25, 2016.
The United States has a capitalist mixed economy which is fueled by abundant natural resources and high productivity.
According to the International Monetary Fund, the U.S. GDP of $16.8 trillion constitutes 24% of the gross world product at market exchange rates and over 19% of the gross world product at purchasing power parity (PPP).
The United States has been a leader in technological innovation since the late 19th century and scientific research since the mid- 20th century.
II. FOREIGN INVESTMENT
In the short run, foreign capital invested in the United States raises U.S. gross domestic product (GDP).
At the end of 1990, about 16 percent of foreign assets in the United States were owned by foreign governments, while 84 % were privately owned. Similarly, 14 % of foreign assets owned by the United States were official, and 86 percent were private.
In contrast, as a share of total investment, U.S. direct investment abroad (comprising equity holdings of 10% or more of any firm) is substantially larger than foreign direct investment in the United States. The U.S. stock market’s annual appreciation of over 15 % was exceeded among the major Western industrial countries only by the Japanese stock market’s rise of nearly 20 %.
Tax differences also influence international capital flows. The United States attracts capital not only because of lower taxes, but also because of greater U.S. consumer wealth and labor productivity.
At purchasing power parity—GDP adjusted for differences in exchange rates and prices—U.S. wealth (per capita GDP) was one-fourth greater than Japan’s in 1990 and one-third greater than Germany’s.
The availability of foreign capital lowers the cost of capital to corporations. This makes additions to plant and equipment cheaper, permits some investment projects that otherwise would not be profitable, and raises the value of firms. Even though most foreign capital inflows do not substantively alter the ownership of U.S. firms, they benefit asset owners as well as labor by lowering interest rates and the cost of capital.
1. Value Added Tax (VAT)
In the United States, currently, there is no federal value-added tax (VAT) on goods or services. Instead, a sales and use tax is common in most US states. VATs have been the subject of much scholarship in the US and is one of the most contentious tax policy topics.
In 2015, Puerto Rico passed legislation to replace its 6% sales and use tax with a 10.5% VAT beginning 1 April 2016. The 1% municipal sales and use tax will remain and, notably, materials imported for manufacturing will be exempted.
In doing so, Puerto Rico will become the first US jurisdiction to adopt a value-added tax.
2. Import Duties
Import duty and taxes are due when importing goods into the United States whether by a private individual or a commercial entity. The valuation method is FOB (Free on Board), which means that the import duty and taxes payable are calculated exclusively on the value of the imported goods.
However, some duties are based part in value and part in quantity. In addition to duty, imports may be subject to a Merchandise Processing Fee, and in some cases to sales tax, and Federal Excise Tax.
3. Excise Duty
Both the federal and state governments levy excise taxes on goods such as alcohol, motor fuel, and tobacco products. The laws of the federal government and of some state governments impose excises, known as the income tax. Even though federal excise taxes are geographically uniform, state excise taxes vary considerably. Taxation constitutes a substantial proportion of the retail prices on alcohol and tobacco products.
4. Income tax
Under the U.S. system, individuals, corporations, estates, and trusts are subject to income tax. This income is reduced by tax deductions including most business and some nonbusiness expenses. A federal foreign tax credit is granted for foreign income taxes. Individuals residing abroad may also claim the foreign earned income exclusion.
5. Unemployment taxes
Employers are subject to unemployment taxes by the federal and all state governments. The tax is a percentage of taxable wages with a cap. The tax rate and cap vary by jurisdiction and by employer’s industry and experience rating.
6. Property tax
Most jurisdictions below the state level in the United States impose a tax on interests in real property.
The amount of tax is determined annually based on the market value of each property on a particular date.