Why the U.S. is a compelling destination for South Africans looking to start a business

There are plenty of reasons why business investors choose the United States – from the business-friendly environment and quality of life considerations to specific technology, supply chain, infrastructure and workforce factors. In this article we will highlight a couple of specific reasons why the U.S. remains the top investment destination for businesses and a compelling market for South African businesspeople to tap into.

Ease of setting up a business

The U.S. is ranked number 8 among 190 economies in terms of the World Bank’s 2018 Doing Business survey and ranks first among countries with populations of over 100 million. While procedures for incorporating and registering a business vary by state, the process is typically straightforward, fast, and inexpensive.

Some factors that encourage business growth in the U.S. include a transparent and predictable legal system that treats foreign and domestic firms equally under the law. In addition, U.S. state and local economic development organizations promote and encourage business growth. Investors have a great amount of choice in terms of starting a new business, from location to business structure; it is entirely up to each investor how they would like to form a business in the U.S.

Favorable tax rates and tax incentives for new business

Tax rates are generally lower in the U.S. than in South Africa. Below is a comparison of some of the rates in both countries

Tax rates in South Africa:

  • Top marginal income tax rate of 45% for income above R1.5m (~$105,000)
  • Corporate tax rate 28%
  • Estate duty 20% (R3.5m exemption, ~ $243,000)
  • Capital gains tax of 18% for individuals
  • VAT 15%

Tax rates in the U.S.

  • Top marginal tax rate 37% for income above $600,000 (married filing jointly)
  • Corporate tax rate 21%
  • Federal Estate tax rate of 40% (exemption of $22.2m per couple)
  • State taxes range from 0% (Texas) to 13.3% (California)
  • Capital gains tax 15-20%

In addition, federal tax reform legislation enacted in 2018 included some attractive incentives for new business owners in the U.S. In particular, the new bonus depreciation rule now allows business owners to expense 100% of the cost of newly acquired equipment in the first year. Corporate buyers could consider structuring an acquisition as an asset purchase to take advantage of this.

Access to the world’s largest economy

The U.S. offers the largest consumer market on earth with a GDP of $20 trillion and 325 million people. Household spending is the highest in the world, accounting for nearly a third of global household consumption. In addition, free trade agreements with 20 other countries provide enhanced access to hundreds of millions of consumers.

Access to capital

Companies operating in the U.S. have access to a wide range of short and long term funding sources. Sources of funding include banks, investment firms, venture capitalists and angel investors.

According to the World Bank’s 2018 Doing Business survey the U.S. is ranked number 3 in terms of getting access to bank credit. In addition, federal funding may also be available, including loans from the Small Business Administration.

Workforce talent

U.S. workers are among the most productive in the world, with output per hour more than 30 percent above the OECD member country average. Free public K-12 education and one of the most advanced college and university networks in the world ensures a competitive and skilled workforce.

Federal and state governments also offer a wide array of resources – from training programs to tax incentives – to support employers find, train, and retain the best talent.

Center of innovation

The US is a global leader in R&D, accounting for well over a quarter of the worlds R&D spending and nearly 3% of GDP. This robust research activity, both public and private, ensures that the U.S. remains one of the most innovative economies. In the 2018 Global Innovation report published by Cornell and Insead, the U.S. ranked 6th out of 126 countries.

Other factors that help innovation flourish include stringent intellectual property rights laws, leading research universities, with 15 of the top 20 universities located in the U.S., and plenty of government and private resources (incubators, accelerators) to help innovators create, take risks and succeed.

Local and government assistance

The Federal Government offers a full range of support for export companies via U.S. Export Assistance Centers. The government also offers a range of services and programs, from general workforce development and energy efficiency grants to industry-specific incentives. Before deciding on where to locate your business it is advisable to enquire about assistance available from state and local authorities, since they are often the primary source of specific assistance to help new business ventures get off the ground.

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