Top 10 challenges of doing business in the US

The US market is very attractive for companies looking to invest and run operations. The US represents a quarter of all global economic activity and is a reliable and consistent country with a long-standing history of economic growth.

1. Starting a Business

The US ranks as 49th in the world for ease of starting a business, according to the World Bank and International Finance Corporation (IFC). The process of starting a business can vary depending on what state, or even city, you would like to incorporate your company in plus how and where you intend to operate. With 50 states that all have their own rules and regulations, it can be a challenge to ensure that your operations remain compliant.

To explore these complexities, we will look at two cities, New York and Los Angeles, as examples of the varying challenges faced by businesses: 

2. Dealing with Construction Permits and Getting Electricity

In New York City, it can take an average of 89 days to obtain construction permits with 15 procedures that need to be followed. Submitting the zoning diagrams, getting sewer connection permits, occupancy permits and department of transportation work permits are just a few of these procedures. Many of them have fees which can add up to over USD $6,000 and getting your electricity turned on can take over 60 days.

In Los Angeles, it is a slightly faster process with an average of 68 days for the construction permits, covering 17 procedures. On the flip side, the associated costs can be very high. The building plan check and permit costs USD $48,646. Connecting the water can take 42 days and cost over USD $3,000 while getting electricity can take a long time, about 134 days.

3. Registering Property

In New York City, registering property takes about 12 days. The first two steps of obtaining a title report and an environmental review are done by private companies while the other two processes, transferring the forms and recording the title, are done through a public agency.

In Los Angeles, registering property takes 20 days with 5 procedures. The longest process, which can take 2 weeks, requires an outside company to provide various environmental inspections in order to issue the title insurance policies.

4. Getting Credit

Obtaining credit in both cities is easy with a ranking of two from the World Bank. The USA is the worlds’ most mature Capital Market, with strong rules and regulations protecting the rights of borrowers and lenders. These laws around collateral and bankruptcies allow borrowers to offer security against a loan in an environment where all parties roles/responsibilities are clearly defined and protected.

5. Protecting Investors

The US ranks highly in the protection of investors with a strong regulatory environment, comparable to other OECD countries like Germany or the United Kingdom. There are corporate transparency laws that help reduce the risk of abuse as well as clear shareholder rights and routes to recourse. The SEC (Securities and Exchange Commission) purpose is to protect investors and facilitate investment through maintaining efficient and well-regulated markets.

6. Paying Taxes

The US has a complex array of federal, state and local taxes and the IRS is known for strict enforcement of these rules. Rules for corporates, and individuals, changed earlier this year with the 2018 tax reform. Companies and their advisors are still assessing the new framework and their new obligations. The changes included cutting corporate tax from 35% to 21%, moving toward a territorial system of taxation, lowering the transition tax of 8-15% and putting a limit on interest deductibility of 30% of 12- month earnings. All of these changes are impacting the market but the full impact is still yet to be seen. 

7. Trading across Borders

The US is ranked 36th for ease of trading across borders, compared with a regional average of 68.71. The US has two border trade partners, Canada and Mexico with different laws for each border. This North American Free Trade Agreement (NAFTA) was recently renegotiated and replaced with the US-Mexico-Canada Agreement or USMCA. Some of the key focuses of the renegotiation was balancing the various interests in the automotive and farming industries, as well as ensuring protection of intellectual property and labour / environmental rights.

The recent tax changes are also focussed on regulating international trade, with the USA taking a more combative stance to protect US industry and maximise US tax receipts. Still, the US is an attractive market for foreign companies looking to gain access to the world’s largest consumer market and US firms continue to “eye” foreign M&A / partnerships to gain access to new markets, technology and skills.

8. Enforcing Contracts

The US ranks 16th in contract enforcement, according to the World Bank 2018 report, as it can take 370 days to file and serve (30 days), trial and judgment (240) and enforce judgement (100), compared with the global best of 164 days.

The USA is a highly litigious market with legal action, or threat thereof, a common method to resolve disputes between entities or individuals. The legal system is based on English common law which is enforced at both the state and federal level.

9. Resolving Insolvency

The US is Ranked as #3 in ease of resolving insolvency, according to the latest World Bank report. The process takes only 1 year which is must shorter than the regional average of 2.9 years.

10. Culture

In general, the US has more of an individualistic culture rather than a collectivist outlook. Individually speaking Americans believe that each person should have the freedom to define themselves and achieve the “American Dream” based on their own talents, abilities and ambition. Companies, and investors, are very results oriented and the short-term is measured and weighed higher than long-term strategic goals. 

American working hours tend to stray outside of the normal business day leading to longer work days with Americans tending to not to be awarded, or take, as many vacation days as other regions. Americans are direct and believe that time is very valuable so, although building relationships is still essential, people often cut straight to the point in meetings and on phone calls.

TMF Group

TMF Group in the United States, with offices in Miami, New York and San Francisco helps companies stay compliant with local regulations and filings – and has a proven track record in assisting businesses large and small to set up, or invest, in the USA with speed, safety and efficiency.

We have local experts providing financial, accounting, corporate secretarial, structured finance, legal, and HR and Payroll services across all the 50 states. Talk to us for in-depth knowledge that can help you succeed in the US.

Compliments of TMF Group, a member of the EACCNY