News Americas, NEW YORK, NY, Mon. Sept. 6, 2021: The Caribbean region continues to offer political and social stability making it extremely beneficial for business. Besides stability, the region also offers a highly skilled workforce, excellent infrastructure and telecommunications, infrastructure, and tax benefits. In the US, business culture, stability, and below world average tax rates make it favorable for doing business.
Tax Implications For Business In The US
In the US, corporations are taxed differently than business structures like partnerships and LLCs. Corporations are a separate entity from their owners, and it deducts business expenses before paying tax on its profit. Thanks to the Tax Cuts and Jobs Act, since 2018, corporations in the US pay a flat tax of 21%. Enterprises can keep profits in the company for future expansion without being taxed again. This measure pushed the US business tax rate below the world average of 23.79%.
Companies in the US also pay corporate state taxes. These range between aero and 11.5%, depending on the state, resulting in an average combined tax rate of 25.8%.
Caribbean Tax Rates
To reduce their reliance on foreign countries, many Caribbean countries decided to maintain their economies by becoming tax havens or offering very low tax rates. Besides their low or non-existent tax liabilities, some of these countries also implement financial privacy laws, making them complete tax-havens.
The Cayman Islands, Panama, Bermuda, the Bahamas, Dominica, the British Virgin Islands, Costa Rica, Barbados, Belize, Anguilla, and Nevis are the most popular tax havens in the region. The services provided differ from one country to the other but many include offshore banking, the incorporation of offshore LLCs and trusts, no taxes or very low taxes, no exchange controls, and the absence of tax treaties.
Barbados taxes offshore companies with 0% to 5.5% corporate taxes that have a decreasing rate as profits increase. Costa Rica is not a pure tax haven but does offer several tax incentives and eight-year tax exemptions to corporations.
The Bahamas don’t have taxes on profits, dividends, personal income, capital gains, inheritance, gifts, or unemployment. Corporations need to pay licensing fees, property, and value-added tax. Some business structures allow businesses to take advantage of a 0% tax rate in the Bahamas for up to 20 years.
Bermuda, the Cayman Islands, and the Bahamas are three of the most popular countries among US businesses wanting to invest offshore.
Undermining Incentives
As some of the world’s largest economies mull the adoption of a global minimum corporate tax rate of 15%, countries in the Caribbean feel this will undermine the incentive for companies to incorporate there. This is because companies will have to pay the 15% back home. They feel this will have a substantial effect on their battered economies that have lost their revenues from tourism these past two years.
The implementation of the global tax minimum would have different implications for each Caribbean country. The Cayman Islands is home to 100,000 corporations, but most are regulated financial services. These services are trying to negotiate an exemption from the tax deal.
For Puerto Rico, a US territory, the implementation of the global tax will mean an end to its tax competitiveness. However, the island has already said it would use the added income to offer other incentives for corporations.
Forming An LLC
Starting a business is always exciting, and whether you are considering incorporating it in the US or the Caribbean, an LLC is a formal business entity with many benefits. These include personal asset protection, the ability to buy property, hire employees, and have a business bank account.
One of the reasons most businesses choose an LLC over a corporation is that the paperwork required is far simpler. LLC owners only need to file an annual report, far less than the detailed record required for a corporation.
At Incorporation Rocket, you can start an LLC by choosing your state and following the simple steps. You can either select the default tax option of a pass-through entity or opt to have the LLC taxed as a corporation.
It is best to incorporate your business where it is headquartered, but some companies still prefer to incorporate offshore. Some of the Caribbean companies mentioned above are extremely popular with US businesses, but there are also some disadvantages. These include difficulty in proving ownership, negative perceptions, difficulties in financing and evaluating a company. Wherever you decide to start your LLC, the procedure is easy and cheap in the US. Once formed, an LLC is easy to maintain, with just a few annual requirements, and tax flexibility.
