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Nov 09 2016

Trump Presidency: Effect on Foreigners Establishing US companies?

by John Gordon | 20:11 GMT

It is still too early after the US Presidential election to make firm predictions. It appears that even Donald Trump was surprised to win the election. There is great uncertainty about what future policies will be proposed, what policies will actually be adopted, what the composure of the future cabinet will be, and how well the new president will be able to work with Congress to accomplish anything. This uncertainty is being reflected in the financial markets at this time. This being said, we predict that there will be no substantial effect on foreigners establishing US companies in the short term, and possible positive effects in the medium term. There are too many unknowns to make any predictions about the long term at this time.

Short Run Outlook

In the short run, through next summer at least, there will be no effect at all on foreigners establishing US companies.  Changing the rules regarding setting up a US company as a non-resident, as well as the process of investing into the US from outside will not happen quickly. Doing so would require a change of federal and state laws, and this would take time, if it happens at all. Laws that would increase regulatory burdens on companies, including incorporation transparency,  and anti-money laundering, are highly unlikely to get through an anti-regulation Republican-controlled Congress and an anti-regulation Administration, especially if they cannot find a way to cooperate.  Since Trump ran on an anti-immigration platform, It is possible that administrative rules regarding the issuance of business visas may change, but even these changes will take time to go into effect.

Medium Term Outlook

For the medium term, meaning the next two to three years, it is likely that foreign investment, including setting up US subsidiaries, will be encouraged. If President Trump was to do what he promised and started changing trade agreements, this would most likely result in more investors forced to set up US subsidiaries to continue to sell in the US. If the market reaction to Brexit is any indicator, the US dollar will drop in value relative to other currencies, encouraging exports from the US while increasing the cost of importing goods – another incentive to have a US company. If enacted, the Trump tax plan would reduce the top corporate tax rate to 15%, making US corporations and LLCs very attractive as investment vehicles.

If the new Administration carries through on its promises to expand spending on infrastructure and deregulate energy exploration, this may encourage foreign investment in these areas, especially through the use of US subsidiaries.

On the downside, there is the high probability of a recession in the US during the Trump Administration, as the current recovery has continued for an extended period of time. While campaigning, Trump repeatedly criticized existing trade deals, promised to scrap or renegotiate new trade deals such as TPP and TIPP, and impose tariffs on imports from China and Mexico. If these promises are kept, the US could find itself in a ruinous trade war with major trading partners, with severe consequences for the US economy.

In summary, we believe that there will be no effect on foreigners seeking to establish companies in the US in the short run, and there may be encouragement to set up a US company as a subsidiary in the medium run. Because of the uncertainties regarding the new Administration, including who will be in the cabinet, what policies will be implemented, and what regulations will be relaxed or eliminated, a foreign investor should develop a market-entry strategy that takes these risks into account.

John Gordon John Gordon

Founder, President & CEO of USA Corporate Services Inc., a New York City-based incorporation and company management firm. He is a graduate of the Global Executive MBA program from Columbia Business School and London Business School.

 

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