Irish companies are increasingly seeking the benefits of foreign direct investment (FDI) in the United States. Add Brexit concerns to the mix—and the bonus of a robust US economy—and more Irish companies are redirecting their investments from the United Kingdom to the US marketplace.
Irish companies are well represented across range of industries in the US, including building materials (Oldcastle), glass and metal packaging (Ardagh) and food and dairy (Greencore and Kerry Group, respectively). Also represented are clinical research and outsourced development services to the pharmaceutical, biotechnology and medical device industries (Icon), among others, according to a report on Irish investment in the US.
However, it is not all big business, and the relative ease of establishing a presence in the US that has attracted numerous emerging Irish companies across the Atlantic. Small to medium-sized enterprises (SMEs)—companies with fewer than 250 employees—are increasingly investing in the United States. Why?
The US, Ireland and FDI
A recent study outlines significant developments related to Ireland’s FDI landscape that may be encouraging to SMEs looking to US investment. “Three arise in neighbouring or encompassing jurisdictions: the UK’s proposed withdrawal from the EU, the recently-enacted changes to the US corporate tax regime, and post-crisis dynamics within the Eurozone,” according to the Institute of International & European Affairs. Other developments include the steadily increasing digitalisation of the business world and the shift of global income and production.
In the past, Ireland’s geographic location may have added logistical challenges to conducting business internationally, but today’s advancing digitalization, however, helps to further reduce the disadvantages of “geographic peripherality,” the study indicates.
Ireland currently is the fifth largest source of FDI into the US at $328.7 million, employing more than 263,000 individuals, according to according to SelectUSA, the government entity that promotes and facilitates business investment in the US.
According to SelectUSA, the top Irish FDI industry sectors in the US are
- Software and IT services
- Business services
- Food and tobacco
- Industrial machinery
FDI plays an essential role in the global economy, benefiting both the recipient country and the SME. FDI stimulates economic growth and jobs, and spurs innovation around the world, providing SMEs the opportunity to tap new customer bases in countries such as the US—once only affordable for large companies.
Doing Business in the US
There are many reasons Irish SMEs may be considering investing in the US. Namely, the US is rated number one in the World Bank’s “Doing Business” 2019 report, which measures factors such as how easy it is to start a business, including the ability to obtain permits and credit, enforce contracts and trade, among other measurements.
The US boasts a pro-business environment, with low unemployment and a bustling economy. The US is home to the world’s largest consumer marketplace, possessing a highly mobile, entrepreneurial workforce and a business climate that encourages innovation and legal protections.
The US also is home to a predictable regulatory environment conducive to FDI because of its free market and competitive nature. US federal and state labor laws provide a safe, fair working environment for the American workforce, while state and local municipalities offer an array of resources.
For example, the US government offers general workforce development and energy efficiency grants and industry-specific incentives, while state and local governments are often the source of assistance to help investors launch or expand existing operations, according to the US Commerce Department.
SMEs should be aware that, on the financial side, the Tax Cuts and Jobs Act reduced the US corporate income tax rate from 35 percent to 21 percent, although an additional tax is also levied by states. Therefore, the statutory corporate income tax rate, based on an average of state corporate income taxes, is 25.7 percent, which is comparable among Organisation for Economic Co-operation and Development member nations.
From choosing the right business structure to complying with US business, tax and employment laws—as well as regulations—Irish SMEs that can navigate these aspects of developing and maintaining a presence in the US will be in an ideal situation to conduct successful business operations in the American marketplace. z
Determining a company’s business structure is the first and, possibly, one of the most important decisions that needs to be made, due to a variety of legal implications. If any of the owners of the new SME are not American citizens, there are only two legal entity options available: a corporation (“C-corporation” or “regular corporation”) or a limited liability company (LLC). Corporations are the most common type of company in the United States and offer growth potential through the sale of stocks, among other benefits. The profits of a corporation are taxed separately from its owners under U.S. federal income tax law.
An LLC provides limited liability to owners, but varies by state, therefore it is important to have knowledge about various state statutes in determining the state in which the business operation would best benefit from being established. LLCs are subject to fewer regulations than traditional corporations, and thus may allow members to create a more flexible management structure than is possible with other corporate forms. Members may include individuals, corporations, other LLCs and foreign entities.
There are no restrictions on the number of owners of a corporation or LLC may have, which country the owners are from or whether they are individuals or other companies (foreign or domestic).
Up and Running
Once the SME is up and running, it will be subject to the US employment laws, which vary from those in Ireland. Written employment contracts with employees are rare, except in the case of senior executives or key employees, for example. Certain benefits, such as paid time off, are negotiated at the time of hiring, while paid family and medical leave varies throughout the US, because it is mandated by state law.
There are also differences regarding intellectual property, with rights and protections in the US more highly regulated than in Ireland. Therefore, it is important for Irish SMEs planning to do business in the US to understand how to use, guard and enforce their rights over their intellectual property. Federal and state laws provide stronger rights and protections to those who develop creative works to exclusively control intangible assets, including copyrights, patents, trademarks and trade secrets, than Ireland does.
The US continues to be and will remain an attractive and lucrative marketplace for Irish SMEs seeking an American presence, particularly with regard to the uncertainties of Brexit.