The tax reform, which began to operate in 2018 and was initiated by the President Donald Trump, is the first major change in the country’s tax legislation since 1986. The provisions of the reform are designed to dramatically enhance the international competitiveness of U.S. companies.

The essence of the reform is as follows: the more money businessmen and corporations keep, the higher the salaries of their employees will be, the more jobs will be created and, ultimately, the more benefits it will bring to the economy and the state. This is the so-called “trickle down effect” – one of the provisions of the economic policy of the 40th U.S. President Ronald Reagan. During this period the last full-scale tax cuts in the United States took place, which ensured economic growth. There are four important points of the new tax reform.

  1. Reduction of corporate income tax rate from 35% to 21%.  This means that America will be dragging businesses from other countries where the tax rate is higher. At the same level of taxation there is a maximum tax for “pass-through taxation” enterprises – these are organizations that do not pay corporate tax, but transfer the income received to their owner, and he pays tax at the appropriate rate of personal income tax (in the U.S. it ranges from 10% to 39.6% and it is calculated on the level of income). It will help to avoid double taxation. The maximum tax rate of 15% will allow “pass-through taxation” enterprises to save money.
  2. Reduction of taxes on return of income from activities abroad to the country up to 15.5% for cash, and for non-cash – up to 8% instead of the current 35%. Since the giants of American business (primarily Internet companies) keep many millions of dollars in foreign offshore (without paying taxes in the U.S.), the new law allows them to return the capital to America at a reduced tax rate.
  3. Introduction of Excise Tax at a rate of 20% on imported goods and services produced abroad and which are not subject to U.S. taxation. Thus, foreign competitors are at a disadvantage, but the reduction of taxes for U.S. companies is compensated. Thus, a French company operating in the U.S. will pay 20% tax on components manufactured in France. Theoretically, this also applies to American companies producing goods or services abroad, but for Americans there are numerous legal gaps. Thus, foreign companies in the U.S. will be subject to double taxation because they are already paying taxes to local authorities.
  4. As for individuals: reduction of the maximum personal income tax rate from 39.6% to 35%; waiver of “investment income” tax, which is 3.8%; abolition of inheritance tax, which is currently applied to persons with $5,500,000 worth of property or to married couples with $11 million worth of property.

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