Comparing US and European Tax Incentives For Startups

By  //  November 22, 2021

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According to the government of the United States, business owners and imminent entrepreneurs should take tax incentives and legal taxation policies into account in order to understand federal, state, and local requirements, which may aid in developing a legally compliant business structure.

Establishing a professional corporation as opposed to a limited liability company (LLC) may potentially have different regulations regarding tax; consequently, it is the responsibility of the business owner to familiarise themselves with the various forms and ruling regarding this crucial factor of business development. 

Based on research, US taxes may appear to be low when comparing other high-income countries with influential economies; however, when compared to the European Union, the US tax system may seem to have unfavorable incentives for business owners and startups alike.

Depending on perspective, many taxpayers criticize the American tax system since many low to middle-income citizens likely pay large shares of their income towards tax obligations.

In contrast, the European Union appears to not feasibly hold a direct role in accumulating taxes or setting rates for taxation fees; in contradiction to the American system, citizens of the European Union may only pay a rate decided by their particular government.

Understanding American Tax Incentives 

When compared, the United States may be one of the few developed countries worldwide that tax citizens based on citizenship instead of employment or residing location. The American tax system may be explained as a progressive one, with various faculties of handling tax regulations, the percentage of income that a business earns may likely increase their rate accordingly, promoting what appears to be a fair tax system.

The US tax system comprises three basic tax systems, namely income tax fees, corporate tax fees, and asset tax fees.

At a federal and a state-regulated level, US tax incentives may potentially achieve two separate authorities to charge tax. While the deferral government may not have the right to interfere with state-regulated tax methods, any particular American secretary of state may have its own system that may uniquely differ from other states when compared.

Furthermore, there may also be additional jurisdictional tax fees within the state-regulated tax charges, making the overall US tax system rather complex.

Understanding European Tax Incentives

When compared to the United States, the European Union has structured its tax system very differently. Their single market allows both goods and services to be bought and sold freely across EU borders, consequently avoiding competitive distortion amongst business owners and corporations.

With value-added tax incentives, the EU may appear to determine their tax system based on the growth and development of their economy and business sector. 

The European Union bases their taxes of non-discriminatory policies on their consumers, employees, business owners, and companies within its business sector, furthermore establishing no unfair advantages over competitors in alternative countries. 

Why Startups Should Consider Taxation Laws 

Apart from possibly affecting the overall structure and succession of a business, tax laws have the potential to have a direct impact on the economic growth of any respective business sector.

Based on studies, entrepreneurs endeavoring for successful business ventures should likely be willing to adopt the innovations through new tax incentives. That said, as startups develop and further establish themselves within any respective business sector or economy.

Well-established companies who start off as new business ventures may possibly gain future access to more significant capital streams, which may become valuable to maintain productivity-enhancing incentives.

However, income tax policies may play a large role in this process by establishing any particular company legal structures since obligating tax fees may allow for a business to grow in an enhanced state or federal-funded business environment. 

Final Thoughts

When compared to European incentives, the US tax system may seem like a tax system that may be taking precedence of business owners and entrepreneurs; in contrast, the European taxation system may appear to have a growth-friendly approach to tax, consequently raising the bar. 

For startups, it may be deemed to be essential to understand the tax systems of their particular residing country. As governments employ more revenue, it may be an important factor to analyze the tax field in any specific business industry to understand the way in which the tax policies are designed and how to structure any specific business accordingly while remaining legally compliant.