Legal Framework

Foreign investments in the United States are legally and fiscally regulated—with few exceptions—by the same regulations applicable to investments by U.S. individuals or legal entities. Therefore, foreign capital and investment are subject to the same regulations and conditions as U.S. domestic capital and investment.

However, the foreign investor who comes to the United States finds a government scheme and a legal system that differs – in many cases – from that of his country of origin, and which is characterized by being a government scheme based on Federalism and a legal system based on Common Law.

Federalism as a government structure implies that there are two levels of government in a country: federal and state. In the United States, all states within the federation have their own state government and their own state legal system.

The term Common Law applies to legal systems in which Court Decisions – Jurisprudence – are considered Judicial Precedent (Case Precedent) and are endowed with binding force and legal effects for future cases, so they are considered as a source of law along with Legislation.

The hierarchy of sources of law in the United States is established as follows:

1. Federal Constitution
2. Federal Laws, International Treaties and Laws of Judicial Procedure
3. Regulations of Federal Administrative Agencies
4. Federal Jurisprudence
5. State Constitutions
6. State Laws and Judicial Procedures
7. Regulations of State Administrative Agencies
8. State Jurisprudence. When regulations of equal rank or hierarchy converge, the later regulation prevails over the earlier one.

In addition to federal and state regulations, local regulations (which in the United States include regulations of counties and municipalities within a state) may be competent to regulate certain business-related matters and, in relation to this publication, affect the development of foreign investments in the United States, both in strictly legal matters and also in tax matters.

In short, the legal and tax regulations applicable to foreign investments are a compendium of federal, state, and local rules that affect foreign investments depending on the degree of federal, state, and local jurisdiction over the development of the business or investment. In turn, there are federal, state, and local taxes that are regulated and applied according to the jurisdiction of the federal, state, and local governments over their imposition and collection.

In the United States, as a general rule, there are no “Exchange Controls” on foreign investments, so foreigners can freely invest and repatriate the capital invested, or the profits obtained in the United States through their investments.

Foreign investments in the United States, as well as investments by U.S. nationals, individuals, or legal entities, are eligible for investment incentives that are generally offered in certain States, Counties, or Municipalities to attract investment for the economic development of the State, County, or Municipality offering those incentives.

Foreign investments in the United States are regulated by federal, state, and local government regulations that apply based on the jurisdiction that any of these governments have over the specific development of a business activity or investment in the United States.

1. Federal Regulations

United States federal regulations govern the exclusive powers of the United States Federal Government and primarily affect matters that must be regulated uniformly at the national level, such as Defense, National Security, Telecommunications, Nuclear Energy, Competition and Monopolies, Customs Control, and the Internal Revenue Service (IRS). Federal regulations govern federal taxes under federal jurisdiction, which are administered and enforced by the IRS.

The Federal Government regulates and administers the USCIS . Any foreign individual who, having made an investment in the United States, wishes to travel frequently to the United States to supervise that investment; or if that individual wishes to remain in the United States for a period longer than that granted by the Visa Waiver Program or the B1 Business Visas, B2 Tourist Visas, or Business/Tourist Visas (B1/B2); or if that individual intends to carry out investment supervision or management activities through their continuous physical presence in the United States and receive compensation for their activities in the United States as work, then they will be required to obtain an Investment Visa , Work Visa, or Residence Permit from USCIS specifically for those purposes.

The processing of these visas or residency applications is the exclusive responsibility of the USCIS Federal Administration, although the issuance of the corresponding visas, while also a responsibility of the Federal Administration, is exclusively entrusted to the United States Department of State and, specifically, to the Consular Offices of the countries of nationality or residence of the foreign investors who have applied for a specific visa.

Regulations governing receipts and payments from the United States to other countries are also the exclusive responsibility of the Federal Government. Although, as previously noted, there are, as a general rule, no Exchange Controls in the United States regarding foreign investments, some Federal Government departments impose specific restrictions on certain receipts and payments from other countries:

• The IRS has exclusive jurisdiction over the regulation of foreign transactions and specifically payments that may be subject to reporting to the IRS and to tax withholding on payments of income, dividends and/or interest depending on whether there is a Double Taxation Treaty(s), DTT, between the United States and the country receiving the payment.
• The Office of Foreign Assets Control (Office of Foreign Assets Control , OFAC (Office of the Comptroller of the Treasury) administers and enforces U.S. foreign policy-based economic and trade sanctions against foreign countries, certain political regimes, terrorist groups, international narcotics traffickers, and associations engaged in weapons of mass destruction proliferation activities and other threats to the national security, foreign policy, or economy of the United States.
• Customs and Border Protection Service​ Protection , CBP) of the United States, requires every natural person or representative of a legal entity that leaves or enters the United States with currency or monetary instruments in an amount greater than 10,000 dollars to notify such transaction to the Financial Crimes Enforcement Service (Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury.
• FinCEN​ It also oversees and investigates obligations imposed by the application of regulations contemplated in the Patriot Act , a collection of regulations resulting from the review and adaptation of various US regulations following the terrorist attacks of September 11, 2001.

Regarding the specific content of this publication, it should be noted that the Patriot Act seeks to identify and eliminate potential sources of financing for terrorist groups . To achieve this objective, specific obligations are imposed on American individuals and professionals involved in the development of economic and financial activities in the United States to advise and act in accordance with the new legal order imposed by this new legislation.

The Patriot Act regulations have affected not only economic and financial activities related to potential terrorist activities, but also activities related to the management or administration of funds and capital. Financial institutions have been exposed to greater regulation, requiring them to undertake additional investigative obligations, especially in relation to activities that could constitute money laundering, an activity that, as a result of the entry into force and application of these new regulations, has been considered a criminal act by law.

In this sense, the modifications to the Bank Secrecy Law, the regulations on Know Your Customer and the requirements of Enhanced Due Diligence have caused financial institutions to be forced to considerably improve the knowledge and identification of new and potential clients, while the information and documentation of existing clients had to be reviewed and updated.

In addition to the Federal Agencies mentioned above, there are Federal Government Agencies that require obtaining a Federal License for the development of certain economic activities, such as:

• Bureau of Alcohol, Tobacco and Firearms​
• Food and Drug Administration
• Federal Transit Administration
• Securities and Exchange Commission​
• Environmental Protection Agency
• Federal Trade Commission

Furthermore, it should be noted that there are economic sectors regulated by both federal and state regulations of the States of the Union, and therefore, the federal and state governments of sectors such as the energy sector, banking, and insurance have shared jurisdiction over the regulation of these sectors. In this regard, it should also be noted that there are sectors that, while traditionally regulated exclusively by federal regulations, have progressively been supplemented by state legislation over time, which includes the regulation and enforcement of federal regulations:

• The stock market and the stock market transactions of companies listed on these markets have traditionally been regulated by federal regulations dating back to the early 1930s following the stock market crash of 1929. However, individual states have gradually regulated these matters, particularly with regard to offers to buy and sell securities within the territory of each state.
• Bankruptcy laws are part of federal law, as the United States Constitution guarantees the right to “uniform bankruptcy laws” throughout the United States. However, since bankruptcy proceedings affect rights and obligations arising from contracts relating to personal and real property subject to the laws of the state with jurisdiction over those contracts and properties, this has led to the application of federal laws being supplemented by state laws.
• While the Federal Government has been a pioneer in the United States in legislating and administering environmental protection legislation, it is no less true that states have progressively assumed legislative powers within their jurisdictions.
• Labour regulations, and specifically those that ensure worker protection, prohibit employment discrimination, and guarantee workers’ right to unionize, are developed by federal law. However, because employment contracts and certain regulations regarding workers’ wages, benefits, and tax contributions are often also regulated by state law, the two laws tend to complement each other in this area as well.

2. State Regulations

State regulations govern and have exclusive jurisdiction over the formation, registration, and operation of corporations. Therefore, in the United States, corporate law is strictly state-level, and all matters relating to its operation are regulated exclusively by the regulations of the state in which each corporation is incorporated and registered.

The incorporation and registration of companies must be carried out publicly before the Department or Secretary of State (name depending on the State) where the company is incorporated and registered. The regulations of the Department or Secretary of State where the company is established will exclusively govern the legal issues affecting the publication of corporate documentation subject to public registration and the information that must be contained in the same legal documentation of the Company and which basically includes information related to its corporate name and any changes related to it, number and date of incorporation and registration, mailing and business addresses, registered agent and address, name and address of the directors, merger or dissolution of the company.

State regulations govern State Taxes under the jurisdiction of the State, which are administered and applied by the State Administration.

3. Local Regulations

County and municipal regulations govern and administer basic aspects of a company’s business development, such as the Occupational Licence, which must be obtained in accordance with local ordinances and is granted by the county or municipal administration with jurisdiction over the location of a business’s physical establishment in order to legally conduct business.

Zoning regulations governing the uses for which a given property may be used are the exclusive responsibility of the local government. The most common uses for which a given property may be designated are residential, commercial, industrial/production, agricultural, and recreational.

Local regulations govern local taxes under the local jurisdiction of the County and Municipality, which are administered and enforced by the Local Government.