The US Market Profile - Treasury Management | DBS Corporate Banking

Corporate Treasury & Cash Management in the US

At a glance

About The United States

The United States (US) is currently the world's largest economy, as measured by the International Monetary Fund (IMF). The US dollar is the most used currency in international transactions and is the world's foremost reserve currency. Several countries also use the US dollar as their domestic currency. The US is the world’s second largest trading nation and the second largest manufacturer in the world, accounting for a sixth of global manufacturing output.

The US offers economic freedom to its private sectors with minimal regulations and government involvement. Property rights are strongly protected as well. With its abundance of natural resources, highly skilled workforce and the largest domestic consumer base in the world, the US measures highly across 12 business activity metrics in the World Bank’s Ease of Doing Business Index. Its banking system is regulated by both federal and state governments. 

Corporate Treasury in The US

The US is the world’s largest economy and has the world’s biggest debt market. In this section, we highlight some of the key factors relevant to treasury and cash management in the US. 

Financial Market Development 

New York is ranked first in the 2021 Global Financial Centres Index by Z/Yen Group.
The US has excellent business infrastructure, strong rule of law and international regulatory standards.
It is sixth in the World Bank’s 2020 Ease of Doing Business rankings. 
There are no restrictions on capital flows in and out of the US.

  Sophistication of Banking Systems

There are more than 2,000 commercial banks in the US, the majority of which are small, local banks.
The US banking industry is closely linked to the UK, with more US-owned banks operating branches in London than on Wall Street. 
The US is the second-largest foreign-exchange market in the world, according to the Bank for International Settlements’ triennial global survey.
The US has the largest bond market in the world, as measured by its outstanding government and corporate bonds (Q3 2020).

Regulatory Bodies

Banks in the US are regulated at both a federal and state level. At a federal level they are regulated by the Federal Reserve System, the Federal Deposit Insurance Corporation and the Comptroller of the Currency as well as the National Credit Union Administration for certain financial institutions. State-level supervision is carried out by individual state bodies. 
The Office of Foreign Assets Control enforces economic and trade sanctions, as well as overseeing financial transactions that pass through the Federal Reserve.

Tax

The corporate income tax for resident companies has been reduced from 35% to 21% for tax years beginning on or after 31 December 2017. 
Resident companies are taxed on worldwide income. Foreign corporations are taxed on income derived from within the US. Companies are also taxed at a state and local level with rates generally ranging from 0% to 12%. 
There is a 30% branch profits tax on the US-branch earnings and profits that are connected with a US business of a foreign corporation that are not reinvested in branch assets. 
Mandatory-deemed repatriation toll charges require resident companies to pay a one-off tax of between 8% (other than cash items) and 15.5% (cash items) on overseas earnings made since 1986 that remain offshore. After making this one-time payment, resident companies will not be taxed again when they repatriate the foreign dividend into the US. 
Sales and use tax vary from state to state and ranges from 2.9% to 7.25%. Local jurisdictions, such as cities and counties, may impose their own sales and use tax on top of the rate prescribed by the state. 
Resident companies can deduct 50% to 100% of dividends received from other resident companies from their taxable income according to the stake they hold in the company. 
Capital gains are generally assessed with ordinary income and subject to corporate income tax of 21%. Capital losses can only be offset against capital gains. 
Withholding tax is charged at 30% on interest and dividends. Rates range from 5% to 30% on dividends and 0% and 30% on interest where a tax treaty is in place and the non-resident can provide the Certificate of Residence. 
A tax deduction is allowed at federal, state and local levels for interest expenses incurred by companies in carrying out business activities. 
For tax years up to 2021, no tax deduction will be granted on net business interest expenses in excess of 30% of a business’s adjusted taxable income computed without taking into account interest, tax, depreciation and amortisation. However, for tax years beginning after 1 January 2022, a business’s adjusted taxable income will take into account depreciation and amortisation. Any unused business interest expenses can be carried forward indefinitely. Certain exception(s) may apply. 
H.R.1, the Tax Cuts and Jobs Act, which was signed into law in 2017, includes the following significant provisions for businesses:  
- Reduction in corporate income tax for resident companies from 35% to 21%. 
- Repeal of corporate alternative minimum tax (AMT) and mechanism for prior-year corporate AMT credits to be refunded by the end of 2021. 
- New business interest expenses deduction rules from tax years after 31 December 2017 onwards (please refer to the preceding bullet point for details). 
- For taxpayers (other than property and casualty insurance companies which are subject to special rules), the new law eliminates carryback of tax losses and allows tax losses to be carried forward indefinitely, but limits carried forward tax losses to 80% of the taxable income from tax years after 31 December 2017 onwards.
- Mandatory-deemed, one-time repatriation toll charges of 15.5% for cash items and 8% for non-cash items on overseas earnings left outside the US since 1986. Once these charges are paid, resident companies will not be taxed again on dividend repatriated into the US. 
- A minimum tax on “global intangible low-taxed income” (GILTI). 
- A new tax called Base Erosion Anti-Abuse Tax (BEAT) was introduced to impose a minimum tax on certain deductible payments made to foreign affiliates including royalties and management fee payments but excludes the cost of goods sold. This tax applies for tax years after 31 December 2017 onwards.   
The US has tax treaties with nearly 60 countries and territories.

Benefits for Regional Treasury Centres

The US has highly developed, liquid, and efficient financial markets.
It offers strong corporate governance.
The US time zones overlap with European trading hours.
Cash concentration services are available in the US on a domestic and cross-border basis, although cross-border cash concentration is not common among US companies.
Domestic notional pooling is restricted in the US due to regulations and tax perspectives. However, US companies are allowed to participate in notional pooling located outside the US.

Banking

Bank Accounts

Residents: Foreign-exchange and domestic currency (USD) accounts are available both domestically and overseas. The foreign-exchange accounts are freely convertible.
Non-residents: Foreign-exchange and domestic currency accounts are available; however, foreign-exchange accounts are not commonly on offer, but when they are, they are freely convertible. 
Interest: Available on corporate demand deposit accounts (known as DDAs or corporate checking accounts). Interest is also paid on idle funds, known as earnings credit, and this offset and thus reduces bank service charges. The earnings credit rate is calculated daily and there is a fixed banking fee, therefore, large deposits and balances tend to have lower overall banking fees.
Banks may charge deposit insurance on customers’ accounts, which is related to the bank’s risk as assessed and charged by the Federal Deposit Insurance Corporation (FDIC). However, it is not a mandatory charge to the customer, and it is not a requirement of the FDIC.
Some banks offer corporations a choice of receiving earnings credit allowance and/or interest on balances. At some international banks, multinational corporations can choose the option of a global earnings allowance to offset interest earned from foreign balances against US-based fees.

Legal and Regulatory

The Federal Reserve System (the Fed) is the US central bank. It is split up into 12 District Federal Reserve Banks, each with responsibility for overseeing banking activity in their district. Each financial institution has an individual nine-digit American Banking Association (ABA) routing number that is used as an identifier for all financial transactions. ABA numbers may vary within the same bank according to the payment method being used or where the account was opened.   
As a federation of states, the US financial sector is supervised at federal and state levels. At federal level, bank supervision is carried out by the Fed, the FDIC and the US Treasury’s Office of the Comptroller of the Currency (OCC). Federal credit unions are supervised by the National Credit Union Administration (NCUA). State-level supervision is done by individual state bodies.
A resident company is one that was created or abides by the laws of any US state or the District of Columbia.
The US has anti-money-laundering and counterterrorism-financing legislation in place. It is a member of the Financial Action Task Force (FATF) and has set up a financial intelligence unit called the Commissioner of Internal Revenue Financial Crimes Enforcement Network (FinCEN), which is a member of the Egmont Group.
Regulation of the financial technology (fintech) industry is underway, with a view to drawing up a series of national standards to relinquish the need for compliance with multiple state regulations.

Payments

Payment Systems

Fedwire Funds Transfer System	US Real Time Gross Settlement (RTGS) system	Owned and operated by the Federal Reserve. Connects the 12 Federal Reserve banks and depository institutions. Processes high value and urgent domestic USD-denominated credit transfers (no value threshold). Fedwire transactions fall into two categories: interbank and third-party transfers. To participate, financial institutions must have an account with the Fed. There are 7,866 participants.
CHIPS (Clearing House Interbank Payment System)	Electronic clearing house database system	Operated by the New York Clearing House (privately owned). Unlike the Fedwire system (which is part of a regulatory body), CHIPS is owned by the financial institutions that use it. CHIPS transfers are governed by Article 4A of the Uniform Commercial Code. Payments cleared and settled in real time. There are 49 participants. Mainly used for international USD-denominated credit transfers, but can be used to clear high-value interbank transfers (international and domestic; no value threshold).
ACH (Automated Clearing House)	Electronic funds transfer system	ACH operators in the US are the Federal Reserve System (FedACH) and the Electronic Payments Network (EPN). Processes low value and non-urgent credit and debit transfers (no value threshold). Credits used for consumer, commercial and government payments and debits for consumer bill payments. Approx. 20,000 participants. Available to commercial banks, savings and loan banks and credit unions.
NSS (National Settlement Service)	Multilateral settlement system	Operated by the Federal Reserve. Processes private sector clearing arrangements through master accounts held at the Federal Reserve. Settles and exchanges transactions multilaterally. System reduces settlement risk by processing settlement within the same day. There are approximately 17 NSS arrangements.

Payment Instruments

 Credit Transfers

ACH credits are used for regular payments, such as payroll, supplier and government bills, as well as one-off or irregular payments. These can be low- or high-value payments that are not urgent.
Fedwire is used for high value and time-critical electronic transactions, referred to as wire payments, mainly for domestic USD-denominated payments, while CHIPS is used for cross-border USD-denominated payments, both same day. This form of payment is commonly used for interbank transfers and large payments between commercial and financial institutions.

 Direct Debits (auto debits)

Commonly used for low-value, regular payments such as utility bills.
Significant increase in the use of direct debit payments from the proliferation of cashless payments and online facilities.
Uses ACH debits to process with settlement next day.
FedACH SameDay Service allows the settlement of ACH debits on the same day.

Card Payments

The main credit cards in circulation are Visa, MasterCard, American Express, Discover and Diners Club.
Cards were the most popular point-of-sale (POS) payment method in 2020, with credit and debit cards being used for 38% and 29% of transactions respectively.
Debit cards are either Personal Identification Number (PIN)-based (online) or signature-based (offline), although the latter is no longer adopted by the four main credit card providers. Most payments using debit cards are settled via Visa and MasterCard.
While the US has been slower than other regions such as the EU in transitioning to contactless credit and debit cards, COVID-19 hygiene concerns have increased their usage. As VISA reported in 2020, the US had the most contactless cards of any market globally.

Online Payments

The US accounts for 71% of the global fintech market, with USD75 billion worth of investments in 2020.
Mobile banking has been steadily increasing in popularity over the past decade, with three-quarters of bank account holders accessing mobile banking through apps as well as institutional websites in recent years.
McKinsey’s annual Digital Payments Consumer Survey reported in 2020 that more than 75% of Americans use some form of digital payment. Most online payments—whether retail purchases or monthly bills—continue to be browser-based. However, in-app online purchases, in-store checkout using a mobile phone and/or QR code, and person-to-person payments are all on the rise.
PayPal is the most widely used system for business-to-consumer (B2C) digital payments while Venmo, which is owned by PayPal, is popular for peer-to-peer (P2P) transactions, especially with younger consumers. In addition to these two systems, the US digital wallet market supports a wide field of players, such as Amazon Pay, Apple Pay, Google Wallet, Visa Checkout and Masterpass from Mastercard.
Mobile shopping (m-commerce) has also experienced a COVID-related bounce, despite the country’s tech limitations on Wi-Fi or 3G/4G reception. M-commerce is forecast to make up 54% of the e-commerce market by the end of 2021.

Digital Currencies

Cryptocurrencies, primarily bitcoin, have experienced considerable growth in the US, registering the second largest global volume - approximately 26% - of bitcoin transactions (Cryptocompare). This is partly due to the country’s established and sophisticated financial sector.
The Treasury Department does not classify cryptocurrencies as legal tender, while other government departments differ as to whether cryptocurrencies should be considered securities or commodities.
Exchanges are regulated at the state level and are legal in some states.

Cash, Cheques and Money Orders

The Federal Reserve’s annual Diary of Consumer Payment Choice (Diary) tracks US payment trends and habits. Its October 2020 results showed cash payments declining to 19% of all payments, with the pandemic continuing to affect cash usage.
The Diary also reported that cheque usage is highest in the 65+ age group and virtually non-existent amongst 18-24 year old consumers. While still in use, especially for remote bill payments, cheques rank last for overall payment options.
Cheques are truncated before being processed and are settled either same day if they are ‘on us’ cheques (whereby the issue bank and deposit bank are the same) or up to five days if they are interbank.
Money orders are available through vendors such as the US Postal Service, Western Union and MoneyGram. Money can be received or sent domestically or internationally, either online or in person.

Cash Management

Notional pooling: This has limited availability in the US and cross-border notional pooling is prohibited.
Cash concentration: Resident and non-resident companies may carry out single and cross-currency cash concentration on a domestic and cross-border basis using one or multiple legal entities. Same-day funding usually defers to Fedwire and next-day funding, an ACH debit.

Foreign Exchange (FX)

The US dollar is the most traded currency in the world and acts as the world’s reserve currency. The US has no foreign exchange controls and is the second largest foreign exchange market in the world.

FX Landscape

The official currency of US is the US dollar which is fully convertible and acts as the world’s reserve currency. 
US monetary policy is set and managed by regulator the Federal Reserve, which sets interest rates. 
The US dollar has a floating exchange rate with its value determined by market forces, such as the supply and demand of the currency. 
New York is the second largest FX centre globally after London, according to the Bank of International Settlements’ triennial global survey
New York is an offshore renminbi centre.

  FX Management

Resident companies can have accounts denominated in both local and a wide range of foreign currencies, both domestically and overseas. The foreign exchange accounts are freely convertible. 
Non-resident companies may also hold accounts in both local and foreign currencies, although foreign exchange accounts are not widely available for non-resident companies. When they are available, they are freely convertible. 
Resident and non-resident companies can take out foreign currency loans in the US.  
A wide range of products to help companies manage FX risk are available in the US, including FX options, FX spot and FX forward, cross currency swap, and non-deliverable forward.

Exchange Controls

The US does not have any foreign exchange controls or restrictions on capital flows in and out of the US. No prior approval is required for payments and remittances in any currency to other countries. 
There is no tax on foreign exchange transactions, although gains and losses are classed as long-term capital gains and losses and are subject to tax. 
There are no restrictions on the remittance of profits, although a 30% branch profits tax is charged on the profits of US branches of foreign corporations, with a withholding tax of 30% charged on dividends, although rates may be lower if a tax treaty is in place.
Both domestic and cross-border intercompany loans are allowed in the US, but arm’s length standards must be met. Companies may obtain an advance pricing agreement with the Inland Revenue Service (IRS) or both the IRS and another tax authority for bilateral transactions, covering inter-company pricing to avoid transfer pricing penalties.

Trade

The US is the world’s second largest trading nation. Its largest trading partners are Canada, Mexico, and China, in terms of both imports and exports.

Trading Landscape

The US has nearly 300 free trade zones, known as Foreign Trade Zones, throughout all 50 states and Puerto Rico. Under the zones, the formal US Customs & Border Protection (CBP) entry procedures and payments of duty are not required on foreign merchandise unless it enters CBP territory for consumption, at which point the importer has the choice of paying duties at the rate of either the original foreign materials or the finished product.
The US has been a member of the World Trade Organisation since 1995 and of the General Agreement on Tariffs and Trade since 1948. 
The US has a wide-ranging sanctions regime which targets entire countries and jurisdictions, individuals, entities, sectors and governments. US individuals, US companies and foreign companies that have branches in the US must comply with the sanctions. In certain circumstances, companies in possession of goods that originate in the US must also comply, including financial institutions that conduct transactions in US dollars.  
The US Department of the Treasury publishes several lists on individuals and entities covered by financial sanctions.

Import Regulations

Generally, no import licence or permit is required to import goods from a foreign country into the US. For certain goods, such as some agricultural commodities, arms and ammunition, and precious metals, a licence is required. 
Companies require an importer number, which is their IRS business registration number. If they do not have an IRS business registration number, they can request a CBP assignment number from the CBP. 
Customs duty and import tariffs are set out in the Harmonized Tariff Schedule of the United States. Preferential duty rates are available for imports from countries that have a free trade agreement with the US, as well as goods imported under certain special programmes, including imports to Foreign Trade Zones. 
Duty is assessed at an ad valorem, specific or compound duty rate. The specific rate is calculated at a specific amount per unit or weight of imports, while the compound duty rate is a combination of both an ad valorem rate and a rate per unit or amount. Full details can be found here: https://hts.usitc.gov/current
In addition to ordinary duties, some products are subject to additional tariffs, for example additional tariffs have been imposed on certain products from China as a result of the trade tensions between the two countries. 
A customs bond is required for all imports over USD2,500 and must be purchased from a CBP approved insurance company.
A range of import financing options are available, including letters of credit, invoice factoring, purchase order financing and accounts receivable management.

Export Regulations

Most items exported to a foreign buyer do not require an export licence or permit. However, some products, such as military products, nuclear material, certain electronics products and lasers and sensors, are classed as controlled items and require an export licence. 
The US does not tax exports, but companies are taxed on income from exported goods and services. 
There are no financing requirements for US exports. A range of export financing options are available, including letters of credit, documentary collection, and financing trade receivables. 
There are no risk mitigation requirements for exports from the US. Export credit insurance is widely available. 
There are no restrictions on the proceeds from exports in the US.

For more information, login to Treasury Prism for contextual insights on market regulations that are relevant to your cash management structure.

Sources (Intro & Corporate Treasury) 
World Economic Forum, PwC, International Monetary Fund, CIA World Factbook, Trading Economics, Organisation for Economic Co-operation and Development, Bank for International Settlements, Federal Reserve System, the Federal Deposit Insurance Corporation 

Sources (Banking & Payments) 
Business Insider, DataProt, Federal Reserve, Findexable, IBISWorld, Tech Jury, Statista, KPMG, McKinsey & Company, VISA

Sources (Foreign Exchange) 
The Federal Reserve, Bank for International Settlements, PwC, Deloitte 

Sources (Trade) 
Office of the US Trade Representatives, US Customs & Border & Border Protection, WTO, PwC 