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Navigating the Inflation Reduction Act: unlocking opportunities for foreign businesses in the US

by Andrea Fantozzi

The United States Inflation Reduction Act (IRA) was officially signed into law in August 2022. The goal of the act was to increase federal spending toward reducing carbon emissions, improving tax compliance, and lowering healthcare costs. 

The IRA serves as a catalyst for investments in domestic manufacturing, but what does the IRA mean for foreign business opportunities in the US? Foreign-based businesses with US branches or partnerships can benefit from the IRA. Below, we’ll cover the key opportunities and considerations these businesses need to know about.

Key provisions of the IRA

The IRA increases federal spending across a variety of sectors. Not all provisions of the act are relevant to foreign-owned or multinational businesses, but understanding the IRA is crucial to any successful venture in the US.

A few key provisions to be aware of include:

  • Focus on sustainability: The bulk of IRA funding is reserved for clean energy, transportation, manufacturing, and environmental projects.

  • Incentives for private investment: The IRA provides tax credits for corporations and individuals investing in clean energy.

  • Reformed incentives: The IRA reforms energy tax incentives by expanding current programmes and adding new incentives.

  • Fair employment requirements: Manufacturers are only eligible for IRA tax credits if they meet certain wage and apprenticeship standards.

Opportunities for foreign entities under the IRA

The IRA presents exciting opportunities for savvy business owners. If a business invests in clean energy, manufacturing, transportation, or other qualifying sectors, it can access key benefits of the IRA through smart engagements.

For businesses that mainly operate outside the US, now could be a great time to partner with a US business. Electric vehicles, clean manufacturing, carbon capture, and battery manufacturing are all examples of industries expected to boom in the coming years, thanks to IRA funding. A smart partnership would extend those profits to a company based outside the US.

If a company invests in US businesses, it may be able to access tax credits and other incentives through the IRA. Likewise, if a company does business in the US, it may be directly eligible for IRA funding as long as it meets certain employment and manufacturing standards.

Remember that corporations, individuals, and government entities are all eligible for IRA funding and incentives. Now is the time for strategic collaboration with US stakeholders, including private investors.

Navigating the regulatory landscape

The IRA has created several opportunities for investment, partnerships, and US market expansion for foreign entities. However, it has also changed the regulatory landscape of certain business ventures in the US. That’s why it’s so important to understand IRA regulations and eligibility requirements before initiating any new investment.

Eligibility requirements for IRA benefits

As there are several provisions of the IRA distributed across multiple authorities and branches of government, specific eligibility requirements vary from case to case. In general, companies hoping to benefit from the IRA should be:

  • Invested in sustainability: IRA funding and tax credits are mainly allocated toward initiatives that help reduce carbon emissions.

  • Active in the US: IRA benefits are reserved for domestic manufacturing and sustainability initiatives in the United States. If a company doesn’t actively do business in the US, it may still benefit by partnering with or investing in a US business.

  • Fair employers: Businesses receiving IRA benefits or funding must meet US fair employment and wage standards.

Coordinating with US agencies and authorities

The IRA is a government-wide initiative, with programmes distributed across multiple US agencies and bureaus. Relevant agencies include the Environmental Protection Agency, the Department of Agriculture, the Department of Commerce, and the Department of Interior.

Finding the right US authority to coordinate with starts with choosing the appropriate programme for a project or investment. Companies may need to submit paperwork to multiple authorities to access tax credits and other benefits.

Challenges and considerations for foreign entities

The purpose of the IRA is to stimulate the US economy and boost domestic sustainability initiatives. IRA funding is not meant to go directly to foreign-owned businesses. However, foreign entities can still benefit through the right pathways.

Foreign entities may face more complicated application processes than domestic businesses. In certain programmes with limited funding, domestic businesses may be prioritised over foreign ones.

One of the most important considerations is the result of a project, investment, or partnership – if the majority of the economic benefit will remain in the US while still supporting the business, then that business has a better chance of claiming IRA funds.

Expert guidance for IRA opportunities

The IRA presents many unique opportunities for US businesses and foreign entities alike. Direct funding, tax credits, and other benefits will help kickstart new projects and grow successful partnerships.

With the right planning and engagement, these benefits are accessible to foreign-owned businesses. Now is the time to plan ahead, forge strategic partnerships, and invest in new initiatives in the US.

Andrea Fantozzi is a Partner and Director of the Italian Group in the International Department of Prager Metis CPAs, a member of Prager Metis International.

23 May 2024

Prager Metis International LLC