John I. Sanders & Beth Friedrich co-authored the article: Incentives, Grants, and Tax Exemptions for European Companies Considering a U.S. Presence
Moore & Van Allen's John I. Sanders, Head of International Capital Markets, and Beth Friedrich, Director of Public Affairs, co-authored the article: "Incentives, Grants, and Tax Exemptions for European Companies Considering a U.S. Presence."
North Carolina is an attractive option for European companies considering the establishment or expansion of operations in the U.S. Today, more than 1,700 foreign companies have their U.S. base in North Carolina, with companies from Germany, the Netherlands, Italy, the United Kingdom, and Austria leading the way. These businesses have been attracted to the state by a variety of factors.
In addition to a skilled workforce and a business-friendly tax environment, North Carolina offers a mix of (i) economic incentives, (ii) grants for improvements to real estate, infrastructure, and employee training, and (iii) tax exemptions. Foreign companies can leverage one or more of these by establishing a U.S. subsidiary to facilitate the company’s activities in the state. Full-service North Carolina-based law firms can assist in establishing a U.S. entity, obtaining debt or equity financing, and purchasing or leasing property for the new entity, while simultaneously working with local and state governments to access incentive programs, grants, and tax exemptions.
The Job Development Investment Grant
The most well-known of the state’s incentive programs is the Job Development Investment Grant (JDIG). The JDIG program provides an annual cash grant payable directly to a company that establishes itself or expands in North Carolina and can be used to offset the expenses associated with the company locating a new or expanded facility in the state. Foreign companies can access this grant program though the creation of a US based subsidiary. For example, the 2023 report on the JDIG program reports that both the Italian company alpitonix, which manufactures high-powered fast chargers for EVs, located in Mecklenburg County was awarded a $2.3M JDIG, and the Finnish based Kempower, also a fast-charging EV manufacturer, located in Durham County was awarded a JDIG of just over $3M. Both companies established a US presence to be eligible to receive the grant.
The county in which the company locates or expands is a key consideration under the program. North Carolina consists of 100 counties that are broken down annually into a 3-tier system. A county’s tier determines what types, and amounts, of incentives the state will make available to companies establishing or expanding operations there. Counties that are designated as Tier 1 represent the least developed areas of the state and, although incentives are available at every tier, the greatest incentives are offered to encourage investments in those counties.
The JDIG is performance-based and discretionary, and the final value of the grant is subject to a number of factors. Those factors include: (i) which tier the company locates in, (ii) the total number of jobs created by the company, (iii) the wages of those jobs compared to the county wage average, (iv) the company’s total investment in the project, and (v) whether the industry of the company is targeted by the state.
JDIG grant payments are typically paid annually for a term of 12 years as determined by a formula that evaluates the new withholding taxes generated by the new jobs the company will create. A percentage of the newly generated withholding taxes are reimbursed to the company for the term of the grant if the company meets its performance criteria. If the relevant county is Tier 2 or Tier 3, a percentage of the JDIG is paid into the Utility Account (a state incentive program that funds infrastructure investments in Tier 1 and Tier 2 counties and a topic of a future article).
Given North Carolina’s diverse natural and human resources, foreign companies are able to work with legal counsel and other advisors to balance the availability of economic incentives and other factors to find the ideal solution within the state. Since the JDIG program was introduced, foreign companies have chosen to locate within each of the economic tiers in counties from the Outer Banks to the Smokey Mountains.
This article is a summary prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice with respect to the laws the State of North Carolina or any other jurisdiction.
For information about government incentives, the financing of a corporate expansion, the purchase or lease of real property, the acquisition of a North Carolina business or assets, or any other matter relevant to establishing operations in North Carolina, contact the team at Moore & Van Allen PLLC