Table of Contents
Updated Opportunities and Enhanced Compliance for Foreign Companies
The Inflation Reduction Act (IRA) remains one of the most significant U.S. investments in clean energy and domestic manufacturing to date. It reshaped how international companies evaluate U.S. expansion, capital planning, and long-term strategy. For foreign businesses, the law creates major opportunities but also demands a higher standard of U.S. tax compliance for foreign businesses. Accessing these incentives requires a clear understanding of ownership restrictions, domestic content rules, and full IRA supply chain compliance.
Expanding Opportunities Across Clean Energy and Manufacturing
Despite the stricter compliance landscape, the IRA continues to provide powerful incentives. Renewable energy projects benefit from the Production Tax Credit (PTC) and the Investment Tax Credit (ITC). Beginning in 2025, these shift to technology-neutral Clean Electricity Credits, which reward any zero-emission power generation technology. This allows new entrants—hydrogen, geothermal, small modular reactors, advanced solar, and next-generation wind—to qualify under the same framework.
The electric vehicle (EV) sector remains another strong focal point. The Section 30D Clean Vehicle Credit now links eligibility directly to battery assembly, mineral sourcing, and location of component production. EV manufacturers and suppliers must prove adherence to precise sourcing rules to retain access to the full credit value.
For advanced manufacturers, the Section 45X Advanced Manufacturing Production Credit is one of the most financially attractive features of the IRA. It rewards U.S. production of battery cells, solar wafers, critical minerals, and related components with per-unit credits. For foreign companies looking to scale U.S. operations, 45X can significantly reduce domestic manufacturing costs.
Emerging decarbonization technologies stand to benefit as well. Section 45V provides long-term support for clean hydrogen, while Section 45Q incentivizes carbon capture, removal, and sequestration projects. Battery storage systems also qualify for standalone credits, further expanding the investment landscape for international developers.
Compliance Challenges: FEOC and PFE Restrictions
The opportunity remains substantial, but the compliance environment has shifted. The Foreign Entity of Concern rules create barriers for international companies whose ownership structures or upstream suppliers have ties to China, Russia, North Korea, or Iran. Under these rules, even a 25 percent ownership interest, board influence, or contractual control from a covered nation may disqualify an entity from receiving IRA credits.
The EV sector faces the earliest impact. Beginning in 2024, a vehicle becomes ineligible for the Clean Vehicle Credit if any critical minerals used in the battery were extracted, processed, or recycled by a Foreign Entity of Concern. This builds on the previous rule disallowing battery components linked to FEOCs. As a result, manufacturers must undertake detailed supply chain mapping to confirm compliance.
The Prohibited Foreign Entity designation expands this framework even further. Unlike FEOC, PFE rules may affect eligibility across several IRA credits, including clean electricity incentives and the Advanced Manufacturing Production Credit. For companies with complex global structures, joint ventures, or historical partnerships in covered nations, these rules require immediate audit and restructuring considerations.
On top of ownership restrictions, domestic compliance requirements remain strict. Projects larger than one megawatt must meet prevailing wage and apprenticeship rules to receive the full credit value. Domestic content requirements for iron, steel, and manufactured products determine bonus eligibility. For many projects, these requirements dictate the financial viability of the investment.
Strategic U.S. Planning: Aligning Federal Incentives with Location
To unlock the full value of IRA credits, companies must now align federal incentives with state-level programs and regional benefits. This deeper analysis is quickly becoming a competitive advantage.
The Energy Community Bonus adds an additional 10 percent credit for projects located in areas historically tied to coal or fossil fuel production, including parts of West Virginia, Pennsylvania, Kentucky, and Ohio. These regions offer low-cost sites and established workforces.
Low-income community and Tribal Land Bonuses create further incentives for project developers willing to invest in underrepresented areas. These bonuses can materially increase credit value while helping companies address environmental and economic equity goals.
State-level programs can often be combined with federal incentives. States such as California, Arizona, Texas, and New York provide grants, tax credits, infrastructure support, or expedited permitting for clean energy and advanced manufacturing projects. In some regions, support for hydrogen hubs, carbon capture clusters, or high-tech manufacturing accelerators aligns directly with IRA programs.
For European and Asian companies entering the United States, these regional considerations must be integrated into early planning. Establishing a compliant U.S. presence, often through U.S. entity setup for European companies, is increasingly essential not only for tax purposes, but also for supply chain verification, state incentive qualification, and investor confidence.
A More Selective but More Rewarding Environment
If you would like more information, please contact us.
