Comprehensive accounting, tax & consulting services for multinational companies, individuals & businesses entering the US.
International Tax: Foreign Investment in the United States
If you have foreign interests (such as a company overseas), you might not be aware of the international tax requirements brought on by recent reforms. From taxes on past and current overseas income to additional forms needed for your return, it’s critical to be aware of your obligations so you can avoid penalties. The last thing you need when building or managing a multinational venture is an unpleasant surprise from the Internal Revenue Service (IRS) when you file your return!
There’s more than meets the eye with international tax.
The words “international tax” probably make you think of a worldwide corporation with thousands of employees and offices in far-flung nations. But you don’t have to be a massive conglomerate to be subject to international tax requirements (or to be eligible for tax breaks).
Did you know?
- U.S. citizens and residents are taxed on their worldwide income, so a U.S. citizen who has income from another country must report that income on their U.S. tax return.
- The way you structure your business entity has a significant impact on taxes, owner liability, compliance procedures and much more.
- If your company manufactures and sells goods to customers overseas, you may benefit from tax breaks.
- Investing in a foreign company will also subject you to reporting requirements, as will foreign bank accounts—if you’ve established, inherited or have signature control of any such account, you may be required to report it to the IRS.
- If you are a non-citizen and own real estate in the United States, you may be subject to tax withholding when you sell your property or even when renting it out.
The bottom line… the complications are real for even the smallest of international endeavors.
What you don’t know can hurt you.
The penalties for noncompliance are often steep, so it’s crucial to have international tax advisors who know the ins and outs of international tax regulations.
James Moore & Co.’s international tax accountants have the experience and knowledge you need to ensure that you’re avoiding penalties and enjoying the tax benefits to which you are entitled.
Some of the international tax planning and compliance services we offer:
- Structuring your organization and intercompany transactions to minimize tax liability
- Reporting of foreign interests in foreign corporations and trusts
- Reporting on IRS Form 5472 to capture a detailed intercompany transaction history
- Properly claiming applicable foreign tax credits on your U.S. tax return
- Complying with transfer pricing rules under Code Section 482
- Filing of reports on foreign financial assets and bank accounts
- Assistance with offshore voluntary disclosure programs
- Calculation of foreign income tax exclusion for wages earned in a foreign country
- U.S. federal and state income tax preparation for non-resident aliens
- Applying for FIRPTA withholding certificates for federal withholding on real estate sales by non-residents
- Applying for a federal taxpayer identification number (TIN)
- Structuring tax incentives for manufacturers with profits from exports (IC-DISC)
The complexities of international taxation rules cannot be overstated. We strongly urge you to consult us at James Moore & Co. at 1 of our 5 Florida offices.
AGN International
James Moore is a member of AGN International, a global association of separate and independent accounting and advisory businesses. If the need arises, we are able to connect businesses and individuals with international markets.
AGN International is composed of 5 regions. Within each region and worldwide, member firms collaborate to meet clients’ needs and improve client service by understanding of each other’s markets and sharing experience and knowledge.
Common challenges when starting operations in the U.S.
Entity structure
There are distinct advantages for each corporate structure type, so understanding your options is crucial. Whether you choose to operate as a partnership, Limited Liability Company (LLC), or C-Corporation, rest assured this decision will affect more than just your tax burden. Knowing which entity is right for you, how and where to incorporate, and how this decision will affect your operations can be a game changer. We can help!
Taxes and compliance
When conducting business in the U.S., regardless of the size of your operation, you must concern yourself with obligations and deadlines related to taxes and compliance. We can all agree that being penalized by the Internal Revenue Service (IRS), state tax authorities or both would be less than ideal. The ever-changing world of federal, state and local tax law is complicated, which is why outsourcing these services can save valuable time, limit costly errors, and limit inefficiency.
Payroll and HR services
Payroll administration and management of HR services can become costly, time-consuming, and hectic very easily. These tasks are typically time-sensitive and certainly mission-critical to any successful business. Various aspects of services like employment law, tax withholding, Social Security benefits, and so on tend to change from time to time, adding to the complexity. Whether you are planning to expand a new or grow an exciting operation, JMCo has the experience required to help you navigate these potential obstacles.
Other considerations
It simply is not possible to fit all the facts you need on how to best manage your tax compliance here. Keep in mind, in the U.S., there are literally thousands of tax jurisdictions across its states, counties and cities. And each business type is nuanced within that system. For example, an affiliate or e-commerce business would be taxed differently than a company selling digital goods, software, and SaaS products. Even your customer matters in some cases (B2B vs. B2C). It’s our job to fill in the blanks! Contact us today to learn how our tax experts can help.
Consider this
Reporting certain transactions with a related foreign person or entity
If you are a 25% foreign-owned U.S. corporation or a foreign corporation engaged in a U.S. trade or business, you must report to the IRS the details of transactions with related persons. This is a compliance measure to reveal related intercompany transactions designed to artificially shift income out of the U.S. taxing jurisdiction.
Internal Revenue Code Section 6038 and its associated Form 5472 require annual reporting of such related party transactions. A failure to report or report truthfully can result in civil or criminal penalties.
Section 482 transfer pricing rules
An experienced tax professional is often required to determine taxable income across international borders and to avoid disputes between tax authorities and taxpayers.
Multinational enterprises and the governing U.S. tax authority have a similar objective: maximizing their revenue. However, there is a delicate balance between maximizing profits and managing risk — which is why transfer pricing consistently ranks among the primary tax concerns for multinationals.
As one might imagine, the U.S. government is concerned with losing tax revenues from transactions that shift income from the U.S. tax jurisdiction to a low- or no-tax country. For example, company X, a U.S. manufacturer, markets its product globally by first selling it to a related foreign entity, company Y, at a low price. Company Y then resells it at market value with the bulk of the net income allocated to and subject to the low- or no-tax jurisdiction. Section 482 allows the U.S. Treasury to adjust taxable income between two related parties to more accurately reflect the taxable income earned.
Are you a non-U.S. citizen but want to work or do business in the U.S.?
U.S. taxation depends on whether you are a non-resident alien or a resident alien. You are a resident alien if you have a green card or you are present in the United States for a defined threshold time period. As a resident alien, you are taxable just like a U.S. citizen on your income from all sources, foreign or domestic.
If you are a non-resident alien, you are taxable by the U.S. only on (i) income that is effectively connected with a trade or business in the U.S. and (ii) fixed, determinable, annual or periodical (e.g., dividends and interest) income from a U.S. source. A 30% tax may be withheld from payments to you unless a tax treaty applies.
What you need to know about tax treaties
Governments levy taxes to pay for public works and defense, among other services. At the same time, they don’t want to impede international commerce. People are reluctant to cross borders to engage in commerce if they know they will be subject to double taxation.
Some countries, including the United States, unilaterally provide relief to their citizens and residents. The U.S. and other countries also enter into bilateral treaties with chosen countries to effectively share the taxing jurisdiction over their respective citizens and residents. In the negotiation, each country relinquishes some of its taxing power in exchange for a similar concession by the other signatory country. Most developed countries and some less developed economies have such treaties. Modern treaties follow the guidelines of the model tax treaty promulgated by the Organization for Economic Cooperation and Development.
Other taxing jurisdictions in the U.S.
If you are a U.S. citizen or resident alien working or doing business in the U.S., you might be subject to other taxing jurisdictions or taxes, including state or local taxation. These include income taxes and payroll taxes if you have employees. As a vendor, you might have to collect and pay over sales taxes.
It should be noted that bilateral tax treaties do not cover such state and local taxes.
Need more information? Check out our library of tax-related articles.
Nexus: The “State” of Your Taxes
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Choosing the Right Entity Structure for Your U.S. Location
Selecting an entity structure is one of the most critical steps of establishing a U.S.-based business. Your choice sets the stage for how your business is taxed, personal asset protection,…
Domestic Affairs: Establishing a Business Entity in the US
As our global economy becomes smaller, more foreigners are establishing entities in the United States to do business. And with good reason—its economy is consistently strong and stable, U.S. citizens…
A Basic Introduction to U.S. Tax Treaties
What is a tax treaty? A tax treaty is a bilateral agreement between countries to cooperate on tax rules. The arrangement often helps people avoid paying taxes on the same…
Who Must File Form 5472?
A U.S. corporation is taxable by the U.S. on all of its income from all domestic and foreign sources. Foreign corporations are taxable by the U.S. on U.S.-source income depending…
What’s the Difference Between a Resident and Non-Resident Alien?
As it relates to individuals, the United States taxing jurisdiction applies to U.S. citizens, resident aliens and non-resident aliens. (The term alien is used to describe anyone who is not…
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Justyna Mueller, CPA
Partner
Justyna, a certified public accountant in the state of Florida, has over ten years of experience assisting clients with tax planning, tax compliance, entity selection, international tax consulting and reporting. Her primary areas of focus are the real estate industry, offshore reporting, taxation of foreign corporations and individuals who invest in the United States, and taxation of U.S. citizens working abroad.
Justyna often helps companies that are entering the U.S. market from overseas. Her work with them includes educating them about the U.S. tax system, tax planning that considers both their home and U.S. taxation, and helping them create U.S. subsidiaries of their foreign companies. She also assists with FIRPTA compliance and applying for ITINs and withholding certificates to reduce or eliminate withholding on sales of real estate by nonresidents. She helps U.S. citizens and residents with reporting of their interest in foreign corporations and trusts, and with filing of reports on foreign financial assets and bank accounts. She has assisted with numerous offshore voluntary disclosure applications and streamline programs.
Justyna currently serves on the board of the Estate and Planning Council of the Fun Coast and the Daytona State College Business School Advisory Board. She is also a chair of the Volusia Chapter of the Florida Institute of Certified Public Accountants and a member of the Hotel and Lodging Association of Volusia County.
