Tag International Businesses

Exporters: Have You Considered a Tax-Saving IC-DISC?

0 comments By TRMoore Filed in International Business, Tax Tagged with , , , , , , July 6th, 2011 @ 9:33 am

by Richard Beutelschies, CPA, Tax Partner, TR Moore & Company

According to an article in BusinessWeek, many businesses are unaware of an opportunity to reduce or defer foreign income taxes on exports of U.S.-produced goods without establishing a physical presence abroad – the interest charge-domestic international sales corporation (IC-DISC):

  • A little known incentive, with only about 6,000 businesses implemented this tax savings strategy in 2010.
  • Broader than you might think – for example, tires manufactured in the United States may qualify if they are installed on a vehicle that is later exported overseas.
  • Produces typical savings of nearly 30 percent on export income.

An IC-DISC is a tax-exempt “paper” corporation set up to receive tax-deductible commissions on export sales. The maximum commission is the greater of 4 percent of gross receipts from sales of qualified export property or 50 percent of net income on those sales. If certain requirements are met, commission payments to an IC-DISC allow an exporter to convert ordinary income (currently taxable at rates as high as 35 percent) into qualified dividend income (currently taxed at 15 percent). 

Even without the benefit of lower tax rates, however, an IC-DISC offers another significant tax advantage: It allows the exporter to defer tax on up to $10 million in commissions held by the IC-DISC (that is, not distributed to the exporter) in exchange for modest interest payments to the IRS.

Visit our website for more information and sample savings related to this tax benefit.

As Tax Partner, Richard Beutelschies, CPA, leverages more than 30 years experience in foreign and domestic tax to lead international services at TR Moore & Company, the Houston location of top 100 CPA and consulting firm Doeren Mayhew. For more information, contact us.

Avoiding International Tax Issues: Corporate Structure Planning

0 comments By TRMoore Filed in General, International Business, Tax Tagged with , , , , , , June 16th, 2011 @ 5:18 pm

Richard Beutelschies, CPA, Tax Partner, TR Moore & Company, A Doeren Mayhew Firm

Not long ago, international business was the domain of large corporations. Today, the Internet, advances in freight and logistics, and other developments have made global markets accessible to even the smallest businesses.

But just because some barriers have been lowered doesn’t mean doing business internationally is easy. In fact, it’s a complex process that requires a company to establish the necessary infrastructure, develop an understanding of foreign cultures, and prepare for a new tax environment. Careful tax planning can help you set up your international business in a manner that minimizes worldwide taxes and maximizes cash flow. Among the issues that should be considered is corporate structure.

Corporate Structure

There are many ways to do business abroad, including direct exporting, a joint venture with a foreign partner, acquiring a foreign company, or establishing a new foreign subsidiary or division. The right strategy depends on several factors, including the laws of the country in which you wish to do business and the level of control you seek.

The structure of your global operations also has significant tax implications. Suppose, for example, that your business operates as an S corporation. Without careful planning, you may find yourself subject to double taxation on foreign income, paying corporate-level taxes in the foreign country and individual-level taxes in the United States.

You can minimize or eliminate double taxation by setting up a hybrid structure — that is, one that’s treated as a taxable entity in one country and a pass-through entity in another — and filing the appropriate elections. These structures allow foreign corporate-level taxes to flow through to the individual owners as credits against U.S. income tax. There may still be double taxation, however, to the extent that the foreign tax rates are higher than an owner’s U.S. income tax rate.

Corporate structure also affects a company’s ability to take advantage of foreign losses or to defer U.S. taxes on foreign income. For example, if a foreign operation is structured as a hybrid entity or as a branch or division, the owners may enjoy significant tax benefits by deducting foreign losses (subject to passive activity loss rules and other restrictions).

On the other hand, if you’re doing business in a country with low taxes, operating through a foreign subsidiary may allow you to defer U.S. taxes on foreign income (subject to limitations). For some companies, an interest charge–domestic international sales corporation (IC-DISC) can provide similar benefits at a low cost.

As Tax Partner, Richard Beutelschies, CPA, leverages more than 30 years experience in foreign and domestic tax to lead international services at TR Moore & Company, the Houston location of top 100 CPA and consulting firm Doeren Mayhew. For more information, contact us.

IRS Reminds Taxpayers to Report Foreign Accounts

0 comments By TRMoore Filed in Tax Tagged with , , May 3rd, 2011 @ 4:55 pm

The IRS is reminding U.S. citizens and resident aliens that federal law requires them to report income from all sources, both foreign and domestic, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers also need to fill out Part III of Schedule B, including reporting the country or countries in which the accounts are located.

In addition, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2010 must file Treasury Department Form TD F 90-22.1. This form is due June 30, 2011, and is filed with the Treasury Department.

The IRS urges taxpayers who, in the past, failed to disclose foreign accounts or report foreign income to take advantage of the agency’s new Offshore Voluntary Disclosure Initiative. Announced last month and available for a limited time only, this special initiative is designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. Taxpayers participating in the new initiative must file all returns and pay any taxes, interest and accuracy-related penalties due by Aug. 31, 2011.

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