Tag International Tax

Focus on Foreign Accounts: FBARs Due June 30

0 comments By TRMoore Filed in General, Tax Tagged with , , , May 1st, 2012 @ 9:23 am

According to the IRS, you may be required to file an FBAR on June 30, 3012, if you own or have authority over a foreign financial account, including a bank account, a unit trust, mutual funds or other types of financial accounts. Even if you’re not a signer on the account, your status as an officer or manager for the entity that controls it could make you responsible for disclosure.

Mutual funds, the IRS states, include partnership interests in hedge funds, private equity funds and other investments that are organized under foreign laws. These entities may be owned directly or indirectly through a U.S. fund that has invested in a foreign fund.

Why is it necessary?

Anyone who is a citizen of or resident in the United States, or has a business there, is generally allowed to own a foreign account. But the FBAR is a tool to help the federal government identify those who may be using foreign financial accounts to circumvent various U.S. laws.

Investigators use FBARs to help identify, or trace, funds used for illicit purposes — or to identify unreported income kept or generated abroad. Here’s an overview of what the form requires.

Who must file — and when?

Specifically, you’re required to file the report if:

  1. You or your business has either a financial interest in or signature authority (or something comparable) over one or more accounts in a foreign country, and
  2. The aggregate value of those accounts exceeds $10,000 at any time during the calendar year.

The law applies to most areas outside the United States, Puerto Rico and U.S. territories and possessions, such as the U.S. Virgin Islands and Guam.

FBAR reports are normally due annually on June 30 and cover the previous calendar year. So, for example, a report for the period of Jan. 1, 2011, to Dec. 31, 2011, is due on June 30, 2012.

The IRS is responsible for investigating possible civil violations, assessing and collecting civil penalties and issuing administrative rulings. The Department of Justice is responsible for criminal violations.

Penalties vary by severity, but can climb to $100,000 for willful civil infractions ($10,000 for nonwillful infractions) and to $500,000 and 10 years in prison for criminal violations.

Where can I find out more?

Visit the IRS online, and contact a Houston CPA firm such as TR Moore & Company for help assessing your particular situation.

Avoiding International Tax Issues: Withholding, Credits & Indirect Taxes

0 comments By TRMoore Filed in International Business, Tax Tagged with , , , September 22nd, 2011 @ 9:58 am

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

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 are tax withholding, tax credits and indirect taxes.

Income Tax Withholding & Credits

It’s critical to understand a foreign country’s income tax laws, regulations and procedures, and particularly important to consider withholding taxes. If your company doesn’t have a physical presence in a country, that country may impose significant withholding taxes on gross income.

Many countries have treaties with the United States that provide for low or no withholding taxes on cross-border payments, but there may be exceptions. For example, some countries may not extend international treaty rights to certain types of entities, such as limited liability companies (LLCs).

The availability of foreign tax credits is crucial to avoiding taxation of income by both the foreign country and the United States. Withholding taxes paid to another country generally entitle your company to a dollar-for-dollar direct credit against U.S. tax liability.

But if you operate through a foreign subsidiary, it’s a bit more complicated. The subsidiary pays corporate-level taxes on foreign income, which becomes taxable in the United States when it’s distributed to the parent. The parent can claim an indirect tax credit for foreign taxes paid, subject to certain ownership requirements and limitations on the amount of the credit for certain types of income.

Indirect Taxes

Don’t overlook indirect taxes, such as customs duties and value-added tax (VAT). Duties vary substantially from country to country and even from product to product. And there may be opportunities to minimize duties by categorizing products in a certain way or by unbundling products and reassembling the components after they’re imported.

A VAT is similar to sales tax, except it’s imposed on the amount of value added at each level of the production process. Generally, the seller is responsible for collecting and remitting the tax, offset by any VAT the seller has paid to others.

More than 140 countries have VATs, and the rules vary dramatically from country to country. VAT rates generally fall between 15 percent and 25 percent. In some countries, VAT registration is required even if you don’t have a physical presence there. Where registration isn’t required, voluntary registration may provide advantages, including quicker refunds of excess tax payments.

If goods will be stored in inventory for an extended period of time, consider using a bonded warehouse to defer customs duties and VAT.

As Tax Partner, Richard Beutelschies 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.

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.

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