We agree that filing taxes are not exciting, but they are one of the sensitive factors in business. Taxes have an impact on the bottom line of daily business operations. Your business must plan a proper collection and payment of taxes. It does not matter if the taxes are on sales, income, or excise taxes, ensure that you spend enough money and time on it before it becomes a burden for your business. When your business starts operating across the border, the tax structure becomes more complex than expected.
Your business must not necessarily operate overseas to face international tax complexities. Your business may have an employee who is not a resident of your country. Your business may deliver its products overseas. Somehow every business works in the global economy in some way or the other, and that is where you become liable to international tax laws. With the treatment of international assets and transactions, it becomes necessary to identify international tax issues involved in your business.
According to Gamburg CPA PC – International tax services provider, here are four international activities which might subject your business to international taxes:
You must be aware of the requirement of documentation when hiring an employee from a different country. In the United States, certain eligibility must be fulfilled for every new hire that includes completing Form I-9. The employee must be a citizen, non-citizen national, or lawful permanent resident with a green card to work in the United States.
If your business is looking to hire a foreigner authorized to work in the United States and the employee might not necessarily be subjected to Federal Insurance Contribution Act tax depending on the visa status. If the employee is non-resident, and your work is done partially outside the country, some wages become nontaxable. Some tax treaty benefits must be taken into consideration also.
The United States has a totalization treaty with the employee’s country of origin. You must consider all these laws and rules before you issue a paycheck to the employee. Remember, there are also some similar issues to consider if you are looking to hire an individual contractor for your company and plan to put them under your payroll.
If your business has an investor who is a non-resident, alien or foreign entity, you will be involved in some income tax requirements associated with the owner. Businesses operating as partnerships and LLCs operating as a partnership have to pay some taxes on the income.
It is allocated to foreign investors irrespective of any cash that is distributed to them. Failure to pay the property taxes they are liable to some penalties like under-withheld tax laws.
If your business is owning any stock of a foreign company, then there will be a certain amount of the international tax reported on your statement. If the business is operating as a C corporation, then your business will be liable for some international taxes on payment of dividends to any non-resident alien or foreign-entity shareholder also.
If your business is operating as an S corporation, then make sure you do not have any nonresident alien shareholders since they are not eligible in the S corporation. The owner of S corporation need not be a citizen of the United States but must be a resident as defined by the tax code.
Selling to Foreign Customers
When your business is involved in any transaction with foreign-affiliated companies, whether you buy the products from them or sell them your products, the prices of that product become the subject matter of transfer pricing rules. The purpose of this rule is to stop companies from shifting their profits to more tax-favourable companies through pricing policies of the product.
Sales to foreign customers become subject to foreign taxes such as foreign sales tax or foreign value-added tax in that foreign country. It is necessary to consider the international taxes borne by your business when you price a product to a foreign customer.
It is necessary to determine if the foreign taxes are due to the foreign government. The tax can be refundable or reduced if certain forms are remitted to the foreign government. That is because of the treaty between the foreign country and the United States.
Credit is allowed against a business for the payment of foreign taxes, but the rules for the foreign tax-credit are very complex. Credit is only allowed on an income tax. There is no allowance for credit on sales tax or value-added tax. These taxes must be paid to that foreign country and the United States. It is necessary to see the international taxes from both foreign and the United States perspectives to reduce the burden of taxation.
Owing Foreign Bank Accounts
Most of the businesses set up accounts in foreign countries to simplify the payments by the foreign customers and to the foreign employees if any. There are some disclosure requirements when you own a foreign account as the signature authority over the foreign accounts. There will be some very high penalties involved with failure in proper disclosure of foreign accounts.
Not only your business but the business owner and some of the employees will also be required to have disclosure if they own a foreign account. It is due to their authority to sign the checks and carry out any account transactions on behalf of the company.
So, we have briefly discussed the possibilities in tax complexities for business that might be a part of the United States international tax laws and some disclosure requirements in order to abide by such laws. Rules are even more complex with most tax laws. In the case of having foreign owners, having ownership in a foreign entity and business operation in foreign countries is likely to increase the complexities.
Operating businesses in a global economy results in more and more opportunities. Understanding the significance and navigating the tax implication with business growth will ensure a smooth journey.