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TAX ISSUES U.S. COMPANIES FACE WHEN CHOOSING TO DO BUSINESS ABROAD PowerPoint Presentation
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TAX ISSUES U.S. COMPANIES FACE WHEN CHOOSING TO DO BUSINESS ABROAD. Presented by: Ryan L. Losi, CPA Executive Vice President Piascik & Associates, P.C. Agenda/Outline. Introduction Where will you transact business What business will you transact How will you transact business

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tax issues u s companies face when choosing to do business abroad
TAX ISSUES U.S. COMPANIES FACE WHEN CHOOSING TO DO BUSINESS ABROAD

Presented by:Ryan L. Losi, CPA Executive Vice PresidentPiascik & Associates, P.C.

agenda outline
Agenda/Outline
  • Introduction
  • Where will you transact business
  • What business will you transact
  • How will you transact business
  • Which business form will you transact through
  • Compliance requirements
  • Cash flow and treasury requirements
  • Social issues to address
  • Other tax issues to address
  • Brief example
the market
THE MARKET
  • Determine which Region(s) of the world the Company’s products and/or services should be offered
  • Determine which Country(ies) within each Region the Company’s products and/or services should be offered
the tax system
THE TAX SYSTEM
  • Obtain a thorough understanding of the type of income tax system the foreign country employs which will generally be one of the following:
    • Territorial System – based on the connection between taxpayer’s income and that country (many European Countries)
    • Credit System – based on the connection between taxpayer and the taxing country (U.S. System)
the business activities
THE BUSINESS ACTIVITIES
  • Based on having a thorough understanding of the country’s income tax system, determine WHAT and how the Company will do business in the foreign country. Will there be the following activities:
    • Sales and/or Distribution Activities
      • Use of independent Sales Force
      • Use of Company Sales Force
        • Use of local or U.S. Expatriates or combination
    • Manufacturing & R&D Activities??
    • IP/Entrepreneurial Activities – Who will own this?
the structure
THE STRUCTURE
  • Determine which business form the Company will use to transact within the foreign jurisdiction (i.e., foreign branch, foreign partnership, or foreign corporation)
  • To determine the best business form the Company should:
    • Have five (5) year revenue and profit/(loss) projections
    • Determine its long term strategy regarding its profits (i.e., reinvest vs. repatriate)
    • Determine which section of the Internal Revenue Code the Company will be subject to
    • Analyze and plan how this impacts other countries of interest
  • Determine the compliance requirements for each business form for the following:
    • Local foreign jurisdiction
    • U.S.
the compliance
THE COMPLIANCE
  • Determine where the books and records will be maintained and the following:
    • Is a local accountant necessary to maintain the books and records as well as satisfying the local compliance requirements
    • Who in the U.S. will be responsible for maintaining this relationship and collecting the required information for U.S. reporting
    • What process(es) or procedures will be initiated in order to ensure that the information that is required from the U.S. side is obtained and that it is accurate
    • In what currency denomination will the books and records be maintained
the cash
THE CASH
  • Understand and determine how the U.S. Company intends to get cash into the foreign location(s) and/or get cash out of the foreign location(s)
  • Obtain a thorough understanding of the income tax withholding laws/requirements that the foreign country employs
  • Thoroughly understand the Income Tax Treaty(ies) (assuming one exists) between the U.S. and foreign country
the workers
THE WORKERS
  • Obtain a thorough understanding of the type of social system that the foreign country employs
    • Determine if your company will fall under its jurisdiction
    • Determine what type of Company representatives you will have on the ground
      • Independent representatives/consultants
      • Employees (U.S. or foreign or combination)
  • Determine if Company representatives be treated and paid as employees of the U.S. company or the foreign entity, and how will that impact the business from a tax and legal standpoint
  • Determine the employee withholding requirements for each foreign jurisdiction
the workers continued
THE WORKERS (CONTINUED)
  • Obtain a thorough understanding of the labor laws that the foreign country employs
  • Determine who will administer Payroll
  • Thoroughly understand the Social Security Treaty(ies) (assuming one exists) between the U.S. and foreign country
  • Develop a Formal Expatriate/Foreign National Compensation Program in order to prevent undue negative issues
other tax issues
OTHER TAX ISSUES
  • Determine if there are any Transfer Pricing Agreements that need to be put into place between the U.S. and the foreign jurisdiction
  • Obtain a thorough understanding of any other taxing systems a foreign jurisdiction may employ such as the following:
    • Value Added Tax (VAT)
    • Goods and Services Tax (GST)
    • Tax Holidays
    • Foreign Economic/Enterprise Zones
the advisors
THE ADVISORS
  • Understand the competencies and responsibilities of each outside advisor(s) your Company employs:
    • International Tax Accountant(s)
    • International Tax Attorney(ies)
    • International HR Advisor(s)
    • International Business Advisor(s)
    • International Banker(s)
example
EXAMPLE
  • Value Added Tax (VAT) - In general, in a B2B transaction, value added tax is charged to the end user of most products or services. The place of supply of services determines where the supply is subject to VAT.
    • Under current rules, the place of supply of service is generally at the location of the service provider. However, for telecommunications services the location of the supply of service is the location of the recipient of the services.
    • If the service supplier is located in the EU and is located in the country where the recipient is located, then the service supplier is required to collect VAT on services. If the telecommunication services are provided to a recipient in another EU country then the recipient is required to account for the VAT tax and the supplier is not obligated to collect the VAT.
example1
EXAMPLE
  • VAT tax changes in 2010
    • The EU Council of Ministers recently adopted a VAT Directive that makes major changes to the rules governing the place of supply of services to ensure that VAT on services accrues to the country where the services are used.
    • The new rules will require the charging of VAT on business-to-business services at the place where the customer is located.
    • The new rules may require companies providing services in EU countries to collect VAT for customer based on the VAT rate for those services at the customer’s location.
    • How will VAT be collected and distributed to various countries? This issue will need to be determined by the EU Council of Ministers.
the plan
THE PLAN
  • Develop a plan that is flexible and friendly that allows your Company to grow internationally while at the same time allowing you to effectively manage your GLOBAL TAX RATE and risk of doing business in each jurisdiction
slide17
INTEREST CHARGE DOMESTIC INTERNATIONAL SALES CORPORATION (IC-DISC) – THE LAST REMAINING EXPORT INCENTIVE

Presented by:Ryan L. Losi, CPA Executive Vice PresidentPiascik & Associates, P.C.

an ic disc as a subsidiary of an s corporation or another flow through entity
An IC-DISC as a subsidiary of an S corporation or another flow-through entity

U.S.

IC-DISC

(Tax Exempt)

Qualified Dividends at Reduced Tax Rate

S Corp

Commission

U.S.

Exports

Foreign

an ic disc as a brother sister entity of an s corporation or another flow through entity
An IC-DISC as a brother-sister entity of an S corporation or another flow-through entity

U.S.

Qualified Dividends at Reduced Tax Rate

Commission

IC-DISC

(Tax Exempt)

S Corp

U.S.

Foreign

Exports

an ic disc should only be a brother sister entity of a c corporation
An IC-DISC should only be a brother-sister entity of a C corporation

U.S.

Qualified Dividends at Reduced Tax Rate

Commission

IC-DISC

(Tax Exempt)

C Corp

U.S.

Foreign

Exports

an ic disc shares can be provided to a key employee who is not an owner of the operating company
An IC-DISC shares can be provided to a key employee who is not an owner of the operating company

Export Sales Director/Manager

U.S.

Qualified Dividends at Reduced Tax Rate

Commission

IC-DISC

(Tax Exempt)

S or C

Corp

U.S.

Foreign

Exports

an ic disc shares could be owned by an ira
An IC-DISC shares could be owned by an IRA

IRA

U.S.

Qualified Dividends Tax Deferred

Commission

IC-DISC

(Tax Exempt)

S or C

Corp

U.S.

Foreign

Exports

slide23
Although a listed transaction, a Roth IRA’s ownership of an IC-DISC shares can significantly reduce tax

Roth IRA

U.S.

Qualified Dividends Tax Free (NO TAX)

Commission

IC-DISC

(Tax Exempt)

S or C

Corp

U.S.

Foreign

Exports