International Tax Planning Techniques
Today more and more individuals and business entities engage in international commerce. The tax laws governing international transactions are extremely complex. The sooner you begin planning an international transaction, the more effective it is to plan the transaction and more tax saving opportunities may exist. At the tax law firm of Moskowitz, LLP, we advise our clients how to successfully plan an international transaction that makes business sense and that reduces global tax implications. Whether you are outside the United States and considering investing in the United States, are in the United States and already have foreign financial interests, or are considering venturing abroad, our tax attorneys will assist you with your international tax needs.
Our tax attorneys carefully advise entities and individuals of how to create the most suitable global tax plans for both outbound investments outside the United States and inbound investments into the United States. In regards to outbound planning, we advise our clientele how to minimize foreign taxes and to effectively eliminate, minimize or defer foreign income from U.S. taxation. On certain occasions, a particular international transaction or investment will frequently involve the interaction of two or more national tax systems and perhaps one or more international double tax treaties.
Occasionally, separate tax systems in an international transaction or investment may accord inconsistent treatment to the transaction or the business entity involved. These differences in treatment may generate multiple global tax benefits. These differences are known as cross-border tax arbitrage. Within the letter of the Internal Revenue Code and its applicable regulations, we plan to utilize these inconsistencies to obtain tax benefits for our clients. Our planning does not end there. We advise our clients in regards to the most efficient manner to repatriate foreign profits back to the United States, if they wish to. We also advise our clients how to properly invest in passive foreign investments such as foreign securities and real estate rental activities. Most investors from the United States do not understand the highly complex taxing regimes such as the passive foreign investment company provisions of the Internal Revenue Code. Without proper planning, these provisions of the Internal Revenue Code can literally eat away the entire investment. We regularly advise our clients how to properly plan to minimize U.S. tax consequences on passive foreign investments.
At Moskowitz LLP, we understand that foreign investors generally have the same goals of minimizing their income tax liabilities from their U.S. investments, as do their U.S. counterparts. However, their objective is complicated by the very fact that they are not U.S. persons. That is, non-U.S. investors must be concerned not only with income taxes in the United States, but also income taxes in their home country. Further, the United States has a special income tax regime that is applicable to foreign persons. Specifically, if the non-U.S. person derives certain types of passive income, it is typically taxed for U.S. federal income tax purposes at a flat 30 percent rate (without allowance for deductions), unless an applicable international tax treaty reduces this statutory rate. In contrast, if the U.S. activities of a foreign investor rise to the level of constituting a “U.S. trade or business” (as opposed to being merely a “passive investment”), then the foreign person is taxed in the same manner as a U.S. person (net income from the investment is taxed at graduated rates). When advising foreign investors, we carefully consider the investors home country, the availability of international treaties to reduce both the U.S. taxation and the foreign taxation, and if the investor can utilize an investment vehicle to reduce or eliminate U.S. foreign taxes on domestic investments.
Also see: Pre-Immigration Tax Planning