How Tax Lawyers Can Help Prevent Double Taxation Confusions
The notion of an international tax attorney conjures up images of Grand Cayman and John Grisham’s “The Firm,” but the need for a tax lawyer who specializes is international tax issues is for more than just high rollers and fictional characters.
The problem facing most business owners or individuals in the international tax realm is the burden of double taxation. From small business owners to retirees, international tax implications require that you have a top-notch professional on your team, ready to protect you from the IRS and to prevent you from being taxed twice.
The global markets have made it easy to work, invest and sell goods across borders. For small business owners, the opportunity to reach new markets has never been easier. With that ease of access, however, comes a bevy of new and different tax laws. The Department of the Treasury has issued several rulings which allow businesses to protect their assets and save on taxes.
International tax planning for privately owned businesses is unique. It is different than the foreign tax planning used by publicly traded companies. Offshore tax planning for a large company like Google does not necessarily apply to the small American business selling internationally. Think of sites like Etsy, Amazon and Kindle, where Americans can sell goods in foreign countries. The country where the business originates may want to claim a sales tax, while the country where the transaction occurred may claim a transaction tax. This results in a major problem for small businesses.
The “problem” for small business is double taxation. When income is earned in a foreign country, income tax is paid to the foreign country. Next, taxes are paid to the U.S.
For business owners, the solution is simple. The IRS has approved “dual resident corporation” which eliminates double taxation. It also allows for a simple tax return, allows for tax savings for foreign operating losses, and waives the requirement to file the complex Form 5471. A seasoned international tax attorney can walk you through the process of setting up a dual resident corporation and apply for a tax ruling with the IRS. Business owners who plan to sell internationally would be wise to seek this option.
While it may be common for business owners to encounter international tax issues, the issues of taxation are becoming increasingly common for the growing number of U.S. citizens living and retiring abroad.
Retiring abroad has many advantages, however, lowering your tax bill typically isn’t one of them. If you earn income in your adopted country, you may be able to exclude up to $97,600 from U.S. in 2015 by claiming the Foreign Earned Income Exclusion. This law enables you to avoid paying taxes to two countries on the same income. Be sure to let your tax lawyer know the details of your new home abroad. Some countries base their tax systems on residency, not citizenship. Without the help of an international tax lawyer you may be subject to double taxation. The U.S. has tax treaties with many foreign countries to prevent double taxation, but you may still have to file a tax return, in both your country of residence and the United States.