Tax Attorney & Law Firm Experienced In International Tax Law
International Tax Law: Page Content at a Glance
Many people are surprised to learn that those with American citizenship, but who are living outside the country, may be subject to paying taxes in the United States. This can be a confusing situation, as some people may be subject to double taxation, paying taxes both in the United States and in their current country of residence. Tax treaties differ from country to country, which further complicates the situation. Offshore information reporting requirements are also quite daunting.
The IRS has multiple tools available to help it track income that U.S. citizens and tax residents earn in foreign jurisdictions. It also can track assets held overseas or in foreign banks for those with American citizenship, that hold green cards or meet the substantial presence test.
If you are facing a complex tax situation involving international income generating assets, offshore businesses or other foreign earnings, contact the Tax Law Offices of David W. Klasing today. We are a team of Tax Attorneys, CPAs and EAs in a law firm experienced in international tax law, so you can count on our experience and knowledge.
Table of Contents
- Tax Planning for American Expatriates and Businesses
- Can Non-U.S. Residents Face an IRS Audit?
- Understanding FBAR and FATCA
- How Do I Fix International Tax Mistakes?
- How Do I Minimize International Tax Liabilities?
- U.S. Tax Reporting Obligations for International Businesses
- How Does an International Tax Attorney Help?
- International Tax FAQs
Tax Planning, Audits, and Compliance for American Expatriates and Businesses
Today, business affairs extend beyond domestic borders to a global market. The Tax Law Offices of David W. Klasing is committed to helping U.S. and international businesses capitalize on opportunities domestic and abroad with minimal international tax law implications. As businesses have expanded into global markets, more and more individuals are also working and conducting business overseas.
Experienced legal counsel from an international tax attorney can help individuals working abroad or retiring overseas maintain their citizenship through fulfilling their tax obligations. International tax attorney David W. Klasing has extensive experience in international tax planning, offshore tax controversies, and foreign account compliance. At the Law Office of David W. Klasing, our tax professionals can assess an array of tax concerns related to double-taxation of expatriates, tax minimization, FBAR, FATCA, and other international tax problems.
Can Expats and Non-US Residents face an IRS Audit or a Foreign Tax Audit?
Many U.S. citizens who are non-residents are surprised to learn that the U.S. government taxes on the basis of their citizenship. They are further surprised to learn that the foreign nation in which they reside taxes on the basis of traditional notions of physical presence and where the economic activity occurred. Therefore, many expats are surprised to learn that they can be subject to double-taxation absent careful consideration of tax treaties and engaging in subsequent tax planning. Expats who fail to satisfy their tax obligations can indeed be audited by the IRS. We have helped expats living in many nations address their tax concerns and problems including:
- Ecuador– As a picturesque nation with a rich culture and affordable cost of living, many American Expats choose to retire to Ecuador. We can help you protect your retirement savings from double-taxation.
- Hong Kong– Hong Kong is attractive to many individuals who are pursuing a career in finance. We can handle the FBAR, FATCA, and other tax considerations.
- Luxembourg– Luxembourg is a cosmopolitan nation that is also an attractive place to live and work for many financial professionals.
- Mexico– As the United States’ southern neighbor, many Americans have significant financial and business ties to Mexico. Americans living in Mexico or engaged in cross-border banking or business activities should regularly consult with an experienced tax professional.
- Philippines– American expats may settle in Manilla or elsewhere in this welcoming nation. The location of the Philippines can provide an expat with access to an array of markets in Asia.
- Saudi Arabia– Many Americans and Westerners live and work in the Saudi Arabia in enclaves in cities like Riyadh, Jeddah. Frequently US citizens come to live and work in Saudi Arabia due to opportunities in the oil and hydrocarbon industries.
- Singapore– Singapore is a nation and city-state known for its both its high cost of living and multitude of economic opportunities.
- Switzerland– As a traditional home to many banks and banking operations, Switzerland is attractive to a certain class of financial planners and other professionals. However, individuals residing in Switzerland must be especially wary of tax compliance errors due to targeted enforcement efforts stemming from FATCA and the Swiss Bank Program.
- United Kingdom– As a traditional financial hub, London and the entirety of England and the U.K. provides American expats with opportunities within the framework of a remarkably familiar culture.
We can provide tax planning and compliance services for American expatriates to avoid tax penalties. Tax planning for expats typically includes ensuring that past tax filing and payment obligations have been satisfied, minimizing double-taxation, and assessing FBAR, FATCA, or other informational reporting requirements. We can reconcile your international tax obligations to avoid the imposition of an IRS audit or a foreign tax audit.
Requirements to File FBAR and FATCA
Numerous tax enforcement efforts aimed at stamping out offshore tax evasion has expanded the reach of U.S. taxing authorities. In recent years, the IRS and Department of Justice have focused on enforcing the long-standing obligation to disclose foreign accounts and assets as part of a Report of Foreign Bank and Financial Accounts (FBAR). Furthermore, the IRS and DOJ have worked to implement international governmental agreements (IGAs) as part of FATCA with more than 100 nations that will allow for the sharing of financial account information. Furthermore, additional enforcement efforts like the Swiss Bank program has provided U.S. regulators with significant foreign account data to identify and pursue U.S. citizens, tax residents, and other covered individuals.
If you are a foreign national in the United States or a U.S. citizen living at home or abroad and you hold significant foreign assets in excess of $10,000 it is likely that you have foreign disclosure obligations. Even mere mistakes can be punished harshly, so it is essential to obtain experienced international tax planning and FBAR compliance services. At the Tax Law Offices of David W. Klasing, my legal team and I are committed to helping you remain compliant with U.S. and international tax laws. We will apply our understanding of international tax treaties to help you maintain your citizenship with minimal tax burdens.
Are OVDP and Streamlined Disclosure a Solution to Fix International Tax Mistakes?
Taxpayers who have made mistakes regarding the disclosure of a foreign account under FBAR can face a penalty of up to $10,000 for even an accidental error. If your error was intentional or a voluntary disregard of a known legal duty, penalties are even harsher and can consume a significant portion of the foreign account balance. However, if you have not yet come under suspicion, you may be able to reduce or eliminate the penalties you face.
Taxpayers can utilize Offshore Voluntary Disclosure to correct FBAR concerns when they believe that their noncompliance may have been willful. However, taxpayers who may have been negligent, careless, or even grossly negligent may qualify for the Streamlined Disclosure Program. While individuals who qualify for Streamlined Disclosure face less onerous filing requirements and penalties (no penalties for non-US residents), this form of relief will not provide protection if the IRS determines your actions were, indeed, willful. Therefore, it is wise to discuss your matter with an experienced tax lawyer before taking any action.
How Can U.S. Companies, Foreign Corporations, and International Businesses Minimize International Tax Liabilities?
Whether you are part of an international, multinational, or a U.S. business, one of your top priorities is to avoid double-taxation and other forms of excessive taxation. Consider, for instance, a hypothetical foreign entity seeking to perform business in the United States. At a minimum, considerations regarding the form the entity should take should include:
- Tax treatment of the entity. Depending on the entity type, different tax treatment will apply. Selecting among an LLC, C Corporation, S Corporation, or tax treatment as a disregarded entity will produce significantly different tax results. In addition, choice of a business entity includes liability considerations.
- Liability considerations. Entity selection also concerns issues of liability should the business run into problems and accrue debts and other obligations.
- Formation and administration of the entity. The goals of the entity should be considered thoroughly to ensure that the costs and procedure involved in forming, administering, and managing the entity are justified.
- Capital considerations. Depending on the business’s need for outside investment and other factors, parties should consider how the form of organization may make it easier or more complex to raise capital and the compensation contributing individuals and entities should receive.
- Exit strategy – Whether there is a chance that the business will exit the market or that shareholders and partners may move on to other ventures, considering the financial and tax impact of these events is necessary.
Often due to concerns about liability, the choice often boils down to whether more advantageous tax treatment would result from a corporate form or from an LLC being treated as a disregarded entity. Corporate entities in the United States are subject to the corporate tax rate. The rate begins at 15% but quickly escalates to a rate of 34 percent for profits realized above a $75,000 threshold. Companies that elect treatment as a disregarded entity must ensure that such a choice is justified because disregarded entities are treated as if they are a branch of the foreign parent entity. One important consideration is whether this type of structure will allow for adequate flexibility in controlling the timing of the imposition of the branch profits tax.
My Los Angeles international tax law team and I understand the tax treaties the United States has with several other countries. We will apply our taxation knowledge to protect your business from double taxation. Whether you are part of a domestic or foreign business, we will help your business remain compliant with U.S. tax laws and any applicable international tax.
Tax Reporting Obligations For International Businesses
The exact nature and extent of a foreign corporation’s tax reporting obligations are dependent upon its status as either a domestic U.S. corporation or a foreign corporation doing business in the United States. For example, a foreign-owned domestic corporation is obligated to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. In addition, corporations of this type are required to keep sufficient records regarding related parties.
In contrast, a foreign corporation engaging in business in the United States may not be a reporting entity per §6038A. This determination is guided by whether the foreign corporation has established a permanent presence in the United States and relevant tax treaties. Furthermore, multinational companies and corporations should remain cognizant of the possibility of transfer pricing penalties.
The Roles of an International Tax Attorney
When you entrust the Tax Law Offices of David W. Klasing with your tax strategy needs, you gain the benefit of an experienced international tax lawyer and a seasoned CPA for the price of one. Prior to becoming a tax attorney, Mr. Klasing worked for nine years as an auditor in public accounting. After gaining a master’s degree in taxation, he became a Certified Public Accountant (CPA). As a dually certified tax attorney and CPA, Mr. Klasing’s in-depth working knowledge of federal and state tax codes and regulations is frequently invaluable in assisting individuals and both U.S. and international businesses develop effectively and strategic tax planning solutions.
For International Tax Planning, FBAR Compliance, and IRS and Foreign Tax Audits Work with a Strategic Tax Lawyer
If you are looking to live abroad or operate a business overseas or bring a foreign company to the United States, obtaining experienced international legal counsel is the first step to a prudent approach. The Orange County and Los Angeles-based international tax lawyers at The Law Offices of David W. Klasing are committed to helping you avoid any unnecessary domestic or foreign tax burdens. We are also proud to assist expats, tax residents, non-residents, and businesses in maintaining all tax reporting and payment obligations. To schedule an initial, reduced-rate consultation call us at 800-681-1295 or online today.
Common International Tax Questions
What Is International Tax Evasion?
When a U.S. taxpayer illegally places money in overseas accounts in an effort to avoid paying taxes that are due in the United States, he or she could be subject to civil and criminal tax penalties in the United States. The accumulated funds offshore often flow from offshore unreported inheritances, investments, real estates or business activity. Where foreign information reporting and income tax reporting is purposefully not complied with in order to illegally evade U.S. taxation, international tax evasion occurs.
Using international accounts, rather than having your money in the United States, isn’t necessary illegal, as long as you are in compliance with the income and foreign information requirements of both the United States and in the country where the money resides. This process of using legal means internationally to minimize your tax liability is called tax avoidance.
If you need to hold or place some money outside the United States, an experienced tax attorney can help you do so in a manner that will reduce the possibility of drawing civil or international tax evasion penalties.
What Do International Tax Attorneys Do?
When you have a company that operates in multiple countries around the world, your company must be able to juggle the tax laws in each of those countries. When you consider how complex the tax laws are in the United States, the confusion grows exponentially when dealing with laws in multiple other countries at the same time.
That’s where an experienced international tax attorney can provide an invaluable service. The attorney will give you the help you need to set up a smart and legal financial and business plan for your company that is expanding from the U.S. offshore, or seeking to do business in the U.S. from offshore. The tax attorney also will team with any foreign tax counsel of your choosing to keep you abreast of any pertinent tax law changes around the world, helping you update your business plan in real time to stay in international tax compliance and to avoid international taxes where possible.
What Is International Taxation?
For those people or companies that have money, investments or business activity in a foreign country and in the U.S., they may owe taxes on that income in more than one jurisdiction. The method by which you plan to minimize any double taxation will affect the ultimate amount of taxes you have to pay.
As international taxation laws are complex by nature, trying to keep all of the information straight from country to country can be challenging. That’s where an international tax attorney is able to provide help by making sure you or your company are in compliance and are legally reducing worldwide taxation. By being well versed in U.S. tax law and its international taxation aspects, an international taxation attorney can help ensure you’re minimizing your worldwide tax burden by coordinating with the foreign tax counsel of your choosing.
What Types of International Taxation are There?
Much like in the United States, individual countries in the world have a variety of taxation methods.
For individuals, one common type of international taxation involves personal income tax for both citizens and foreigners who earn money inside the country. Some countries even will tax money its citizens earn in foreign countries.
The international taxation laws for corporations vary quite a bit from country to country, leading to complexity. Tax rates can also vary quite a bit for business owners operating in multiple countries. An international taxation attorney can provide the advice you need to protect as much of your income as possible, whether you’re operating as an individual or as a company.
More Questions and Answers About International Tax
- What are the Mixed Sourcing rules?
- A Citizenship Renunciation FAQ
- What Actions of Foreign Persons Affect U.S. Tax Attributes?
- Foreign corporations taxed on their U.S. source income
- Possible for a Domestic Trust to Become a Foreign Trust?
- What is The Stop Tax Haven Abuse Act?
- Are there any exceptions to the mark-to-market regime?
- Can an expatriate elect to defer tax?
- Taxes on gifts and bequests to Americans from expatriates
- Generally, what are the tax consequences of expatriation?
- How foreign tax credit affects domestic or foreign losses
- Social security/Medicare taxes for self-employed abroad
- Taxes for business income earned by nonresidents
- How is Dividend Income Sourced?
- Nationality and Residency for Federal Tax Purposes
- Taxes on non-business income earned by nonresidents
- Is there a limit on availability of foreign tax credit?
- Make dual contributions for social security taxes?
- When are taxpayers obligated to taxes on foreign income
- Foreign Income and Information Reporting Filing Requirement
- Basic Rules for Sourcing Income
- What are the Basics of the Foreign Tax Credit?
- What are the basics of U.S. International Taxation?
- What are the Basic Sourcing Rules for Interest Income?
- Nexus Over Foreign Persons and Activities for U.S. Tax
- What is a controlled foreign corporation (CFC)?
- What is expatriation and how is this accomplished?
- What is the Branch Profits Tax?
- What is the exit tax?
- Nonresident filing, withholding, and reporting requirements
- What other Source Rules Focus on the Payee's Residence?
- Tax treaties role between the U.S. and its trade partners
- Common income issues in international tax treaties
- What Sourcing Rules Turn on an Asset's Location?
- Tax incentives for U.S. citizens living abroad
- International Tax Q and A
- The main purpose and effect of the foreign tax credit
- Is the Foreign Tax Credit a Refundable credit?
- Difference between a foreign tax credit and a deduction
- How to claim foreign tax credit on property income taxes
- Must an individual claim the foreign tax credit?
- Why is foreign tax credit allowed?
- Statute of limitations longer when tax paid and tax accrued
- IRS re-determination of tax liability
- Difference between a Foreign and Domestic Trust?
- Foreign Trusts Subject to Outbound U.S. Taxation Rules?
- Benefit to a deferral of tax for an outbound transaction?
- What is Deferral in the Context of Outbound Transactions?
- What is involved in planning for an outbound transaction?
- What Are the Primary Concerns of Outbound U.S. Taxation?
- Basics of U.S. international taxation of a business
- Are U.S. Partners in a Foreign Partnership Taxed?
- Are U.S. Corporations Taxed on Foreign Sourced Income?
- Can Government Tax Shareholders of a Foreign Corporation?
- What is a Controlled Foreign Corporation (CFC)?
- Constructive Ownership Rules for Foreign Corporation
- US Shareholders Taxed on Distributive Share of CFC Income
- What are the Two Main Categories of Subpart F Income?
- Investing in Controlled Foreign Corporation
- Subpart F Income Requires Separate Computations
- What is the Foreign Tax Credit (FTC)?
- What is the “Deemed Paid” Foreign Tax Credit?
- Basic Tax Rules for Passive Foreign Investment Companies