The opportunity to manage and mitigate tax costs through international planning are always very specific to the facts and circumstances of each case. Tax planning opportunities are often enhanced through the provision of bilateral tax treaties in place between the US and the foreign taxpayers home country. Through our experience with clients we have identified certain themes that emerge.
The US allows taxpayers to claim a full credit for foreign tax paid on foreign income against US tax. The US credit is allowed to the lower of the amount of US tax that would be paid on that income or the foreign tax actually paid. Likewise, many foreign countries reciprocate this benefit. This offers significant planning opportunities as taxpayers may structure their affairs so as to take advantage of this benefit.
Many tax treaties reduce or even eliminate tax that would be otherwise withhold on international payments. Tax is withheld on FDAP income by the US.
US businesses may defer US tax on international income through the check-the-box provisions.
Under most tax treaties a foreign corporation doing business in the US will be subject to US taxation only if they have a permanent establishment in the US. This is not the case where there is no tax treaty in place – in such cases a foreign corporation will pay US tax on income effectively connected with its US business.
Whatever your tax planning needs we are here to help; we would love to hear from you and see how we can be of assistance.