Tax considerations for business expansion

Tax planning is necessary to ensure your company is in compliance with regulations in all countries of operation. There are a number of strategies  companies can use to deal with international taxation in a way that works best for them.

Companies should thoroughly research the foreign market they wish to enter. Next, choose the method of expansion and the type of entity that will be formed.  If your U.S. company is buying a foreign target corporation, what type of acquisition will be optimal for both the buyer and seller?

Foreign Tax Credits and other considerations

Examples of tax considerations for business expansion include cross-border transaction laws, classifying income as foreign or domestic, or choosing to utilize a foreign flow-through entity.

Foreign tax credits offset U.S. taxes, meaning that your company won’t have to pay double taxes for operating in two countries. In other words, a company can subtract the income taxes it has paid to other countries  from the amount they are taxed from the U.S. government. There are limitations and complications  to the use of foreign tax credits, so planning for taxes and dividend repatriation is key.

If more than 50% of the corporation is held by voting stockholders or if any value is held by U.S. shareholders in the fiscal year, the corporation is classified as a controlled foreign corporation.

Moreover, the Interest-Charge Domestic International Sales Corporation (“IC-DISC”) are provisions in U. S. tax law that incentivizes exporting goods made in America. Manufacturers, producers, resellers, and exporters use IC-DISCs to to reduce their income tax liability.

In conclusion, the process of entering a foreign jurisdiction is complicated. It’s important to have a tax advisor that will balance global market trends with the goals of your company.

Disclaimer: This articles is purely for educational purposes only and is not intended to provide legal advice. If you are in need of legal advice or are uncertain as to your legal needs, please contact an attorney for consultation.

Sources & Further Reading:

http://www.thetaxadviser.com/issues/2014/dec/tax-clinic-01.html

http://klugtaxlaw.com/us-companies-expanding-foreign-markets-legal-tax-considerations/

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