INTERNATIONAL TAX FAQ

INTERNATIONAL TAX FAQ 2017-05-10T22:32:18+00:00

Foreign tax

Q: What issues may arise when I establish a business in the US?

A: While it’s relatively easy for a foreigner to create an entity in the US, one of the biggest issues we’ve seen our international client’s face, is opening up a bank account. Due to all of the new banking regulations, banks have much stricter requirements now for foreign owned companies. To open a bank account you must have the corporate or LLC paperwork, a Federal Tax ID Number and be registered in the state in which the account is being opened. You must also have a permanent, verifiable street address for the principal place of business or local office. For a corporation, the secretary, assistant secretary or president must be present at the opening of the account. For an LLC that is member managed, all members must be present at the opening of an account.

Q: How do I start a business in California as a foreign person?

A: The first question when expanding your business overseas is how to get started. Prior to establishing an entity and a representative office, the most integral part is determining the need for your product or service. Once this has been established, technical considerations can be conquered. Working with an attorney and CPA is the best place to start. Investing your resources overseas is not cheap, and a good attorney and CPA will save you tenfold. They will help you select a legal structure that will be most advantageous to your organization. They can assist in setting up a bank account, and provide you with local, state and federal tax information. Last but not least, they will provide you with an address in the United States and can serve as your representative office.

Q: Where is the best place to start a business in Europe?

A: So you want to expand your business, but to where? There are many considerations to be made when answering this question. Mostly it depends on what you find most important. Do you want to pay the least amount of tax possible? Do you need to be located by a port? Will there be more of a demand for your product in Germany than in Ireland? Likely your decision will be based on a combination of the variables listed above. According to a recent Bloomberg study the Netherlands ranked as the #4 best countries for business in 2013, ranking #1 in Europe. Here is a list of tax rates in Europe from Wikipedia as an additional resource. Our firm has affiliates in Ireland and Germany who can assist you on the ground and provide you with more information on doing business in those countries.

Q: What are the advantages of starting a business abroad (overseas)?

A: There are many reasons one would start up a business abroad, market expansion being the most common reason. Perhaps the market in which you live is saturated, or you feel you could replicate the same model overseas and make more money at a faster pace. Maybe there is downturn in your local economy while a market overseas is currently expanding. Diversifying your company makes your company less vulnerable to market shifts and provides you with an overall lower risk. It’s good to keep in mind that expanding overseas will require a significant investment (of time and money) and the rules and regulations can be complex. It’s important to have professionals on your side who are on the ground.

Q: How do I open a small business abroad?

A: Opening a small business abroad can be a great investment. The steps you need to take to get it started will greatly depend on the country in which you wish to expand. You need to be familiar with the laws of the country and know the business structures that will be available to you. Unless you have a lot of time to invest in the research, we suggest consulting with local professionals such as attorneys and accountants to get everything setup. This will save you a lot of time in the long run. It is also important to remember that income that you make overseas will be subject to US taxes and need to be reported on your US tax return. We are experienced in preparing tax returns for US citizens with foreign businesses and income. We can refer you to local accountants and lawyers in many countries.

Q: Do I need to pay US taxes if I live abroad (overseas)?

A: The answer is almost always yes. Unless you are single making less than $9,350 or married filing jointly making less than $18,700 per year, you are required to file a US tax return. Being that our firm is located in California, we happen to live in one of the worst states for US expat taxes. This article provides good information for expatriates and their US taxes: http://www.expatistan.com/blog/35-What-Every-American-Expat-Should-Know-About-US-Expat-Taxes

Do I need to pay US tax on foreign income?

A: The answer is yes. As a US citizen you must pay taxes on your worldwide income. You may receive a tax credit for foreign taxes paid if we have a “tax treaty” with the country the income is from. All income regardless of whether you receive a 1099 or W2 or not, must be reported on your tax return. Not reporting income to the IRS is considered a crime and is considered evading taxes. In addition ALL foreign bank accounts with an aggregate value of over $10,000 must be reported on Form TD F 90-22.1. Failure to file fines begin at $10,000 for each violation.

Foreigner starting a business in US, How do I start a business in the US

The US is one of the easiest places to start a business in the world. In general, you say you are in business and you are! You may wish to form an independent entity such as a corporation or Limited Liability Company (LLC) to provide for limited liability under the law.

The odd thing about the US is that each of the 50 states have slightly different rules for incorporation or forming an LLC. If you form an entity in one state (such as Delaware, which seem to be popular with foreign attorneys), you must also register in the state you run your business from. If you do not register in the state you do business from, you may not have legal protection in that state. We generally suggest that you form your entity in the state you have your main headquarters . Consult your attorney for more information. If you need a recommendation, we are happy to provide one.

By Kim Onisko, CPA

Kim Onisko is a Partner with Onisko & Scholz, Certified Public Accountants, LLP. You can find him on Google+. He has been in public accounting for over 20 years and has a specialty in forensic accounting.

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