INTERNATIONAL TAX COMPLIANCE REGULATIONS IN (PART 19): USA
By Kevin E. Thorn, Thorn Law Group PLLC
The United States has long been known as The Land of Opportunity. Indeed, the US is filled with opportunities for people around the globe looking to do business. The requirements to conduct business in the US are the same for foreigners as for US citizens; however, there are extra considerations to which non-US persons must pay attention. There are seemingly limitless numbers of returns and reports that US businesses must file, and often dire consequences for not meeting them. Filing obligations are determined by multiple factors, such as the business’s structure, location, and operations conducted. It is imperative to consult with experienced US counsel to ensure you do not run afoul of the diverse and complex rules for businesses.
Taxes in the US
There are many types of taxes that effect businesses in the US. Aside from income tax, US businesses are also subject to sales and use taxes, transfer pricing, and excise taxes. Employers must also meet strict employment tax laws, which require the employer to withhold and pay to the IRS and state taxing authorities a portion of each employee’s salary. Additionally, certain industries are subject to industryspecific taxes. This applies to taxes at the federal and state levels. Compliance with the myriad business tax laws is critical. Compliance means not only paying the taxes, but filing numerous information returns as well. The IRS and state taxing authorities are particularly aggressive in enforcing these laws.
Failure to comply can subject a business, its owners, and its offcers not only to large monetary penalties, but also to criminal investigation and prosecution.
Experienced tax professionals know what to look for and how to achieve compliance. US tax counsel can help keep your business compliant with its reporting obligations and help it to operate in the most effcient tax manner, so you keep as much of your hard-earned income as possible.
1. Employment taxes
When hiring employees for a US enterprise, businesses must be compliant with employment-specific laws. Federal and state laws establish many requirements employers must meet. Businesses must be sure to follow federal, state, and local labour laws which control the employer-employee relationship. These laws are typically enforced by the IRS and the Department of Labor, and their state counterparts.
Employment laws typically address minimum requirements for hiring an individual, employee documentation, professional licensing requirements, and employee termination rules. Also, depending on the size of the business, companies in the US are expected to provide benefits to their employees, including time off for illness and certain family events, disability accommodations, and retirement savings options. The Employee Retirement Income Security Act of 1974 (“ERISA”) is a complex set of rules governing employee retirement options and requirements.
2. Healthcare taxes
Under current US law, businesses with 50 or more full-time employees are expected to provide health insurance to their employees. This law is monitored and enforced by the Internal Revenue Service. Any business that fails to provide health insurance is subject to a steep penalty that will be subject to collection by the IRS, which is often considered the nation’s most powerful and successful collection agency. Also, many states have their own health insurance requirements that employers and employees must follow.
3. Immigration issues and taxes
A foreign business will likely have legitimate reasons for wanting to employ non-US persons for certain roles in its US operations. However, just because the business is located in the United States does not guarantee the right to live in the United States. It also does not mean the business has a license to hire foreign individuals.
Fortunately, US immigration laws offer a range of options for employing foreign individuals in the US. There are numerous types of visas for individuals looking to work in the US. Options range from short-term visas to permanent legal residence (a.k.a., the “Green Card”). Often, the visa type is determined by the type of work the employee will be performing. In addition, options exist for family members of foreign employees to live in the US.
US immigration laws and policies are complex and often changing. It is critical to work with US counsel to understand the immigration rules.
4. Import taxes in the US
A business may require you to import goods into the US. Counsel can help the business understand and meet the ever-changing customs, licensing, permitting, and tariff laws affecting importing goods into the US, as well as how those laws interact with taxes and other areas of the business. The interaction of these laws and regulations are extremely complex and US counsel will be of great help in avoiding any trip wires that could invoke penalties.
5. Foreign reporting
Of course, as a non-US person, there may be extra reporting requirements. Just as with individuals, US businesses are required to file FBARs if they have financial accounts outside of the US. This requirement may affect the business and employees. Also, US businesses with foreign shareholders and partners have extra reporting requirements. Similarly, foreign ownership of businesses in certain industries are subject to additional requirements and limitations. US counsel is necessary to ensure these reporting requirements are met.
Foreign Tax and Financial Reporting Forms
Given that the IRS is focused on offshore compliance, as well as how to track the flow of funds from businesses from around the world, they have developed a number of forms that must be filed to stay in compliance and stay out of trouble with the US tax authorities.
With so many specific requirements, it can be diffcult to determine which foreign reporting form should be used at any given time. While each individual form is designed to address a specific set of circumstances and to satisfy taxpayers’ reporting obligations under separate provisions of the Internal Revenue Code, it will not always be clear what filing (if any) is required. The following are a list of forms and IRS considerations to keep in mind as a company begins to examine its reporting obligations for clients, trusts, foundations, and/or companies:
An FBAR (Report of Foreign Bank and Financial Accounts) must be submitted by taxpayers (for individuals, companies, trusts, and foundations) with an interest in or signature authority over a foreign bank account/accounts with an aggregate value of over USD 10,000.
If a US individual or corporate taxpayer has received a gift from a foreign individual, estate, trust, foundation, or business entity. This includes gifts of money or other forms of tangible or intangible property; however, it is subject to thresholds of USD 100,000 for gifts from foreign individuals, trusts, foundations, and estates.
3. FORM 3520 A
An interest in a foreign trust or foundation that has at least one US owner. While the foreign trust is primarily responsible for filing Form 3520 A, if the trust fails to do so, each US owner must complete Form 3520 A and include it with their Form 3520 filing.
4. FORM 5471
It is possible for a company to fall into one of the four “categories of filers” listed above with respect to a role with or ownership interest in a foreign business entity. Filing is generally (though not exclusively) required with respect to entities in which a US person (individual or business entity) owns a 10% or greater interest during the tax year.
5. FORM 5472
An interest in a foreign corporation that owns a 25% or greater interest in a domestic business entity or that has engaged in US trade or business during the tax year. However, before you prepare Form 5472, check to see if one of the statutory exceptions to the filing requirement applies.
6. FORM 8938
An individual taxpayer who owns certain foreign financial assets, such as foreign financial assets (such as bank accounts) held at foreign financial institutions or securities held outside of a foreign financial account. If there is a need to file a Form 8938, make sure to review all FBAR filings procedures.
7. FORM 926
This form is used for a taxpayer who holds an interest in a domestic corporation, estate, foundation, or trust, and is engaged in an exchange or transfer involving a foreign business entity. If the exchange was conducted or the transfer was done using a foreign financial account, make sure to review the FBAR filing requirements.
Future Developments of Reporting Requirements
Reporting obligations with respect to financial assets, entities, and transactions are complicated in the US, and, in some cases, the estate, trust, foundation, or company will need to examine multiple transactions to determine if they have an obligation to file one or more financial reporting forms with the IRS.
Kevin E. ThornGGI member firm
Thorn Law Group PLLC
Law Firm Services
Washington DC, USA
T: +1 202 349 4033
Thorn Law Group PLLC is based in Washington DC and is a leader in providing tax counsel and legal representation to clients throughout the United States and around the globe.
Kevin E. Thorn, Managing Partner of the Thorn Law Group, is well known throughout the United States and around the globe. He has been practicing tax law for over 20 years and is skilled at resolv- ing complex tax disputes, and executing complicated tax planning for businesses, insurance companies, banks, trusts, foundations, and estates.
Published: Working Together to Optimise International Tax Compliance, No. 2, Spring 2020 l Photo: f11photo - stock.adobe.com