International Taxation

Technology is shrinking the world. Transportation and communication advances let a business in Florida sell products in Argentina. It’s no surprise these cross-border transactions introduce more complexity, especially when it comes to taxes. That is why it is critical to understand international taxation if you do business in foreign countries.

This article discusses international tax law. Tax laws can be complex, especially when dealing with cross-border transactions. Talking to an international tax attorney in your area is a good idea if you’re involved in international transactions. They can help you with tax compliance and keep you out of trouble with the tax authorities.

What Are International Taxes?

The U.S. government taxes U.S. citizens on our worldwide income. It doesn’t matter if the income comes from a U.S.-based company or a foreign source. These include the following taxes:

• Income taxes
• Capital gains taxes
• Withholding taxes
• Transfer pricing taxes
• Customs duties
• Value-added taxes (VAT)

Foreign tax credits can lower your tax liability.

There are two categories of foreign transactions. Outbound transactions are transactions by U.S. taxpayers in a foreign country. Inbound transactions are transactions by foreign taxpayers in the U.S. The U.S. has default rules for taxing cross-border transactions. The U.S. has a tax treaty with some countries. In those cases, the tax treaty applies.

Many decisions that small business owners make when they expand internationally can have tax implications. For example, you should consider the tax impact of the following:

• What legal entity and business structure will you use?
• How will you distribute income?
• Will you hire foreign employees?
• How will you bring profits back to the U.S.?

What Happens if I Don’t Pay My International Taxes?

The Internal Revenue Service (IRS) enforces U.S. tax laws. International tax rules are complex. Your reporting requirements can vary depending on your specific situation. For example, foreign corporations, limited liability partnerships (LLPs), and limited liability companies (LLCs) have different reporting requirements. You can face civil and criminal penalties from the IRS if you don’t report and pay your foreign taxes.

You can’t avoid taxes by keeping your profits in an account outside the U.S. either. The Foreign Account Tax Compliance Act (FATCA) is the U.S. government’s attempt to curb such tax evasion. Under FATCA, Americans must pay taxes on foreign investments and financial assets. Examples include foreign business interests, stocks, and bonds. FATCA also requires foreign entities to report on the foreign financial assets that U.S. citizens hold. You may also have to file a Report of Foreign Bank and Financial Accounts (FBAR). FBAR is like FATCA. The main difference is who is subject to the law. There’s a lot of overlap between them, but some people only have to comply with one. It’s important to know if you must follow both.

When Do I Need a Lawyer’s Help?

A lawyer with extensive experience in international tax law can be essential. They can help you stay on top of the always-changing tax laws in many jurisdictions. An attorney can craft a cross-border tax planning strategy for you. That way, your business will operate in the most tax-efficient way possible. With good tax strategies, you can minimize your tax liability. For example, restructuring your business can get you some tax relief.

Dealing with a tax controversy can be stressful for a small business owner. An audit or informational request from the IRS can take your time and attention away from running your business. A tax attorney can represent you in such tax matters.

The more multinational you become, the harder it gets to stay informed about foreign tax rules. The IRS has plenty of resources to help. But tax counsel can take some of that burden off you. Contacting a tax lawyer is a good idea if you have an international tax issue. A lawyer can give you tax advice and help you comply with any tax matters you may face.