Foreign Operations and Small Business
The intricacy of our country’s international tax rules shouldn’t keep you from expanding your business abroad. Karen Stern, Partner in Charge of the Brown Smith Wallace Entrepreneurial Services Group, breaks down some of these regulations in this month’s “Financial Fitness,” as featured in Small Business Monthly.
From exporting goods to purchasing goods for resale in the U.S., small businesses can interact with foreign entities in many capacities. Since the complexities of U.S. international tax rules can be intimidating, we’ve broken down some of the regulations you should know. However, since issues can multiply quickly, your tax adviser is your best resource for navigating through your questions.
IC-DISC is a U.S. tax incentive that allows 50% of export sale profits from property produced in the U.S. to be allocated to a separate entity. IC-DISC profits are tax-exempt and are qualified dividends upon distribution to owners.
Operating an Overseas Business
This is a huge topic. The operations overseas are subject to both local laws and any U.S. international tax laws that apply to U.S. citizens operating outside the U.S. Local tax rules will generally require filing local tax returns. The U.S. tax laws require that overseas business operations be disclosed on a company’s U.S. shareholder’s tax returns – Form 5471, 8865 or 8858, as applicable.
To avoid double taxation, the foreign entity is required to be properly structured to meet the owner’s fact pattern. This will require professional tax advice.
Importing is generally straightforward. Make sure it is clear who is responsible for importing, customs and duties. Payments to a foreign person should not be subject to Form 1099 reporting if a Form W-8BEN is obtained from the foreign person.
If you have any questions about expanding your business internationally, contact your adviser or Doug Eckert, Brown Smith Wallace international tax practice leader, at 314-983-1268 or firstname.lastname@example.org.