Expat & International Taxation

Whether you are a corporation or a partnership with international operations or a business or individual working abroad or foreign citizens working in the U.S., we can help you plot a course through cross-border taxation issues. There are many special rules and policies for businesses with a foreign presence. We can help you make sense of how you are affected by them.

Some of the disciplines we are specialized in:

 

Form 2555. Foreign Income Exclusion

Required to be prepared and filed if you qualify for either physical presence test or Bona fide residence, exclusion amounts changes every year. For example, it was $105,900 in 2019 and $107,600 for year 2020

 

Form 8938, statement of Specified Foreign Financial Assets

If you are required to file Form 8938, you must report your financial accounts maintained by a foreign financial institution.

The following are considered reportable under the code:

  • Financial accounts held at foreign banks and financial institutions
  • Stocks, bonds, or other securities issued by a non-U.S. person and not held through an investment account
  • Notes or Bonds issued by a foreign person
  • Any interest in a foreign entity, such as a foreign corporation, foreign partnership, or foreign estate or trust
  • Personal residences and rental properties—only if they are held by a foreign partnership, corporation, trust, or estate

 

Form 5471 (CFCs)

U.S. citizens and U.S. residents who are officers, directors, or shareholders in certain foreign corporations are responsible for IRS Form 5471 filing.

Under the TCJA, rules requiring the inclusion of GILTI for controlled foreign corporations (CFCs) were added. The new rules are in Section 951A and other sections of the Internal Revenue Code (IRC). The inclusion aims to tax U.S. shareholders on their allocable share of earnings from a CFC. This is to the extent that the earnings exceed a 10% return on tangible assets allocated to the U.S. shareholder.

 

Form 3520

Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

Usually amounts of $100,000 or more are required to be reported in a calendar year.

 

Form 8621 (PFIC)

Required when there is distribution of income from a passive foreign investment company (PFICs) in which a U.S. person is a shareholder or a disposition of the shares of a PFIC by gift, death and most types of otherwise tax free exchanges or redemptions.

This form must be filed to compute the tax due on any “excess distributions” from or dispositions of a PFIC. Generally, an “excess distribution” is a distribution (after the first year) that exceeds 125% of the average distribution in the previous three years. All dispositions appear to be treated as excess distributions and are treated the same as distributions in excess of 125% of the average distributions

 

  • Analyzing global organization structure inbound and outbound tax transactions issues.

 

  • Global mobility and across boarder tax consulting including tax equalization and retirement plans.

 

  • Expatriation /exit tax returns including form 1040NR dual status citizen and form 8854. This is required when a US person abandon his/her green card or renouncing US citizenship.

 

FATCA compliance and FBAR filing

FATCA was signed into law in 2010, with an aim to levy certain taxes on U.S. citizens and entities with substantial overseas holdings and the overseas institutions that enable some sorts of tax evasion. Requires foreign banks to report and pass due diligence of US persons bank accounts to accurately report to the US treasury based on agreements signed by the US and foreign countries. US person is required to report such accounts using from 8938, please see more details under form 8938 above.

FBAR was a little-enforced portion of the Bank Secrecy Act of 1970 that has seen its revival in the wake of the financial crisis of 2008, which resulted in a renewed desire by the Department of the Treasury to crack down on tax evasion.

Form 14654 and the Streamlined Offshore Program

There are two directions for the IRS streamlined program. These are the SFOP (Streamlined Foreign Offshore Program) and the SDOP (Streamlined Domestic Offshore Program). Both the SFOP and SDOP has the following benefits: amnesty from FBAR penalties, accuracy-related penalties, and failure to file penalties.

Differences between the SFOP and SDOP

The differences between the two lies in their requirements. For the SFOP, the taxpayer has to meet the non-residency requirement. This requirement is not related to the following: citizenship, filing of 1040 or 1040NR, and the physical presence test. Those who qualify for the SFOP must be outside the United States for at least 35 days in 1 of the last three years. The SFOP is a more lenient program between the two, although both programs require 6 FBARs and three tax returns.

If unable to fulfill the required number of days outside of the U.S., the person can only file under the DSOP. One advantage of the SFOP over the other is that it offers full amnesty from having penalties.

The Streamlined Domestic Offshore Program is the less lenient program between the two. SDOP requires a taxpayer to comply with a payment of 5% of the taxpayer’s combined year-end financial assets

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”):

Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents:  

Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).

Foreign Financial Assets Inclusion
The following are considered as foreign financial assets:

–    International mutual funds

–    Foreign stock or securities not held in a financial account

–    Financial accounts held at foreign financial institutions

–    Financial statements held at a foreign branch of a U.S. financial institution

–    Foreign hedge funds and international private equity funds

Calculating the Highest Aggregate Balance

  1. Find the foreign financial assets for generally six years or the years in question when filing FBAR (FinCEN 114) or FATCA (Form 8938) was neglected.
  2. Combine all year-end asset values of all questionable foreign financial assets.
  3. Choose the highest value for each.
  4. Get the sum of the accounts, then multiply by 5%.

If the gross income for the asset was not reported, such account is part of the calculation. An example would be an investment account that was reported, but the interest gains were not.

Significance of Filing DSOP
There are several advantages to filing DSOP. First, it provides an amnesty from several severe penalties like accuracy-related penalties, FBAR penalties, and “failure to file” penalties. DSOP also carries a 5% penalty risk. The program also limits only to 3 years without filing through any of the two programs.

Other Required Forms
DSOP requires the filing of the following forms: three most recent tax returns, any informational returns, and six most recent FBAR reports. A certification through Form 14654 is also needed. Form 14654 should indicate that the non-filing was unintentional.

GILTI Tax

Similar to a subpart F inclusion, “U.S. Shareholders” of CFCs include GILTI in income on an annual basis. U.S. corporations may be entitled under section 250 to a deduction of up to 50% of their GILTI inclusion and related section 78 gross-up.

Unlike a subpart F inclusion, a U.S. Shareholder calculates a single GILTI inclusion, based on all of its CFCs.

In general, GILTI is the excess of a U.S. Shareholder’s “net tested income” (that is, the excess of the aggregate of its CFCs’ tested income over its CFCs’ tested losses), over its “net deemed tangible income return” (“net DTIR”), which is a deemed return on the CFCs’ tangible assets (10% of qualified business asset investment or “QBAI”) reduced by the CFCs’ “specified interest expense”).

Professional help is necessary when undertaking these tax filing processes.

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