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U.S. Expats Owning Foreign Companies Will Be Affected by The Trump Repatriation Tax

It has just been uncovered that millions of Americans living and working abroad will be impacted by the repatriation tax that was initially introduced to encourage huge corporations like Apple and Google to bring a significant part of their profits back to the U.S.

What is the Problem

If you are an Expat owning 10% or more of a foreign company (Controlled Foreign Corporation or CFC) and other U.S. Expats own as well 50% or more of the same company, you will be forced to pay 15.5% of taxes over the profits of your company starting 01/01/2018.

There is a clause in the new tax law that imposes a one-time “deemed repatriation tax” of 15.5% on the profits businesses make overseas payable in stages over 8 years. The clause does not take into account whether the organization elects to repatriate or not. The law will also affect U.S. citizens and green card holders who own more than 10% of a controlled foreign corporation or CFC. A CFC in its core is an overseas corporation, in which 50% of the voting rights are controlled by U.S. shareholders. Many self-employed taxpayers who live abroad have shielded their income with a CFC to avoid paying Social Security contributions and now they will be taxed the same way giant corporations are taxed.

In addition to all of that, a number of the affected individuals may find in a situations where they are not financially able to pay the repatriation tax.

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More Disadvantages

Not only U.S. taxpayers are facing a big tax imposed on their overseas income, but they are also unable to deduct any dividends that may have been distributed by their CFCs. U.S. Expats won’t have the opportunity to deduct pass-through income from their offshore ventures.

What are the Solutions

There are none so far, but the IRS issued a guidance giving a year reprieve for Expats hoping that Congress amends the tax reform law recently enacted. Click here for more details.  

If you think you may be affected by this unforeseen impact of the repatriation tax, get in touch with one of our tax consultants. We will assess your unique situation and come up with the most beneficial solution for you and your finances.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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