Andrea Ricci
International Tax CPA
 

Non-U.S. corporations and other corporate entities with income effectively connected with a U.S. trade or business (ECI income) must file Form 1120-F with the IRS and pay any associated U.S. tax liability calculated at the regular corporate income tax rate at 21%. It's important to understand that the U.S. corporate income tax is computed on a net income basis, which ensures a fair and transparent tax system. Any expense related to the production of the ECI income can be deducted from gross receipts earned in the USA. 

Non-US resident individuals earning income that is effectively connected with a U.S. trade or business (ECI income) must file Form 1040-NR with the IRS. ECI income taxation for non-resident individuals is done on a net basis, which means you can deduct certain expenses related to the production of your U.S. ECI. This can significantly reduce your tax burden. If you have a sole proprietorship, or a single-member LLC, or U.S. real property investments, you are likely under the obligation to file Form 1040-NR with the IRS.

IRS Form W8 (i.e., Form W8BEN for individuals and Form W8BENE for corporate entities) is a powerful tool whenever a non-U.S. taxpayer earns passive income (FDAP income) from a source within the United States. This form, when completed, allows foreign nationals and entities to claim tax treaty benefits. These benefits include a reduced withholding tax rate at source on certain payments, like dividends, interest, royalties, wages, etc. By understanding and using this form, you can empower yourself with the knowledge to optimize your tax situation. 

Non-U.S. banks and financial institutions are required to comply with specific FATCA tax reporting requirements for financial accounts held by U.S. citizens and tax residents. If they fail to comply with FATCA, they may face an additional 30% withholding tax on certain payments received from U.S. individuals and entities, even those made on behalf of their clients. Each non-U.S. bank or financial institution must register with the IRS Portal and obtain a Global Intermediary Identification Number (GIIN).

Investing in US Real Estate presents an exciting opportunity for many investment managers and wealthy individuals. The potential benefits, such as high returns and a stable market, can be a source of optimism and hope. However, foreign investors in US real property interest must pay careful attention to their US income tax obligations in order to avoid hefty penalties.  Under FIRPTA (Foreign Investment in Real Property Act), any gain arising on the disposition of a direct, or indirect, "U.S. real property interest" is automatically treated as effectively connected income (ECI income) and is accordingly taxed in the United States. 

Non-U.S. individuals with personal or real property in the United States are subject to an up to 40% estate tax upon death. It's crucial to be aware that holding assets in the United States can expose them to unwanted tax consequences. This underscores the necessity of appropriate international tax planning. Depending on the nature of the assets held in the United States and on the taxpayer's tax residence, these strategies can be used to minimize the estate tax liability. Depending on applicable double tax treaties with the United States, obtaining a foreign tax credit for the foreign estate tax paid abroad may also be possible.

U.S. citizens and residents residing abroad face several tax challenges arising from the complexity of U.S. international tax law. However, the Internal Revenue Code also extends several significant tax benefits to American businesses with global operations.  As an international tax CPA, I have extensive expertise in the reporting requirements for Controlled Foreign Companies (CFCs) using IRS Form 5471, as well as the taxation of Passive Foreign Investment Companies (PFICs) through IRS Form 8621 and other favorable tax elections. With proper international tax planning, you can also take advantage of the GILTI and FDII deductions.​

Having an offshore or U.S. company can provide various advantages for global investors, but these benefits only apply if the company complies fully with local accounting requirements. Maintaining adequate books and records is essential for any business. 

Non-U.S. investors with a company registered in the United States are required to file IRS Form 5472. This form must disclose any transactions between the U.S. company and its key foreign owners. Likewise, U.S. investors who own a significant amount of stock in a foreign corporation or have an interest in a foreign partnership must accurately track the earnings and profits (E&P) of the foreign entity. 

Regardless of your tax status, it is crucial to keep precise records of all transactions if you have an offshore company in any jurisdiction.