QUESTIONS ABOUT CORPORATE TAXES


In this section we answer corporate tax questions that we often hear.
It’s not a forum for getting detailed advice but it answers some common questions that we’ve categorized into our six service areas. Select one of the six service icons to see questions in that category.

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INTERNATIONAL TAX

In a world of globalization, more and more US companies are expanding internationally. Expansion of your business into a foreign country can take many forms including a representative office, a branch, or a new entity (e.g.: subsidiary).

When selecting the legal form of how you will enter the new country, it’s crucial to determine the breadth of your operational activities in that foreign jurisdiction. Some questions to ask:

  • What’s driving the need for expansion (i.e. customer desire to contract locally, lower cost local resources, reconnaissance on the local market, etc)?
  • Is the market a single country or a region? How big do you envision the market to be and what is the timeframe?
  • Will you have employees or independent contractors in the local country?
  • What services will the local employees / independent contractors be performing (e.g.: sales, customer support, R&D, etc) and what level of autonomy will they have?
  • If you’ve already been advised of an entity type, what is driving the recommendation (i.e. local employment requirements, perceived local risk, etc)?
  • What’s the level of budget for the new operations (including G&A type costs) both now and in future forecasts?

Many companies attempt to start small with as little presence as possible; however, depending on the country, tax considerations and statutory reporting requirements might create more exposure than this strategy is worth.

It’s probably worth doing a bit of fact gathering regarding the above points and fleshing out the business plan – then giving VPTax a call to help walk through the practical and operational considerations regarding setting up operations in a new country. With a little bit of forethought, you can expand with eyes wide open – rather than being blindsided along the way.

If your company is paying foreign contractors or vendors for services provided in the US, it’s likely you should be withholding taxes from each payment and sending it to the IRS. Conversely, payments to foreign vendors for services provided outside the US are not subject to withholding.

If a US company fails to withhold on a payment to a foreign vendor or contractor, because the IRS has little ability to collect the unpaid tax from the foreign service provider, the US company becomes liable.

Here are some examples of questions to ask yourself.

Am I making payments to foreign vendors where the royalties are for use of intangible property in the US?

Am I making payments to someone outside the US where, as a US person, I’m the debtor?

Do I have a foreign vendor that comes to the US and actually performs services in the US?

Have I obtained form W-8BEN or W-8BEN-e from corporate or individual foreign providers, respectively?

If you answered Yes in any of these instances, it deserves further investigation. Find our where you stand.