International Taxation of Domestic Corporations

Under the internal revenue laws, any corporation organized or incorporated within any of the 50 states or the District of Columbia is a domestic corporation. A Limited Liability Company may also elect to be treated as an association and pay taxes as a corporation. The citizenship and tax residency of the shareholders are irrelevant as to the determination of the legal status of a domestic corporation.

In contrast to unincorporated entities, an economic double taxation applies to domestic corporations. First, earnings and profits from operations are subject to federal and state income taxes computed at graduated rates. Next, the same income is taxed again at a shareholder level when dividends are paid out of the net income of the corporations.

The tax reporting and withholding requirements are even more burdensome for a domestic corporation with substantial foreign shareholders. A 25% or more foreign-owned corporation is required to report transactions with related parties by filing an information return on IRS Form 5472. Moreover, the foreign owners are also subject to dividend withholding tax applied at source at a statutory or lower tax treaty rate.

Domestic corporations may be subject to Subpart F regime, complicated transfer pricing provisions and various tax compliance and reporting requirements once foreign source income is earned through a subsidiary or branch operations abroad. Taxtake's consultants address all international tax issues applicable to

Domestic Corporations with Nonresident Owners

Domestic Corporations with Operations Outside the USA

US Dividends Paid to Foreign Shareholders

If a US corporation distributes dividends to residents of foreign countries a flat 30% dividend withholding tax is deducted at source. The 30% tax rate may be significantly lower if a tax treaty provision applies. The recipient of the dividends is required to submit Form W-8BEN, EXP, IMY, or a combination of these forms to secure correct tax withholding under a lower tax treaty rate.

The tax treaty rates vary depending on the country of residence and type of beneficiary. For instance, most tax treaties specifically exempt foreign governments, pension funds and non-profit organizations from the US withholding tax on dividends. Nonetheless, foreign corporations with a subsidiary in the USA are usually subject to 5% withholding tax on dividends. Finally, the dividend tax treaty rates that apply to individuals and other unincorporated entities often stand at 10% or 15%.

Deemed Paid Tax Credit on Dividends Paid to a US Parent

Another important aspect of the internal revenue laws is the availability of foreign tax credit and deemed paid foreign tax credit. US corporations with foreign subsidiaries are not subject to current taxation of the income of the subsidiary if certain conditions apply. Instead, the tax is deferred until the income of the subsidiary is repatriated to the USA as a dividend. To ensure avoidance of double taxation, the US parent is allowed a deemed paid tax credit for dividends received from more than 10% foreign subsidiaries. The deemed paid tax credit requires a gross-up of the dividend and a pro-rata share of the income taxes paid by the subsidiary. The credit is extended up to 6 tiers below the parent if certain direct or constructive ownership requirements are met.

Tax Returns and Compliance for Foreign-Owned Domestic Corporations

We understand that compliance with the internal revenue laws is a daunting and time-assuming process. We offer a wide-range of income tax related services to private corporations with foreign owners aiming to ensure a flawless experience for the company and its shareholders. Our experienced Certified Public Accountants and Tax Advisors specialize in

Preparation of 1120 series corporate tax returns and all applicable forms and schedules
State income tax returns and required compliance
Preparation of Form 5472 for more than 25% foreign-owned domestic corporations
Tax returns for individual and institutional shareholders of US corporations
Assistance with tax treaty provisions, uncertain tax positions, and required disclosures
ASC 740 (FIN 48) Accounting for Income Taxes
Form 1118 and Foreign Tax Credit Claims
Assistance with tax treaty-based positions and the US transfer pricing regulations
Strategic planning and implementation of Employee Mobility Programs
Outsourcing of various accounting and bookkeeping needs

Tax Services for Domestic Corporations with Foreign Country Operations

Our Certified Public Accountants and International Tax Specialists aim to relieve your corporate tax compliance burden through streamlined processes and assurance that reflect your particular needs. Our job is to deal with all aspects of accounting and income tax compliance so that you concentrate on the cross-border expansion and robust growth of your business. Our corporate tax services include

Preparation of 1120 series corporate tax returns and all applicable forms and schedules
State income tax returns and required compliance
Preparation of Forms 5471, 8858 and 8865 depending on the corporate operations abroad
Form 926 and outbound transfers of tangible and intangible property to foreign subsidiaries
Assistance with gain and loss recognition in reorganizations, inbound and outbound transfers of appreciated and depreciated property
Foreign Tax Credits and Deemed Paid Tax Credit on Form 1118
Tax treaty-based position and US transfer pricing regulations
ASC 740 (FIN 48) Accounting for Income Taxes
Strategic planning and implementation of Employee Mobility Programs
Outsourcing of various accounting and bookkeeping needs

Should you wish to register for our corporate tax services, you may do so at any time. Did not find what you were looking for? Ask your questions and get a free quote with more information about how we can assist you further. You may also contact us directly.