Tax changes 'terrifying' U.S. expat business owners

Americans expats running small businesses abroad could pay up to 70% in taxes after Trump's new tax plans come into effect.

US small business owners living abroad to be hammered by Trump's new tax plans
American expatriates who run small firms abroad are about to take a "hammering" from new taxes President Trump introduced in a bid to boost the tax take from the overseas earnings of corporate giants such as Microsoft, according to a Bloomberg report.The problem with the law signed by the president in December is that it does not specify a minimum on annual gross receipts before the tax liabilities kick in.

Small US companies run by expats are now liable for same taxes as large corporations

Consequently, small companies run by US expats are now becoming liable to the same taxes aimed as the large corporations that have been moving multi-million profits offshore for years. “It’s terrifying,” according to Travis Baldwin, a US expat who has run a design company in Bristol in the UK with four employees for almost a decade. “It’s just gotten so complicated. I feel like I have this burden that no one else has.”He told Bloomberg of the problems he had encountered in just trying to find a tax attorney who even understood the new law. Eventually, he tracked down a firm in Florida specialising in expat tax affairs, which has estimated his tax bill and preparation costs for next year could total an additional $20,000 - and this on a business that has never turned an annual profit of more than $100,000.

US taxes for expats: Repatriation levy and annual Gliti levy

Bloomberg identified the two taxes that US expatriates who own businesses abroad were most concerned about, as the one-time repatriation levy of as much as 17.5 per cent on old foreign profits, and an annual levy called Gilti - global intangible low-tax income - on foreign profits going forward."It’s hard to know exactly how many people will be affected, since the Internal Revenue Service doesn’t release numbers of how many expats own businesses abroad. The Association of Americans Resident Overseas (AARO) estimates there are nearly nine million expats, a portion of whom own a business," said the financial media company.
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"The Republican law slashed the corporate tax rate to 21 per cent from 35 per cent, and shifted the US to a system of taxing its companies on their domestic profits only. Those changes required guard rails - like the repatriation tax for profits stashed offshore since 1986, and the Gilti tax, to ensure multinationals pay at least something on their future overseas profits."Expat business owners, like business owners in the US, often pay themselves a salary that’s only a fraction of their profits, keeping the rest in their companies for retirement or a rainy day. The new law as it stands would require expats to pay the one-time repatriation tax on their profits, even though in reality the money is never returning to the US. To pay the taxes, many expats will have to give themselves a dividend from their business, triggering more local taxes."

US expats contact US lawmakers and work with committees like AARO to change the tax rules

Nora Newton Muller, an organiser of the tax committee for the Paris-based AARO, believes the new taxes will convince many expats that it is no longer worth their while retaining their US citizenship. Expats have attempted to raise the issue with lawmakers in the US Senate but, so far, have made little progress.Alicia Vincent, an expat who helps run a furniture business in France, said she had written letters to lawmakers in her native Texas and had recruited family and friends in the state to join her campaign. She said her accountant had estimated her company’s effective tax rate would be almost 70 per cent by the time she had paid local taxes in France and those under the new US law.“How can you pay 70 per cent in taxes?" she asked. "You just don’t make profits? Eventually we’d close up our business. It’s just not worth it."

US tax law will create unwilling "tax violators" of expat small business owners

Others say their only option is simply not to pay the Gilti tax at all. Monte Silver, a tax attorney from Santa Monica who owns a practice in Israel and who is pressing the Senate to take action, commented: “It’s clear what’s going to happen: we’re going to become tax violators.”
For related news and features, visit our USA and Finance & Tax sections.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory

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