In the age of information, conducting business internationally is no longer limited to industrial titans, and there are an increasing number of smaller businesses entering the global marketplace. However, because of the ease of access regarding avenues for international business, many small business owners head into the fray without accounting for the myriad of tax implications involved in conducting business overseas and across borders. At Parsons CPA, LLC, we want our clients to understand the full implications of their move to the global marketplace.
Foreign Income Tax Credits
What many businesses don’t realize when stepping inter the wider global arena, is that every country in which they buy, sell, or conduct their business can levy taxation of goods. The IRS acknowledges this as a potential deterrent to domestic businesses remaining in the US and offers tax credits and itemized deductions for the same income that has already been taxed.
Understanding Tax Treaties
When looking to tap foreign markets, it is also important to identify countries that hold treaties with the US, as the reciprocal benefits of these treaties can save your business money during tax season. Countries that hold these treaties are more likely to qualify you for foreign income tax credit, and are designed to incentivize your business’ operation within the countries that have made treaties.
Conducting your business in one of these countries can also entitle you to tax reductions, significantly contributing to your profitability. This can also help to determine whether residency in countries that hold treaties will better decrease your tax liability as you conduct business.
The IRS admits that foreign income tax laws are complex, so understanding various liabilities is important before making your move to the global business marketplace. In order to remain proper compliance, there are several considerations for your company, all of which can vary depending on your status as a C-Corp, S-Corp, or LLC.
Additionally, companies will need to apportion interest expenses, even when the money in question was borrowed in a country different from your company’s base of operations. When applying for foreign income tax credits, the amount considered by the IRS is also not always the full amount withheld by the foreign country where you conduct business. These points can greatly alter whether your business will remain viable when operating internationally, and change the dynamic in which you would need to manage cash flow.
Set Your International Venture for Success
If you are looking to begin operating overseas, don’t be deterred by the complexities of international trade laws and foreign income taxation. Contact Parsons CPA, LLC; we are proud to help businesses expand in scope and profitability by selling their products overseas.