When Foreign Residents Become US Shareholders…
The latest tax reforms under the Trump administration seem to despise the global entrepreneurs. The increasing disclosure requirements, allocation and attribution of profits of foreign entities in the U.S. irrespective of their actual distribution, retrospective tax of profits of foreign holdings have given small room for tax planning to the owners of foreign entities who are looking to become the U.S. residents. The blog apprises the readers to be aware of the consequences and reconsider their decision to move to the U.S. unless you are ready to bear the additional tax costs.
The controlled foreign corporation (CFC) regime has been there for quiet sometime. To put it in simple words, the CFC regimes taxes profits of a foreign entities profits if there is a direct, indirect or construction ownership of a U.S. person (i.e., a U.S. citizen or a U.S. resident. The recent tax reforms have expanded the rules of including entities to be qualified as a CFC under constructive ownership test and part of profits which were not previously covered are now included to be taxed. Our whitepaper titled Interaction of Indian and U.S. Tax Laws, discusses the tax exposure that global business owners may face as a consequence of moving to the U.S. This clearly does not disintegrate the movement to the U.S. But analysis to streamline and mitigate tax costs would be helpful before taking the decision.
The whitepaper titled Interaction of Indian and U.S. Tax Laws also highlights the consequent reporting requirements for the Indian residents pursuant to the Black Money Act in the India and the U.S. residents in the U.S. have been covered in detail in two separate blogs (link). It is important for residents to comply with the compliance requirements as the penalties are huge and the governments are extensively working to coordinate the efforts with other governments to trace the undisclosed funds that have not been reported by the resident taxpayers of a country.