As an American entrepreneur with a business abroad, you must consider not only local tax obligations but also the tax laws of the United States. The U.S. operates under a global tax system.
This means American taxpayers are required to pay taxes on their worldwide income, regardless of where that income is earned. For entrepreneurs, two critical tax regulations come into play: FATCA(Foreign Account Tax Compliance Act) and GILTI (Global Intangible Low-Taxed Income).
FATCA mandates that American taxpayers report foreign bank accounts, financial assets, and properties to the Internal Revenue Service (IRS). If you are a U.S. citizen or taxpayer, foreign banks and financial institutions may share your financial information with the IRS.
This could require you to file a U.S. tax return, even if you owe no taxes in the country where you live or where your business operates. Failure to comply with FATCA requirements can result in significant penalties and legal issues.
The GILTI regulation applies to American businesses with foreign subsidiaries. It ensures that profits generated by foreign subsidiaries can still be taxed in the U.S., even if those profits are already taxed in a country with low tax rates.
This means your business could owe taxes to the U.S. on income earned outside the U.S., depending on the tax rates in the country where your business operates. Even if you pay taxes locally, as an American entrepreneur, you are often required to file a tax return with the IRS. The filing thresholds are typically low, meaning most entrepreneurs must comply.
Understanding these complex obligations is crucial to avoiding double taxation or legal complications. Professional tax advice is essential to ensure compliance with both U.S. and local tax laws.
Owning shares in a company outside of the US will have influence on your tax obligations. The US regulations on reporting investments in companies abroad are complex and require a specialist to advise you. Therefore, we advise you to have this screened by a tax advisor specialized in filing for US citizens abroad. Americans Overseas can provide you with names of professionals if desired.