According to the Financieele Dagblad, business owners in Europe who hold an American passport are in for a shock. After the recent tax overhaul in the United States, it’s not only Apple, Google and Pfizer who have to pay taxes on profits they’ve been hoarding in tax havens. Thousands of Euro-American companies who have been diligently paying their taxes in Europe will now also be eligible for a tax assessment from the US.
According to Daan Durlacher of AmericansOverseas.org, an organization that represents the interests of American-European business operators, “All small businesses in Europe with European-American shareholders are now subject to taxation that was aimed at large US corporations that want to return capital to the US. While small European companies have no intention of doing that at all.”
Part of Trump’s recent tax overhaul is a one-off tax assessment of American companies that have kept their profits outside of the US since 1986. Multinationals pay 15.5% or 8% tax on the approximately $ 2,500 billion that’s been estimated to have been parked overseas. Some of these profits are liquid, and some are tied up in fixed assets such as factories and machinery.
This one-off levy affects owners of European BVBA/SPRL/SARL/S.L. in possession of a US passport or US Green Card.
Just as in Europe, the US will also levy this so-called ‘toll tax’ worldwide from business owners who fall into this category. This means the Trump government will abandon worldwide taxation and switch to a territorial system. The US exercises the right to tax the income of its citizens worldwide.
Washington expects a one-time revenue of $339 billion from the toll tax. After the levy, US multinationals can return the profits accumulated abroad to the US, tax free. Apple has announced that it will do so. After the reduction of corporation tax from 35% to 21% on 1 January, the US has become a far more attractive place for investing.
However, European-American business owners have no intention of sending profits back to the US, according to Durlacher. The fact that these businesses, as well as colleagues elsewhere in Europe, are still having the toll tax imposed on capital that has been built up in Europe and already taxed, shows that Europe has let the USA run rings around it, says Durlacher.
Accounting and tax advisory organization PwC warns of the underestimated consequences for American businesses abroad. In addition, multinationals may, in certain cases, offset foreign tax paid with the toll tax due, while independent business owners are excluded from this. This problem has also been picked up on by EY, the accountancy and tax consultancy organization.
The Canadian newspaper The Globe and Mail, reports growing interest among American entrepreneurs in Canada to abandon their US citizenship because of the US tax reform. There’s no longer any escape from toll tax, but US taxation on foreign profits from intangible assets that are not sufficiently taxed elsewhere by American standards, can still be avoided.
However, renouncing US citizenship is not easy. Those who want to say goodbye to Uncle Sam have to pay a fee of $2,350 and explain why they want to leave in a face-to-face conversation at a US consulate or embassy. Before citizenship can be relinquished, at least five years of tax returns must be filed in the US. In addition, the US tax authorities may also impose an ‘exit tax’.
We, the founders of Americans Overseas, were born in Europe and obtained our American nationality through our (American) mother. When we heard about this for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fines or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.
That’s why we started this initiative to help people from all over the world by providing proper information to avoid unnecessary panic, and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with the new tax laws.
Are you an entrepreneur in Europe holding an American passport, and do you have any questions about business owners with American passports in Europe and Trump tax reform? If so, contact Americans Overseas.