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BPM Inbound International Tax Discussion Highlights from GlobalSF Event

06.17.19

Kathy WongBPM Partner Kathy Wong presented at GlobalSF’s San Francisco SelectUSA Tech Day on “Taxes Involved in Investing” for international inbound companies.

The BPM-sponsored event took place over two days and highlighted the ecosystem for startups and investing in the U.S. and specifically in California and the Bay Area.

Click here to listen to an audio recording of the fireside chat Kathy shared with Murat Wahab, Director of SFAsia.

In addition, here are a few highlights from the Kathy’s Q&A:

How did the Tax Cuts and Jobs Act of 2017 impact foreign/multinational businesses?

The U.S. government reduced the corporate tax rate from the top rate of 35% to a flat rate of 21%. The reduction has increased export incentives and VC funding opportunities, and it changed how multinational companies are structuring their U.S. operations for greatest possible savings. The move to a lower tax jurisdiction has made the U.S. a more competitive location to operate and own a business. In addition, a new tax incentive called FDII (Foreign-Derived Intangible Income) reduced the tax rate to 13.125% on certain export income.

When foreign companies start expanding to the U.S., what are common tax structures to consider?

The most common structures include Branch, C Corporation, LLC/Partnership. Branch is the most simple, because it’s not a separate legal entity. Corporation is the most common, because it separates U.S. activities from foreign ones and limits liability and risk to the U.S. company. The disadvantage of a Corporation is that it results in double taxation. A LLC/Partnership is not a separate tax paying entity, so there’s no double taxation factor, but it takes more administrative work to run the business and business owners need to file U.S. tax returns.

Are there any tax incentives that can benefit inbound companies in the technology sector?

Qualified small businesses with less than $5 million in gross receipts can use the new Research and Development (R&D) Tax Credit to offset payroll taxes up to $250,000 each year. There is approximately 8% of tax saving on each dollar of R&D expenditure for the credit, and tech companies in a loss position (without any income tax liability) can still benefit. California and San Francisco also offer additional tax incentives for certain technology companies. Each state has its own set of laws for income and sales tax, so it’s important to consult a tax advisor before choosing a U.S. location, if possible.

What do inbound international companies need to know about transfer pricing?

Transfer pricing is setting the appropriate pricing for goods or services among parties and affiliated companies (usually in different tax jurisdictions) and applies to almost all multinational companies. Pricing decision determines where the profit is recognized profit is recognized, usually in two different countries/tax jurisdictions. There’s an increasing need for transfer pricing documents to support arms-length pricing.

What are the income tax return filing requirements for a typical U.S. company?

U.S. Federal and State income tax returns are filed on an annual basis and due March 15 (LLCs and Partnerships) and/or April 15 (individuals and Corporations). Profitable corporations are also required to pay estimated taxes on a quarterly basis, and there are various disclosure requirements for multinational companies with foreign owners or foreign subsidiaries. There are substantial penalties – upwards of $10,000 – for not filing the international forms and/or filing them late.

Please consult a BPM advisor about the above information and more before making business decisions.

Email Kathy Wong at kwong@bpmcpa.com or call 415-677-4579, if you have any questions or wish to discuss tax topics for inbound companies.