2016 WTA Trade Conference Mark Gelhaus, CPA, JD Principal

Transcription

1 2016 WTA Trade Conference Mark Gelhaus, CPA, JD Principal Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.

2 Overview Sending Employees Overseas Traveling Overseas is Exciting But international assignments can be stressful Employees need to be put at ease Common issues o Inconveniences of moving o Legal Issues o Tax Issues U.S. expat taxation U.S. inpat taxation

3 Tax Compliance Terminology o Expats o Inpats o Home Country o Host Country

4 Approaches to Assisting Employees Employee on his/her own to get their tax compliance done and pay taxes due Company provides some assistance o Provide firms to help compliance, and/or o Offset some or all of the compliance costs, and/or o Make the employee whole as to ultimate liability

5 U.S. Expat Taxation U.S. Taxation o U.S. citizens and green card holders o Taxed on worldwide income o Foreign earned income exclusion (2015: $100,800, 2016: $101,300) o Foreign tax credit o Foreign bank account reporting Local Country Taxation o Most countries have domicile concept of resident taxation o Domicile often based on number of days o If not resident, then taxed as nonresident on income earned in the country Treaty Interaction o U.S. has a vast treaty network Income tax Social security tax Estate tax o Provides for tie breaker rules for residency o Often exempts income below thresholds, if paid from Home Country o Clarifies sourcing, determines which country to claim Foreign Tax Credit State taxation may stop if give up domicile

6 U.S. Expat Taxation (Cont d) Foreign earned income exclusion (2015: 100,800; 101,300) o Bona fide residence test for entire tax year o Physical residence test (330 of 365 days) o Also a foreign housing exclusion Foreign Tax Credit (FTC) o Designed by countries to minimize double taxation o When two countries are taxing the same income o One country will allow credit for the taxes paid to the other country on the same income o Where the income is sourced is the country that ends up with the tax o Treaties will clarify the sourcing for the various kinds of income

7 U.S. Inpat Taxation Resident versus nonresident versus dual resident Residency tests o No domicile concept federally o 183 day test, but may still be able to elect to be resident o Green card o Treaty can override o Residency starts day of arrival, although full year election if married joint o SSNs or ITINs needed for dependents

8 U.S. Inpat Taxation (Cont d) Nonresident taxation o US source income only o Not always the best answer Generally must file separately; brackets less favorable than MFJ No standard deduction Itemized deductions limited Have to run the numbers and compare alternative ways to file Dual Resident taxation o Part year resident, part year nonresident o Only for the first or last year Year of departure o Default is resident for full year o Unless elect early termination date o Exit tax rules apply to covered expatriates

9 Equalization Making the employee whole: o Method 1: Employee would pay no more in taxes than he would have had he stayed home. Company receives any benefit of reduction in overall taxes. o Method 2: Employee pays no more in taxes than he would have had he stayed home, but if overall taxes are lower, employee gets benefit Contract with employee o Letter o Policy o Agreement

10 Equalization (Cont d) Process o Educational meeting with employee (home and host countries) o Stop actual wage withholding o Institute hypothetical withholding o Compute hypothetical tax o Prepare actual taxes (generally employer handles and pays) o Compare hypothetical tax to what employee paid, settle up o Gross up

11 Equalization (Cont d) Equalization Policy issues o Most exclude allowances from hypothetical tax o Reimbursing for excess tax on significant spousal income o Home Sale issues o Who gets benefit of foreign tax credit carryforwards o Termination while on assignment o Timing of bonus/salary payments o Currency conversion

12 Other Compliance Issues Foreign bank account reporting (10k threshold) Foreign financial asset (50k threshold) Foreign retirement plans o Employee contributions may not be nondeductible o Employer contributions may be taxable Ownership of foreign entities o Corporations (5471) o Partnerships (8865) o Disregarded entity (8858)

13 Other Compliance Issues (Cont d) Foreign mutual funds Tax treaty positions o Primary purpose is to avoid double taxation o Provide tie breaker provisions for residency determinations o Provide exemption for certain kinds of income, or for short assignments Foreign trust reporting Foreign gift reporting States not subject to U.S. treaties Social Security treatment o Corporate tax presence issues Host country exit taxes U.S. has some treaties (totalization agreements)

14 Questions? CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect