https://www.bloomberg.com/news/articles/2018-07-31/living-abroad-isn-t-so-idyllic-for-u-s-expats-facing-new-taxes
Business
U.S. Expats Face
Hammering From New Tax Rules
Hammering From New Tax Rules
By Joe Light
July 31, 2018, 9:00 AM GMT+1
Levies aimed at big
corporations also punish small business
corporations also punish small business
Expats may renounce
citizenship or just become tax evaders
citizenship or just become tax evaders
Photographer: Andrew Harrer/Bloomberg
The four-employee business of Travis Baldwin, who hasn’t
lived in the U.S. for nearly a decade, is about to get hammered by a pair of
tax provisions that were aimed at corporate behemoths like Microsoft Corp.
lived in the U.S. for nearly a decade, is about to get hammered by a pair of
tax provisions that were aimed at corporate behemoths like Microsoft Corp.
A Republican law signed by President Donald Trump in
December created new taxes for corporations that have shifted their profits
offshore for years. But unlike other provisions in the bill, these
international changes don’t set a floor on annual gross receipts for when they
kick in -- meaning Baldwin, who owns an industrial design company in Bristol,
U.K., is on the hook even though he says his business has never made more than
$100,000 annually.
December created new taxes for corporations that have shifted their profits
offshore for years. But unlike other provisions in the bill, these
international changes don’t set a floor on annual gross receipts for when they
kick in -- meaning Baldwin, who owns an industrial design company in Bristol,
U.K., is on the hook even though he says his business has never made more than
$100,000 annually.
The two taxes U.S. expatriates who own businesses abroad are
most concerned about: a one-time repatriation
levy of as much as 17.5 percent on old foreign profits and an annual
levy called Gilti -- or global
intangible low-tax income -- on foreign profits going forward.
most concerned about: a one-time repatriation
levy of as much as 17.5 percent on old foreign profits and an annual
levy called Gilti -- or global
intangible low-tax income -- on foreign profits going forward.
“It’s terrifying,” said Baldwin, who added that he’s had
trouble finding a local tax attorney who even understands the new law. “It’s
just gotten so complicated. I feel like I have this burden that no one else
has.”
trouble finding a local tax attorney who even understands the new law. “It’s
just gotten so complicated. I feel like I have this burden that no one else
has.”
The tax changes are likely to convince some that it’s no longer worth keeping their U.S.
citizenship, according to Nora Newton Muller, who helps run the tax
committee for the Association of Americans Resident Overseas. Other U.S.
citizens, who haven’t been paying U.S. taxes but are thinking of becoming
compliant, might decide just to stay off the radar, she said.
citizenship, according to Nora Newton Muller, who helps run the tax
committee for the Association of Americans Resident Overseas. Other U.S.
citizens, who haven’t been paying U.S. taxes but are thinking of becoming
compliant, might decide just to stay off the radar, she said.
It’s hard to know exactly how many people will be affected,
since the Internal Revenue Service doesn’t release numbers of how many expats
own businesses abroad. The AARO, a Paris-based association, estimates there are
nearly 9 million expats, a portion of whom own a business.
since the Internal Revenue Service doesn’t release numbers of how many expats
own businesses abroad. The AARO, a Paris-based association, estimates there are
nearly 9 million expats, a portion of whom own a business.
The Republican law slashed the corporate tax rate to 21
percent from 35 percent, and shifted the U.S. to a system of taxing its
companies on their domestic profits only. Those changes required guardrails --
like the repatriation tax for profits stashed offshore since 1986, and the
Gilti tax, to ensure multinationals pay at least something on their future
overseas profits.
percent from 35 percent, and shifted the U.S. to a system of taxing its
companies on their domestic profits only. Those changes required guardrails --
like the repatriation tax for profits stashed offshore since 1986, and the
Gilti tax, to ensure multinationals pay at least something on their future
overseas profits.
Expat business owners, like business-owners in the U.S.,
often pay themselves a salary that’s only a fraction of their profits, keeping
the rest in their companies for retirement or a rainy day. The new law as it
stands would require expats to pay the one-time repatriation tax on their
profits, even though in reality the money is never returning to the U.S. To pay
the taxes, many expats will have to give themselves a dividend from their
business, triggering more local taxes.
often pay themselves a salary that’s only a fraction of their profits, keeping
the rest in their companies for retirement or a rainy day. The new law as it
stands would require expats to pay the one-time repatriation tax on their
profits, even though in reality the money is never returning to the U.S. To pay
the taxes, many expats will have to give themselves a dividend from their
business, triggering more local taxes.
Baldwin said he found out about the changes from a Facebook
group for expats. He hired a firm in Florida that specializes in expat tax
issues, but the firm hasn’t yet told him how much he’ll owe for sure. So far,
the firm has estimated his tax bill and preparation costs for next year could
total an additional $20,000.
group for expats. He hired a firm in Florida that specializes in expat tax
issues, but the firm hasn’t yet told him how much he’ll owe for sure. So far,
the firm has estimated his tax bill and preparation costs for next year could
total an additional $20,000.
Repatriation Delay
Expat business owners say they’ve had trouble getting
lawmakers to pay attention to the issue, since few, if any, have a critical
mass of expats who vote in their district. Supporters of changing the law have
been trying to find a champion in the Senate.
lawmakers to pay attention to the issue, since few, if any, have a critical
mass of expats who vote in their district. Supporters of changing the law have
been trying to find a champion in the Senate.
Monte Silver, a tax attorney from Santa Monica, California,
who owns a practice in Israel, traveled to Washington earlier this year to try
to convince lawmakers to take up the cause.
who owns a practice in Israel, traveled to Washington earlier this year to try
to convince lawmakers to take up the cause.
“They said, ‘Monte, the problem here is we have these little
districts. We don’t know on a district level how many of these people live in
my district. Go to the Senate,’” said Silver.
districts. We don’t know on a district level how many of these people live in
my district. Go to the Senate,’” said Silver.
Silver said he’s gotten a Republican senator on the Finance
Committee, which handles tax bills, to promise to take up the issue, but
declined to name the lawmaker. The attorney said he’s also met with Treasury
Department officials, but they’ve said there’s not much they can do since a fix would have to come from lawmakers.
Committee, which handles tax bills, to promise to take up the issue, but
declined to name the lawmaker. The attorney said he’s also met with Treasury
Department officials, but they’ve said there’s not much they can do since a fix would have to come from lawmakers.
Struggling expat business owners got one win last month. The
IRS said it would let businesses that owe less than $1 million in
repatriation taxes wait until next year to pay the first installment. The
payment had originally been due in April 2018.
IRS said it would let businesses that owe less than $1 million in
repatriation taxes wait until next year to pay the first installment. The
payment had originally been due in April 2018.
But the delay doesn’t affect the Gilti tax, which business
owners should have already started paying estimated payments on. Individuals
will face higher rates for the Gilti tax than corporations, and find the levy
applies to a broader swath of their profits since they can’t take advantage of
foreign credits.
owners should have already started paying estimated payments on. Individuals
will face higher rates for the Gilti tax than corporations, and find the levy
applies to a broader swath of their profits since they can’t take advantage of
foreign credits.
‘Tax Violators’
Senate Finance Committee Chairman Orrin Hatch, a Utah
Republican, is working with the administration to implement the new policies
and will “continue to meet with members, taxpayers and other stakeholders to
address any concerns with the new law and examine potential changes,” Julia
Lawless, a spokeswoman for the panel, said in an email.
Republican, is working with the administration to implement the new policies
and will “continue to meet with members, taxpayers and other stakeholders to
address any concerns with the new law and examine potential changes,” Julia
Lawless, a spokeswoman for the panel, said in an email.
An IRS spokeswoman declined to comment.
Alicia Vincent, who helps run a furniture business in
Montfort l’Amaury, France, said she’s written letters to lawmakers in her
native Texas and recruited family and friends living in the state to join her.
She said her accountant, who’s charging about $350 an hour to calculate the new
tax, estimates her company’s effective tax rate will be almost 70 percent
between France’s taxes and that of the new U.S. regime.
Montfort l’Amaury, France, said she’s written letters to lawmakers in her
native Texas and recruited family and friends living in the state to join her.
She said her accountant, who’s charging about $350 an hour to calculate the new
tax, estimates her company’s effective tax rate will be almost 70 percent
between France’s taxes and that of the new U.S. regime.
“How can you pay 70 percent in taxes? You just don’t make
profits? Eventually we’d close up our business. It’s just not worth it,”
Vincent said.
profits? Eventually we’d close up our business. It’s just not worth it,”
Vincent said.
For those unwilling to close up shop, Silver says they just
won’t pay if the Gilti tax isn’t modified.
won’t pay if the Gilti tax isn’t modified.
“It’s clear what’s going to happen,” Silver said. “We’re
going to become tax violators.”
going to become tax violators.”
