U.S. TAX ISSUES FOR U.S. BUSINESSES ABROAD

A U.S. company or individual with foreign investments or business activities must consider both foreign and U.S. matters. The foreign matters usually require engaging services of a professional who practices in the applicable jurisdiction. Here are some of the U.S. issues that might arise:

• Generally, income taxes (but not other taxes) paid to another country (including those collected by withholding) may be credited against federal (but not state) U.S. income taxes.
  
  
• Complicated reporting rules apply to controlled foreign corporations and trusts controlled by U.S. persons. Significant penalties could apply if these are not followed.
  
  
• Most income earned by these foreign entities is taxable by the U.S. when it is earned. U.S. tax may be deferred, however, for most income from active conduct of a trade or business abroad.
  
  
• Tax treaties between the U.S. and the foreign country in question should be considered.
  
  
• The “foreign earned income exclusion” (Section 911) allows nearly $80,000 a year of foreign-based compensation to be excluded by qualifying individuals.
  
  
• Special attention should be given to the effect of a foreign assignment on employee benefits.
  
  
• Foreign income must be computed in U.S. dollars and using U.S. tax accounting principles.