Taxes are confusing enough as they are, independent of the complexities introduced when multiple tax authorities oversee their implementation and directives. Added to this complexity is the ever-shifting nature of the tax landscape across multiple jurisdictions. Thus, international tax planning can be understood as the purposeful arrangement of cross-border transactions such that international tax principles are taken into account. Furthermore, this planning can help to effectively and lawfully route a business’ activities and capital flows.
Businesses hoping to extend their scope to international locations will find it critically important to take international tax planning strategies into consideration. Scaling a business of any size whilst operating internationally requires detailed planning. This is a tax-driven proactive process that individuals or entities undergo to maximize their after-tax profit.
5 Ways Tax Planning Strategies Can Help Businesses Grow Globally
The more specific ways that international tax planning strategies can help your business might surprise you, as there is ultimately more than just a single benefit.
1. Keep Track of Tax Laws Across Applicable Jurisdictions
Changes to tax laws are an inevitable component of economic and societal progress. Being aware of these changes and the implications they could have for you or your business is essential to the success of your business in the future. Tracking these changes is attributable to a solid international tax planning strategy, especially as these strategies face progressively heightened scrutiny.
A great example of this is the recent Base Erosion and Profit Shifting (BEPS) project by the Organization for Economic Cooperation and Development (OECD). Among a variety of changes, the establishment of the project is one of the most significant changes to international taxation seen in decades. Changes will likely result in increased compliance costs and ultimately higher global tax rates for international enterprises. This is critical for any entity conducting international business to know.
2. Maintain Accountability and Transparency of Tax Structure
Business organizations themselves are often just as complex (if not more complex) than the tax legislation that might impact them, especially when this legislation transcends international borders. Once again as a result of the BEPS project by OECD, there has been an increased focus upon the importance of business entities taking steps toward ethically accountable and transparent tax structures as a part of their tax planning strategy. By encouraging board members and tax advisors to proactively discuss the ethical considerations of tax management, businesses have a better chance of success down the road.
3. Understand how GILTI Works for US Companies
In 2017, the Tax Cuts and Jobs Act was passed by Congress, which amended the Internal Revenue Code of 1986. Previous to the passage of this act, corporate entities were only taxed within the foreign jurisdiction in which they operated with zero to very low tax rates in the US. The GILTI portion of the tax reform brought a change to this part of the tax code.
The US now taxes these offshore entities on all income that is generated offshore in countries with tax rates that are below 13.125%. The purpose of this is to discourage US companies from shifting profits outside of the US. Having a well thought out international tax planning strategy that takes into account changes such as the GILITI portion of the Tax Cuts and Jobs Act is critical for your business’ success in the future, and could lead you to make different decisions.
4. Invest Foreign Tax Credit to Scale Your Business
Foreign Tax Credits are granted when an entity has accrued foreign taxes outside of the US. In order to avoid or reduce the impact of having to pay income taxes by two regulatory authorities, individuals can take credit or itemized deductions for their tax amounts. The money that you save in international tax planning by taking advantage of foreign tax credits could be used in a wide variety of purposes, more specifically in the growth of your business.
5. Make Use of Special Economic Zones
Special economic zones (SEZs) are specific areas within a country that have different trade laws from the rest of the country in which the zone resides. The purpose of such zones is to promote increased trade balance, investment, employment, job creation, and effective administration. Taking advantage of such special economic zones should certainly be an aspect of your international planning strategy. As such your business will be able to take advantage of special considerations that aren’t necessarily granted elsewhere within a nation.
International Tax Services With Gamburg CPA PC
Our niche CPA firm at Gamburg CPA PC is a dedicated group of professionals with experience in assisting clients who range from multi-million dollar businesses to smaller businesses with everyday tax needs. Our firm has built its reputation on the maintenance of professional relationships that focus on trust, communication, and knowledge.
Whether you are a US client or a foreign client with international tax needs, our firm would be happy to assist you. Contact us today for a consultation on ways we can help put an international tax planning strategy in place for your business.