Nicole Suk recently concluded her second episode as featured on the podcast The Bottom Line, produced by financial advisory firm Alexander Spencer in Australia. Nicole and Sevan Tuna, Managing Director of Alexander Spencer and the host of The Bottom Line, discussed more key considerations for businesses looking to come to the United States, how tax law can impact the filing requirements for foreign companies and owners and the benefits of seeking professional advice when establishing your business in the United States.
- Compliance Timing and Filing Requirements – Most companies in the United States have a calendar year-end by default, although corporations can elect a different year-end. Corporations and individuals must file a tax return three and a half months after year-end, but if you are a U.S. person working abroad or overseas that year, the Internal Revenue Service (IRS) will allow two extra months for filing. Also, tax returns for pass-through entities are due two and a half months after year-end.
- Penalties and Failure to File – If you file your tax return a few months past the deadline, the IRS will generally render penalties and interest. If you have significant withholdings, but you fail to file your return for longer than three years, you will forfeit refunds of those available withholdings, since the statute of limitations with the IRS is three years. The biggest penalties arise when you fail to report foreign income, foreign bank accounts or foreign companies. The most severe is if you are a U.S. entity with a foreign owner and you fail to file Form 5472, the penalty is $25,000 per form. Other penalties could include the following examples:
- If you are a foreign parent with a subsidiary in another country that the U.S. entity also does business with and you fail to report those transactions – $25,000
- If you are a U.S. person with a foreign subsidiary and do not report it – $10,000
- If you are a U.S. person or entity with foreign bank accounts and do not report them – $10,000, potentially per unreported account
- Requirements of Employers Who Have a Business in the United States – As an employer in the United States, you must pay a wage to your employees and then collect federal and state withholdings, Social Security and Medicare – doing so will guarantee that your employees are paying proper taxes in the United States. Also, the United States does not have a free healthcare system, so many employees may expect healthcare benefits to be paid by you as the employer as well. Other benefits you would consider offering include dependent care, retirement plan benefits and short-term/long-term disability. Having a human resources employee or group of employees on your staff can help ensure these aspects are properly handled. Also, worker’s compensation and unemployment insurance are also mandatory for you as the employer.
- Advice Before Taking the Plunge – Before establishing your business in the United States, you should determine the best structure for your business. Your attorney and tax advisor can help you make this decision to help you get the most beneficial structure. If you begin coming to the United States to do any work, you may have to report taxes depending on how many days of the year you are in the United States for work.
Windham Brannon Can Help
Windham Brannon’s international tax practice serves clients in 76 countries, helping clients grow their businesses and comply with domestic and international tax law. For more information about doing business in the United States, contact your advisor or reach out to Nicole Suk.
