Americans abroad hit by Trump’s new repatriation tax rules

Individuals are being treated the same as big corporations

Expatriate Americans face unexpected tax bills on their overseas business interests under repatriation rules Congress designed to persuade companies like Apple and Google to bring back to the US profits they had accumulated in lower-taxed countries.

We believe large numbers of our clients would be hit by a clause in the tax reforms signed into law by President Donald Trump in December.

The Tax Cuts and Jobs Act imposes a one-time “deemed repatriation tax” of 15.5 per cent on the profits businesses have accumulated overseas, whether or not they choose to repatriate them as Apple has with its pledge to bring $38bn back to the US.

Any individual US citizen or green card holder owning more than 10 per cent of a “controlled foreign corporation”, or CFC, will be forced to pay this tax within eight years, according to an analysis by the Senate finance committee. A CFC is an overseas business in which US shareholders control more than 50 per cent of the voting rights.

The problem is, the way the law is worded treats every American citizen and green card holder in the world [operating through a foreign corporation] the same as Google.

Many self-employed Americans abroad created foreign corporations to avoid paying US social security.

In our analysis, many individuals caught by the repatriation tax would not have the cash on hand to pay it. Unlike US corporations, however, they could not claim a deduction on any dividend their foreign corporations distributed to cover the bill.

At this point there is little that any taxpayers can do to mitigate the ‘repatriation’ tax — it is a corporate provision that sweeps up individual US taxpayers as well.

To learn more about the ‘repatriation tax’ and other US tax issues, please contact Dov Weinstein at w@wcpa.co.il or 077 738 6666.