Friday, December 27, 2013

Year end tax planning thoughts

As the year ends, some of you may be thinking of what you will do in 2014 for business.  Maybe you will start a new one.  If you do, give careful thought to how to structure things, especially if you are a U.S. citizen in Chile (or anywhere overseas).  The U.S. tax code has some difficult to understand sections that can make your life miserable if you don’t plan properly.  A number of qualification tests start with the ownership percentage of “10% or more”.  If you own 10% or more of a Sociedad de Responsabilidad Limitada (Ltda), for instance, you have special reporting requirements, especially if others like  you own “more than 50%” of the Ltda.  The IRS (Internal Revenue Service) can and will impute “Controlled Foreign Corporation”  (CFC) status to your Ltda, even though it’s not technically a corporation.  There are some rather onerous reporting requirements in this case that are avoidable.  Even if the Limitada does not pass the CFC test, 10% or more ownership in a foreign partnership has its own problematic filing issues. It doesn't necessarily mean you'll pay more in taxes but the non-filing penalties are draconian.  The above does not consider any imputed control based on  “constructive ownership” rules, which only adds to the confusion.  Consider owning less than 10% right from the start, if it doesn’t interfere with your business purpose.  This is a very complicated area of law that should be examined closely before any decisions are made. You can file a form with the IRS to treat the Ltda as a “pass-through” (or invisible) entity but that’s for another entry.

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Saturday, December 14, 2013

10% Problem (and Solution)

FATCA implementation may be delayed again. Let's hope we get a Christmas present of yet another delay to some of the worst legislation ever created. Here is a little blurb from the nice folks at Forbes:

 Will FATCA Ever Go Into Effect? - Forbes Thu, 12 Dec 2013 15:42:10 GMT

Channel TelevisionWill FATCA Ever Go Into Effect?ForbesThe Foreign Account Tax Compliance Act seems to be revolutionizing the way governments share tax information. Other nations are using intergovernmental agreements to piggyback on FATCA informatio ...

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But this is an aside.  The real reason I am writing this is because it's near the end of the year and even though Christmas is upon us, you need to know a little something for planning purposes.  A number of times I've been presented with tax situations that have been complicated by the fact that the US citizen involved owns 10% (or more) of a company, whether it's an S.A., Sp.A., Limitada or other.  Ten percent seems to be a magic number in several different ways and I'd like to point out that you will save yourself a lot of trouble if you only own 9.99% instead.  Tax law and regulations seem to look for 10% over and over again.  If you want specifics, subscribe to my free update service.  I'll be explaining things in more detail with my next broadcast.