International Tax Planning

The Basics of International Tax Planning

While the world may have grown smaller, making business expansion and exporting genuine and lucrative opportunities for companies of sizes, it’s important that you take the many tax repercussions into account. That means actively planning for them, as opposed to the mere awareness that your taxes are going to be somewhat different than before. Every business is different, and so is every foreign jurisdiction.

You can better support your company’s business goals and objectives via prudent and effective international tax planning. It’ll allow you to devise and utilize strategies that benefit your company rather than harm it.

So, with that in mind, we’ve put together this article to provide a primer on international tax planning. Take a look.

What Your International Tax Planning Objectives Should Be

These are what your international tax planning goals should look like:

  • Managing a low tax rate in order to utilize more after-tax dollars for the purpose of reinvesting
  • Preventing losses that have the potential to be trapped in foreign jurisdictions
  • Having a flexible cash flow in order to use it where needed within your organizational structure
  • Managing no or low withholding taxes on passive income payments, including royalties, interest, and dividends
  • Promoting max utilization of foreign tax credit in order to prevent double taxation on profits earned in a foreign country
  • Avoiding surprise anti-deferral income inclusions that may be cash management problems and foreign tax credit

International Tax Strategizing

There are two basic strategies that your company has to choose from when it comes to the money generated from foreign operations. Each strategy has its advantages and drawbacks.

Repatriation Strategy

This involves a company wanting the cash in the US to pay its shareholders, fund expansion of US operations, and pay service debt. Its benefits include allowing transactions to be structured to facilitate cash movements to the US parent or group companies and avoiding double taxation in the process while paying tax at current applicable US rates. In foreign jurisdictions, taxes and profits are also minimized.

The drawbacks include an inability to defer US taxes and benefit from possibly lower tax rates in foreign jurisdictions while possibly having to face a higher effective tax rate.

Reinvestment Strategy

The second strategy involves a company needing money outside the US to grow in order to expand international operations. Its benefits include maximized profits owing to low or zero tax rates in foreign jurisdictions, as well as the flexibility to expand your international operations by utilizing more after-tax money. You will also experience a lower effective tax rate worldwide.

The drawbacks are that the money must remain outside of the US in order to receive the benefits, as well as possible higher tax costs on ultimate repatriation.

SJG Financial Services is a leading international tax planning consultant based in Santiago, Chile.  Our company also offers wealth management advice, retirement planning assistance, and more. Get in touch for more information.

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