International tax laws can be complex and confusing. It’s no surprise that many people need to look very closely at the laws to determine if they’re on the right side of them.
In the United States, 2021 could be an excellent year to reform international taxes, but those reforms could help or hurt industries in the U.S. depending on how they’re implemented. The goal, it’s claimed, is to improve competitiveness globally.
Today’s tax rules encourage offshoring
One thing to look at is how the current U.S. laws encourage offshoring investments. If you run a corporation, for example, you’ll pay around 10.5% in taxes on foreign income. This is significantly less, around half the rate, of domestic taxes. Corporate investments also benefit from being able to exclude 10% of their assets in offshore accounts from U.S. taxation completely.
If you run a company, then offshoring your accounts and setting up elsewhere does make sense, at least for the purposes of taxation. Those against this claim that taking businesses out of America makes the country less competitive in the global market.
There is a potential for changes, though. With the current Biden Administration, a higher minimum tax on foreign profits could be developed. If that happens, the minimum tax on foreign income would increase to 75% of the domestic rate, which is higher but still a discount of 25% on what would be paid domestically.
Changes are designed to make America more competitive
Tax laws change from time to time to adapt to the global environment. At the moment, U.S. multinationals pay less tax than foreign competitors. In 2018, U.S. multinationals paid tax at a rate of approximately 8%. This was compared to the foreign competitors who paid approximately 18%. Increasing taxes may bring more jobs into the country, but this could also negatively impact some companies.
Regardless of where you stand on this issue, it’s always important to have your tax requirements on hand. Whether you run a business in the U.S. and in a foreign country or you want to set up your company outside the U.S., knowing how the taxes in the United States will apply to you as well as how taxes outside the country will impact you, is essential.