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Where will a U.S. company with foreign operations pay tax?

Bruce Militzok, partner at Farkhouh, Furman & Faccio in New York, explains that structure is critical to ensuring U.S. companies pay the right amount of tax on their worldwide profits

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A system of worldwide taxation

The United States has a system of worldwide taxation which applies to companies and individuals. In this latest video blog from members of our International Tax Services GroupBruce Militzok, partner at Farkhouh, Furman & Faccio in New York, explains the basis of the tax system as follows: 

“In contrast to some countries, if you are incorporated or reside in the U.S., you are taxed on your worldwide income, no matter where it has been earned. You could also be subject to tax in the local jurisdiction."

U.S. foreign tax credit

However, to even this out a little, Militzok explains that a foreign tax credit is available: “Under this you can receive a credit for the taxes paid in the foreign jurisdiction. There are however various rules governing which of the taxes paid qualify as income tax as opposed to being general taxes and how certain costs and expenses can be allocated between the U.S. and the foreign entity.”

Structure is critical to avoid paying too much tax

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As Militzok explains, the intricacies of this system can get complicated and need to be looked at carefully with an experienced tax advisor to avoid paying too much tax: 

“At certain times, the business could end up with a very high effective tax rate if it has not been not structured properly.”

Need more information?

Contact Bruce Militzok at FF&F in New York City. 

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