Americans living outside the US face unexpected tax accounts for their businesses abroad, under the “Restitution Laws” recently passed by the US Congress to persuade companies like Apple and Google to reimburse the US for their profits in lower-tax countries.
Tax experts in Washington, Tel Aviv, and London told The Financial Times that many of their clients are likely to be hurt by the tax reform clause signed by President Donald Trump last December. This reform includes a one-time “return tax” of 15.5% on profits that businesses have accumulated outside the US, whether they choose to return them to the US or not. Apple, for example, has announced that it will transfer to the US $38 billion it has accumulated abroad.
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Any US citizen or holder of a Green Card (permanent resident certificate) who owns more than 10% of a foreign controlled company (CFC) will have to pay this tax within eight years, according to an analysis by Charles Bruce, And currently a consultant to the American lobbying group Overseas, located in Washington, DC.
A foreign controlled company is a business located outside the United States where Americans hold more than 50% of voting rights. “The problem is that the law applies to every US citizen or holder of a green card in the world (acting through a foreign company), Says Adv. Monty Silver of the law firm of Eitan Mahalal & Sadot to Israeli business newspaper The Marker. He said that as more American citizens living abroad and their advisers will understand their level of exposure to the law, “there will be another uproar over this matter.” However, he adds, “the problem is that foreign residents have no political influence.”
Last year, the State Department estimated that 9 million American citizens living abroad, but experts say there are no reliable figures on how many taxpayers outside the US will have to comply with the new restitution laws. “I know a few hundred in Israel,” Silver added.
For many, there will be no money
Many American self-employed overseas have set up foreign companies to avoid payment to the US National Insurance Institute, Silver says, adding that many of them are rich private individuals who have never returned to the US.
In an analysis prepared by Bruce, he noted that many people with the new law would not have the money they needed. In addition, unlike US corporations, they will not be able to demand a tax deduction on dividends their foreign company has distributed to investors. “At this point, there is little taxpayers can do to soften the ‘restitution law,'” says Richard Castle, a partner at London law firm Withers, who analyzed the impact of the law on American citizens living abroad.
Advisors in the field say that Americans living abroad with income originating abroad will not be entitled to a tax deduction on personal income through transparent companies, which is given to some businesses under the new law. Some of the lobbying groups of Americans living abroad hope that what appears to be an unexpected impact of the tax reform on citizens living abroad will give impetus to their campaign to make Americans living abroad taxable on their residency rather than their citizenship.
“The good thing about this story is that it highlights the fact that taxation of Americans living abroad is not right,” says Bruce, “The problem is that people do not think of Americans living abroad … there are no congressmen who represent Americans in France.”
