US Corporate and Business Taxation

1. Since January 1 2018, the effective US corporate tax rate is a flat 21%, making the US competitive with countries like Ireland, Luxembourg, Switzerland and Hong Kong.
Liability to corporate tax on global earnings depends upon the place of incorporation of the company. In practice, this taxation is limited to stock corporations incorporated under US State law (‘Subchapter C’ corporations or ‘C’ corporations). Limited liability companies (‘LLCs’) incorporated under State law are treated as hybrids (disregarded with one owner or treated as a partnership with two or more owners) in the absence of a ‘Check the Box” (‘CTB’) federal tax election otherwise. C companies owned by a limited number of US shareholders can elect to be taxed as ‘conduits’ for US federal income tax purposes (‘S’ Companies)

2. Partnerships are taxed as conduits unless they are used as mutual fund vehicles. However corporate mutual funds, publicly traded investment partnerships (‘MLPs’ or ‘PTPs”), real estate investment trusts (‘REITs’) and real estate mortgage investment companies (“REMICs’) can qualify for conduit shareholder taxation as ‘regulated investment companies’ (‘RICs”)’ under rules similar to the UK rules on distributing or reporting companies.

3. Gains and distributions from foreign incorporated mutual funds, investment trusts and other collective investment vehicles, which are typically ‘roll up’ or non distributing funds, are adversely taxed as ‘passive foreign investment corporations’ (‘PFICs’). PFIC rules tax such gains and dividends as ordinary income at the highest rate and subject to an interest charge over the holding period

4. Trusts operated as business trusts or collective investment vehicles are taxed as a corporation. Other (private investment) trusts are either income tax transparent (‘grantor’ trusts) or non transparent (‘non-grantor’ trusts).

5. In summary, while the US has a classical system of taxation, most privately owned companies are either S companies or LLCs and hence only an individual shareholder level of taxation applies. Similar conduit taxation applies to investment partnerships, private trusts and to domestic corporate, trust or partnership collective investment vehicles.

6. Combined with a 15% - 20% tax rate on dividends, the distributed corporate tax rate can be substantially higher than the 29.6% rate on qualified business income for transparent entities.

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US withholding tax on payments to foreign persons - 30%

- US dividends
- US related party corporate interest
- US rentals
- US royalties
- Other US fixed ordinary income

Treaty rates usually 5 - 15% on dividends and 0 - 15% on other income
US Foreign Financial Account Reporting - Foreign Financial Institutions and Non Foreign Financial Entities are subject to reporting under FATCA and IGAs (since July 2014) and CRS Treaties (since 2018)

US citizens and residents must report:
- foreign trust contributions & distributions and foreign gifts on Form 3520
- foreign financial accounts >$10,000 on FBAR form FINCen Form 114; see also Form 8938
All Liability Disclaimed