Tag Archives: U.K. tax treaty

Tax Savings with International Tax Treaty Planning for the Resident Alien

International tax treaty planning for the resident alien that are citizens of Canada, the U.K., Australia, New Zealand, the European Community start with the tax treaty. Many have a unique tax advantage,    Tax treaties with these countries provide a unique and little-known tax savings. 

This video is an audio clip from my tax radio show, Tax Talk. You will learn why resident aliens are paying more in taxes than they should. 

If you have any questions, then please contact me, Brian Dooley, CPA, MBT,  [email protected] or visit our website – https://www.intltaxcounselors.com.  

International tax planning starts with these essential concepts:

Resident Aliens

resident alien’s income is taxed in the same manner as a U.S. citizen.

They pay tax on their worldwide income including income from interest, dividends, wages, other compensation for services, rental property, and royalties.  The resident alien must report these amounts whether from sources within or outside the United States.  Depositing of income outside the U.S. is taxable.

If you are a citizen of a country with a tax treaty, the treaty decides if you are a resident or non-resident.  Otherwise, if you have a green card or spend too many days in the U.S., you are a resident alien.

Nonresident Aliens  

Nonresident aliens are usually subject to U.S. income tax on U.S. source income.  In some cases, foreign source business income can be subject to U.S. tax.  You will learn more in my book, International Taxation in America for the Entrepreneur.

Dual-Status Aliens  

dual-status alien is an individual that is both a resident alien and a nonresident alien in the same tax year.  This can occur when you obtain your green card.

Income Types

U.S. Investment income is taxed at a flat 30% of the gross income.  If the non-resident alien resides in a treaty country, the tax rate is usually between zero and 15%.

Business income is taxed on a net income basis.  The alien has the same tax rates as an American.  In some cases, an NRA’s foreign business income is taxed by the U.S.  This occurs when the NRA has an office or some other type of business facility or is in the U.S. on a business trip.

Tax Withholding on Foreign Persons

Payments of U.S. income to foreign persons are subject to the  withholding tax rules.  In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income.  This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.

The NRA that comes to the U.S. for business meetings owes U.S. tax on his foreign salary if he or she is paid more than $3,000 by his employer.

Taxpayer Identification Numbers (TIN) for the non-citizen

Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN).  Also, non-citizens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.

Sale of Real Estate 

Non-Resident Aliens are hit with a fifteen percent withholding tax on the sale of U.S. real estate.  In some cases, the withholding tax applies to refinancing.  The withholding tax does not replace the income tax.  Aliens must file an income tax return.  The tax withheld is a credit towards the total tax.  If the total tax exceeds the tax withheld, they get a refund.

Saving Taxes with Tax Treaties 

The U.S. tax liability of non-resident aliens is determined primarily by the provisions of tax treaties.  If the non-citizen is not a national of a treaty country, then the U.S. Internal Revenue Code applies.

Many foreign countries have tax treaties with the U.S. Tax treaties override or modify the provisions of the Internal Revenue Code.  Tax treaties allow you to pay less tax.

Estate Taxes

All though you are a resident alien for income taxes you may be a non-domiciled alien for estate (death) taxes.    Non-domiciled aliens are subject to estate taxes on all of their U.S. property (including stocks, bonds, and property) except bank accounts and life insurance.  They are not entitled to the $5,000,000+ exemption that is allowed for Americans.  Accounts with brokerage firms are frozen upon the alien’s death.   Tax treaties may allow the alien to avoid U.S. gift and estate taxes.

Become an Expert

Become an expert with my book, International Taxation in America for the  Entrepreneur, available on this link and feel free to call me with any questions that you have.



The United Kingdom Headquarters for your Business

Having a United Kingdom headquarters for your business can save you taxes. With the new tax law,  the U.K. has a special tax advantage. 

United Kingdom claims U.S. LLC is a tax haven company

United Kingdom is beating America as the better business country

With the exit from the European Union, Britain has been able to have its own tax policy.  The U.K. plans to reduce its corporate tax rate from 20% to 17%.   Unlike the U.S., the U.K. does not have a state income tax.  

E-commerce and other cloud-based business have a special tax planning advantage by being in the U.K.   The U.K.’s income tax treaties with Western Europe  and the United States will remain even after the British Exit

Hosting your  Ecommerce business on a computer server in the U.K. can avoid income taxes in Western Europe.

The key is to keep your inventory in the U.K. or to sale web based intangible assets.

For example, if your site is a similar to Travelocity, the site is providing a service (similar to a travel agent).  Service income is sourced where the service provider (you computer server) is located at the time the service is provide.

The same result applies if you are selling a product like an E-book, a video or music or providing a big data service.

In many cases, your U.K. corporation will avoid both  U.S. income taxes and state income taxes.

Here is the best business and tax structure for an Ameican doing business in the United Kingdom.

The first goal of a business structure is to protect the owner’s assets.  At the end of the 1800s, corporations were invented.   Corporations exist only because a government allows them.  Capitalist need corporations to take a limited amount of risk.

The problem for Americans is that we are starting to use limited liability companies.   U.K. courts may not accept an American LLC as an entity that protects the LLC’s owner from the LLC’s debts.

Thus, a corporation is my favorite choice for doing business in the U.K.  If you use an American corporation, you have a choice of being taxed under two different parts of the U.S. tax laws.

In the U.K., you have no choice.  The corporation pays the U.K. tax.  For tax planning, I prefer the U.S. corporation to open a branch in the U.K.

A U.K. Branch allows for large tax saving because of the “foreign tax credit” and the U.K. Tax Treaty.

Your U.S. income tax is reduced by the income tax paid by the corporation to the United Kingdom.  In effect, you get a full refund for the foreign income taxes.

Another choice is to create a U.K. corporation.   The advantage is a deferral of U.S. income taxes on your foreign (U.K. or EU) profits.     However, there is a tax cost.  You will not be allowed the foreign tax credit for the foreign income taxes paid by the U.K. company. `

The other issue of a U.K. company is the cost of filing an IRS information return.  This return is Form 5471.  The Form is complicated because of the many tax saving elections that you can make.    While the cost of this return is about $5,000, the tax savings are in the $10,000s of thousands.

Here is some  more information on international tax law for the American small business.

If you need help in deciding which business entity is best or in preparing the Form 5471, then please, contact me, Brian Dooley, CPA, MBT at [email protected] 

How European and U.K. Companies Start a Business in the United States

International small business owners starting operations in the United States face unbelievable tax laws.   Many items allowed in the U.K. and Europe is “illegal” in the U.S.   By the word “illegal” I do not mean that you will go to jail because you naively break the tax laws.  However, you will get hit with a large tax penalty.

So, I want to list the international tax transactions that are not allowed.

  1.   Thin Capitalization.  The funding of your business is where the foreign investor makes his (or her but for this blog, I will use “his”) mistake.     Corporations must be funded with $1 of capital for every $3 of shareholder debt.  For example, Samfunds his U.S. corporation with a $1,000.    $10 is for the common stock and $990 is  a loan.The loan is documented with a promissory note and director minutes.The corporation makes a profit and repays the loan.  U.S. tax law classifies that loan as capital and the repayment is taxable to Sam as dividend income.   The interest paid the on the loan is not deductible.  The interest is also taxable to Sam as a dividend.
  2.  Management Fee.  Sam, aware of the double taxation issue of a corporation, decides to remit the profits to his U.K. company as a management fee.   U.S. tax law looks at the both the form (a management agreement) and the economics.   The IRS audits the corporation and asks proof of the management services provided by the U.K. company.  Sam has a story but he has no proof.   He is taxed two times.  The corporate taxable income is increased by the management fee.Next, the payment of the management fee is treated as a dividend. Sam is taxed on the dividend income.  Both the corporation and Sam are charged a large tax penalty.     Additionally, the state where he is operating also taxes the corporation.
  3.    Salary.  Sam does not take a salary from the corporation.  He is paid by his U.K. company.  He spends one third of the year in the U.S.  One third of his U.K salary is taxable to both the IRS and to the state where the business is located. Sam is not a U.S. tax resident.   He owes U.S. income taxes because he was in the U.S. and for no other reason. 
  4.  Tax Treaties.  The French, the Netherlands and the U.K.  tax treaty provides a tax advantage by eliminating double taxation   To take advantage of the tax treaty, you must reside in the country and use a company formed in the tax treaty country.  The operation in the U.S. is considered a branch.   The U.S. has a law called “branch profits tax”.This law is designed to prevent double tax the profits.  However, the treaties don’t prevent the branch profits tax.The treaties prevent double taxation of the income tax.   The treaties provide that your home country will allow an offset of your home country tax for the income taxes your corporation paid to the U.S.

If you are looking to start a business in the U.S., then please contact me  ([email protected]) for assistance in setting up your business.    Also, I recommend my book as a resource (on this link).

For the Business Manager of the Foreign Author, Actress or Actor How the IRS Taxes the Resident Alien Entertainer

International tax planning and strategy

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.

This is the second part of my blog’s article on international tax planning for the foreign actor, foreign actress, and foreign author.  

The first part of this private IRS report (written for the foreign actor, actress, and author) can be found on this link.   The first part is easy to ready with a limited amount of tax jargon. 

This blog is for the business manager, the tax CPA (not all CPA’s have a graduate degree in taxation) or the tax attorney.  This part of the IRS report has tax jargon causing the report difficult to understand.

This part of the IRS report is on how the IRS audits the foreign actor and the foreign actress. It is for the business manager, the tax CPA  and for the tax attorney.   

These two blogs contain the private IRS report given to its international tax agents that are auditing the foreign actor, foreign actress, and foreign author.  

To better understand this blog, I recommend that you read part one first.  This blog is the technical explanation of part one.   If you would like to brainstorm the IRS report, then just give me, Brian Dooley, CPA, MBT, a call at 949-939-3414.

The IRS has examples discuss the U.S.-United Kingdom Income Tax Convention. The term “tax convention” means “tax treaty.” The examples in this report using the U.K.-U.S. Tax Treaty apply to residents of other nations with tax treaties.  The best tax treaties for the resident alien and the non-resident alien actress, actor and author are  Canada, Australia, the United Kingdom (which covers Scotland, England, Wales and Northern Ireland), Ireland, Sweden, Korea and Japan.

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How the Foreign Actor, Actress or Writer Can Avoid Taxes and Avoid an IRS Tax Audit

Foreign actors, actresses, and writers are the much-forgotten industry on the tax websites.

international tax, expatriate, offshore tax planning,

Foreign authors and writers can avoid taxes by working and enjoying the Bahamas (or any other tax haven). Foreign actors, actresses and other using the Nat King Cole tried and true tax strategy can also avoid taxes.

To change this, I decided to expose a private IRS report on how the IRS audits foreign actors, foreign actresses, and foreign authors and how they can avoid audits and legally avoid taxes.

The foreign actor, actress, and writer have unique tax strategies because they are not U.S.citizens. You will learn them in this blog article.

Writer’s and author’s tax planning is even more obscure. So, if you are a foreign writer of books or screenplays, this blog includes remarkable tax strategies for you along with IRS examples of tax planning.

I divided my blog postings into two parts. This first part uses everyday English to explain the IRS auditing of an entertainer and writer and the tax saving strategies.

The second part is the tax authorities (such as court cases, IRS rulings, and IRS regulations) supporting the explanation of the tax law in the first part. The “Endnotes” are found in the second part of this blog. Endnotes have sophisticated tax ideas and strategies.  The second part is found on this link.

If you are a foreign actor or actress, your business manager and your tax planner needs both parts one and two of my blog posting.

If you want to learn how Nat King Cole whipped the IRS’s ass with his offshore trust and tax haven corporations, then please get my book, International Taxation in America for the Entrepreneur.    The Nat King Cole strategy works well for an American.  It works fantastic for the resident alien and for the non-resident alien actor, actress, and author.

The book is an easy two-hour read and includes the Nat King Cole tax plan. Amazon has the book on sale for only $9.50.

Nat King Cole’s tax court victory is the blueprint for international tax planning. He was successful with the double loan-out corporation international tax strategy.

Lastly, if you want to brainstorm your tax situation or plan, then please feel free to call me, Brian Dooley, CPA, MBT at 949-939-3414 for a free brainstorming consultation.

Introduction to IRS Audits of Resident Alien (Foreign) Actors and Actresses

Resident aliens and non-resident aliens are considered as foreign individuals.  

Every year many motion pictures are made, television series and movies produced, and stage productions developed in the United States. These productions bring many highly compensated foreign actors and actresses into the United States.

By its nature, the entertainment business leads to complex and creative accounting. An examiner must deal with the complexity and creativity of the industry and be aware of the laws that govern specific types of income and expenses.

Overview of Law on Characterizing Income of the Actor and Actress

The character of the income determines if the actor or actress must pay U.S. income taxes.  Each type of income has its own international tax rules.  These rules decide when the income is nontaxable to the resident alien.  

If the foreign actor or actress is a citizen of a country with a tax treaty,  he or she has unique tax savings laws.

Western Europe, Canada, Australia and Korea have favorable tax treaties.  This is discussed later in this report in the many examples.

An actor or actress (here in after, both will be indicated by “actor”) may receive revenue from the following activities.

Wages or Salaries: Actors and actresses may receive wages for performances in movies, videos, television productions, stage performances, personal appearances, etc. in the United States. Actors and actresses may receive wages from a loan-out corporation that may own the rights to their services. (Loan-out corporations will be discussed later in more detail.)

This income is considered to be personal services income, and U.S. source income effectively connected with the conduct of a U.S. trade or business, taxable in the United States at U.S. graduated rates.  <<Endnote 1>>

Author’s note: Income Tax Treaties have favorable rules for actors, actresses, authors and other entertainers.

 The nations with the best tax treaties are  Canada, Australia, the United Kingdom (which covers Scotland, England, Wales and Northern Ireland), Ireland, Sweden, Korea and Japan.

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