webinar - Mellon Johnson & Reardon

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IRS Circular 230 Disclosure - Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not
intended by the Sender or Mellon Johnson Reardon, LLP to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii)
promoting, marketing, or recommending to another party any tax-related matters addressed herein.
Hosted by:
David Camerlengo
Director, Business Development – North America
Trade & Investment Queensland
David is the Director, Business Development for Trade and
Investment Queensland in North America. He is responsible for trade
and export assistance for Queensland companies, helping Queensland
companies access U.S. capital, raising awareness of Queensland
technology & research capabilities, and identifying and attracting
North American companies to invest in Queensland. He covers a
range of sectors including mining and resources, energy, clean and
renewable technologies, life sciences, agri-business and digital
technology.
Education:
•Bachelor of Engineering from Queensland University of
Technology
•Masters of Business Administration from Pepperdine University
(in-process)
Presented by:
Gregory R. Barragar, MST, CPA
Partner, Mellon Johnson Reardon, CPAs
Greg manages the firm’s tax practice. Has extensive experience with
all aspects of federal and state tax matters including: tax planning,
research and compliance issues of corporations, partnerships, LLC,
individuals, estates and trusts.
Education:
•Master of Science in Taxation, Golden Gate
•University Bachelor of Science in Accounting, Cal Poly Pomona
Areas of Expertise:
•Federal and state tax planning & compliance
•Tax controversy representation
•Estate and succession planning
•Manufacturing and Exporting IC-DISC implementation & compliance
•Merger and acquisition planning
Professional and Civic Involvement:
•Member of the American Institute of Certified Public Accountants
•Member of the California Society of Certified Public Accountants
•Member of the AICPA Tax Section
•Member of the Inland Empire Estate Planning Council
Today’s Topics
• When a foreign entity is considered “doing
business” in the U.S.
• Types of entity structures available
• State tax and domicile considerations
• Non-income tax costs
• Income tax filing requirements of non US citizens
• Basic costs incurred in establishing and
maintaining a U.S. entity
When to Establish a U.S. Entity
• Considered “Doing Business”
– Foreign corporation engaged in a trade or business
– Effectively Connected Income (“ECI”)
– Permanent Establishment
Common Scenarios
• Australian company with no U.S. presence that
is selling to a distributor in the U.S.
• Australian company with a U.S. representative
but no physical presence
• Australian company looking to establish a U.S.
presence (office, warehouse, manufacturing
plant, etc.)
Choosing a U.S. Entity Type
• Branch
• Limited Liability Company (LLC)
• Corporation
U.S. Branch
• Not a separate legal entity, but can exercise
management functions
• Taxable U.S. Presence
• Requirements:
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–
–
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Corporate accounting records
File U.S. corporate income tax return (Form 1120-F)
Subject to corporate tax rate of up to 35%
Subject to 15% Branch Profits Tax on repatriated payments
to foreign parent (dividends)
• Foreign parent fully liable
• Profitable situations may expose parent company’s
profits to higher U.S. tax rate
U.S. Branch
• When is a U.S. branch appropriate?
– Anticipated losses
– Profits are repatriated to foreign parent on a
current basis
• If so, no branch profits tax paid. Only current year
corporate income tax is due.
Limited Liability Company
• Pass-through entity that in itself is not subject to federal
income tax
• Income tax liability passed through to owners
• Requirements:
– Must file U.S. income tax return (Form 1065)
– Owner’s must also
• File U.S. Income Tax Returns
• Pay U.S. tax on LLC profits (up to 39.6% for individuals)
• Foreign legal entities and individual owner’s should avoid the
exposure that comes with obtaining U.S. tax ID’s and filing
requirements
• Liability protection to owners of the entity
• Check-the-box election to treat as corporation
U.S. Corporation
• Separately incorporated legal entity subject to
U.S. taxation
• Requirements:
– Must file a U.S. corporate income tax return (Form
1120)
– Subject to corporate income tax of up to 35%
– Dividend distributions to foreign parent subject to
15% withholding tax
U.S. Corporation
• Highest level of limited liability to foreign
parent
– Profits earned by foreign parent are not exposed to
U.S. taxation
– Protects foreign parent or individual owner’s from
having to file additional U.S. tax returns
– No restrictions on foreign ownership
• Can operate and be managed separately from
foreign parent
Corporate Tax Compliance
• Filing requirement even if no activity
• Tax liability triggered when U.S. corporation has taxable
earnings
• Corporate Income Tax
– Based on graduated rates ranging from 10% - 35%
– “Pay as you go” approach
• Quarterly estimated tax payments
– Annual corporate tax returns due the 15th day of the third month
after close of company’s fiscal year
• Entitled to automatic 6 month extension for filing (not paying tax)
• 100% of tax due by original due date
– Unused net operating losses are carried forward for up to 20
years
Where to Establish your U.S. Location
• Consideration for state income taxes
– Tax rates range from 0% - 10%, depending on state
– Nexus is established when
• Incorporated in the state
• Has property, payroll, and/or sales in state
– Multi-state nexus considerations
• May be liable for tax in multiple states
• Apportionment and allocation of income
Where to Establish your U.S. Location
• State and local sales taxes
– No federal sales tax or value added tax (VAT)
– Combined rates up to 11%
– Assessed on final consumer purchase (wholesale
generally exempt)
– Seller’s responsibility to collect and remit tax
– Must file sales tax returns
• Real and personal property tax
• Cost of living
Where to Establish your U.S. Location
• Cost of labor and overhead
– Payroll Taxes
• Federal and State governments impose
• Composed of:
– Social Security Tax – 6.2% for employers and employees on wages up to
$110,100 per employee
– Medicare Tax – 1.45% for employers and employees on all wages
– Federal Unemployment Tax – 6.0% (0.6% after State credit) on first
$7,000 wages per employee
– State Unemployment Tax (California) – 1.6% - 6.2% on the first $7,000
wages per employee
• Employer responsible for withholding and remitting payroll taxes
• Employer responsible for reporting the compensation income of its
employees to appropriate governments
– Worker’s compensation insurance requirements
Federal and State Tax Incentives
•
•
•
•
Employee hiring incentives
Product research and development
Manufacturing of products in the U.S.
U.S. exporter tax incentives
Individual Filing Requirements
• Resident Aliens must obtain US Tax ID (ITIN)
• Must file form 1040
• Taxed on “worldwide income”
– Eligible for foreign tax credit
• Graduated federal tax rates 0 - 39%
• Graduated state tax rates 0 - 12%
Expenses associated with Establishing
a U.S. Entity
• Attorney fees to prepare and file necessary
documents for incorporation - $2,500 - $5,000
(One time only)
• Accounting fees to prepare and file annual U.S.
federal and state income tax returns - $5,000 $10,000 (recurring)
• Annual Secretary of State filing fees to state of
incorporation - $500- $1,500
• City/Local business licenses - $250 - $1,000 per
year
Professionals Necessary in
Establishing your Business
•
•
•
•
•
•
•
U.S. business attorney
U.S. immigration attorney
CPA firm
Bank/financial institution
Credit card/merchant services
Payroll service provider
Insurance company
Establishing a U.S. Entity
• Choose entity type
– Branch
– LLC
– Corporation
• Choose state to incorporate in
• Other important formation procedures
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–
–
–
Apply for a Federal Employment Identification Number (FEIN)
Arrange a U.S. physical business address or virtual office
Obtain a U.S. Bank account, phone number and merchant account
Register for state payroll tax filings in the state of formation
Other Considerations When
Establishing a U.S. Entity
• Lending
– Likely to require funding from parent corporation
• Visa Restrictions for foreign employees
• U.S. disclosure requirements for intercompany transactions
with foreign parent/subsidiary (Form 5472)
– Failure to file and report information required on this form
results in substantial penalties
• Transfer Pricing – Pricing decisions on goods, services,
financial instruments and intellectual property transferred
between affiliated companies.
– Determine where profit will be recognized and taxed
– If not property substantiated, may result in double taxation as
multiple countries claim right to income
Any questions?
Thank You
Contact Information:
David Camerlengo
Directory, Business Development – North America
Trade & Investment Queensland
Email: [email protected]
Phone: +1 310 321 8690
Office Address:
222 N. Sepulveda, Suite 2350
El Segundo, California 90245 USA
MJR was founded in 1955 and is located
in Ontario, California just 45 minutes east of Los
Angeles, specializing in:
Foreign Owned Entities
Domestic International Sales Corporations
Manufacturing & Distributing
Real Estate Development & Construction
Professional Service Firms
MJR’s membership in the BDO Seidman Alliance
(Top 5 - Worldwide Firm) enables MJR to provide
services such as those listed below around the
world while maintaining the personal attention of
a local accounting firm:
Assurance Services
Tax Preparation & Planning
Consulting & Advisory Services
Wealth Preservation & Succession Planning
Webinar Recording Link:
www.mjrCPAs.com/resources/links
Greg Barragar, MST, CPA - Partner
Mellon Johnson Reardon, LLP
Email: [email protected]
[email protected]
Phone: +1 909 985 7286
Office Address:
3270 Inland Empire Blvd., Suite 300
Ontario, California 91764 USA
Contact Information:
www.mjrCPAs.com

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