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© 2009 Piascik and Associates, P.C.
TAX ISSUES U.S. COMPANIES FACE WHEN CHOOSING TO DO BUSINESS ABROAD Presented by: Ryan L. Losi, CPA Executive Vice President Piascik & Associates, P.C.
About the Speaker Ryan L. Losi, CPA Executive Vice President & Director of Business Development Ryan Losi, CPA, is Executive Vice President & Director of Business Development at Piascik & Associates, P.C. Prior to joining Piascik & Associates, P.C. (“Piascik”) Ryan served with PricewaterhouseCoopers, LLP as an international tax manager in their New York City office and at KPMG, LLP in their Richmond, Virginia office. Over the years, Ryan has gained extensive experience advising both large (i.e., Fortune 100) and small clients on effective tax minimization strategies. Ryan’s work at Piascik is multifaceted now that he serves in a business development role. His focus at Piascik involves branding, marketing and advertising, developing and maintaining client relationships, identifying additional opportunities for clients (both domestically and internationally) and serving as a technical resource for professionals within the firm. Ryan is currently a licensed CPA and Real Estate Professional in the state of Virginia, and is a member of the American Institute of Certified Public Accountants, the Virginia Society of Certified Public Accountants, Richmond Import/Export Club, Greater Richmond and Henrico Chambers of Commerce, Richmond Association of Realtors, Retail Merchants Association, Richmond Apartment Owners Association. Ryan also serves as a charter member and Chairperson of the Steering Committee covering Foreign Sales Offices for the Virginia International Trade Alliance (VITAL), as a Program Partner for both the Virginia Leaders for Export Trade (VALET) and Access to International Markets (AIM) Programs, as an Advisory Board member for Doctor’s Digest and most recently served on the board for the Virginia Biosciences Development Center. Ryan is also a Registered Player Financial Advisor with the NFL Players Association. Ryan has spoken to numerous organizations over the years, including most recently to BB&T, Troutman Sanders, LLP, Virginia International Trade Alliance (VITAL), Ohio State University’s (OSU) Professional Sports Counseling Panel, James Madison University (JMU), Virginia Commonwealth University (VCU), Virginia State University (VSU), Virginia Economic Development Partnership (VEDP), Greater Richmond Partnership of Virginia (GRPVA), Institute of Management Accountants (IMA), Beta Alpha Psi, The Medical Society of Virginia (MSV), Virginia Authorized Dealers Association (VADA), Council for International Tax Executives (CITE), Richmond Association of Realtors (RAR), REMAX, Long & Foster, Financial Planners Association (FPA), Charles Schwab, Smiths Industries, British Aerospace and Siemens USA. Ryan has written, published, or been featured in a number of professional articles for publications such as Fortune Small Business Magazine, CFO Magazine, Forbes.com, FoxBusiness.com, U.S. Business Review, The Sacramento Bee, Plastic Surgery Advisor, Virginia Business Magazine, NuWire Investor, Virginia Economic Development Partnership’s Trade Magazine “Beyond Virginia”, The Virginia Society of CPA’s Magazine “Disclosures”, Doctor’s Digest, Doctor’s Financial Digest, The Medical Society of Virginia, Virginia Authorized Dealers Association, Physicians Financial News, ProAthletesOnly.com, Physicians Money Digest, and Nielsen's Small Business Resource Center. Ryan is also an accredited instructor for both the Richmond Association of Realtors and Lorman Educational Services. © 2009 Piascik and Associates, P.C.
Agenda/Outline Introduction Where will you transact business What business will you transact How will you transact business Which business form will you transact through Compliance requirements Cash flow and treasury requirements Social issues to address Other tax issues to address Brief example © 2009 Piascik and Associates, P.C.
THE MARKET Determine which Region(s) of the world the Company’s products and/or services should be offered Determine which Country(ies) within each Region the Company’s products and/or services should be offered © 2009 Piascik and Associates, P.C.
THE TAX SYSTEM Obtain a thorough understanding of the type of income tax system the foreign country employs which will generally be one of the following: Territorial System – based on the connection between taxpayer’s income and that country (many European Countries) Credit System – based on the connection between taxpayer and the taxing country (U.S. System) © 2009 Piascik and Associates, P.C.
THE BUSINESS ACTIVITIES Based on having a thorough understanding of the country’s income tax system, determine WHAT and how the Company will do business in the foreign country. Will there be the following activities: Sales and/or Distribution Activities Use of independent Sales Force Use of Company Sales Force Use of local or U.S. Expatriates or combination Manufacturing & R&D Activities?? IP/Entrepreneurial Activities – Who will own this? © 2009 Piascik and Associates, P.C.
THE STRUCTURE Determine which business form the Company will use to transact within the foreign jurisdiction (i.e., foreign branch, foreign partnership, or foreign corporation) To determine the best business form the Company should: Have five (5) year revenue and profit/(loss) projections Determine its long term strategy regarding its profits (i.e., reinvest vs. repatriate) Determine which section of the Internal Revenue Code the Company will be subject to Analyze and plan how this impacts other countries of interest Determine the compliance requirements for each business form for the following: Local foreign jurisdiction U.S. © 2009 Piascik and Associates, P.C.
THE COMPLIANCE Determine where the books and records will be maintained and the following: Is a local accountant necessary to maintain the books and records as well as satisfying the local compliance requirements Who in the U.S. will be responsible for maintaining this relationship and collecting the required information for U.S. reporting What process(es) or procedures will be initiated in order to ensure that the information that is required from the U.S. side is obtained and that it is accurate In what currency denomination will the books and records be maintained © 2009 Piascik and Associates, P.C.
THE CASH Understand and determine how the U.S. Company intends to get cash into the foreign location(s) and/or get cash out of the foreign location(s) Obtain a thorough understanding of the income tax withholding laws/requirements that the foreign country employs Thoroughly understand the Income Tax Treaty(ies) (assuming one exists) between the U.S. and foreign country © 2009 Piascik and Associates, P.C.
THE WORKERS Obtain a thorough understanding of the type of social system that the foreign country employs Determine if your company will fall under its jurisdiction Determine what type of Company representatives you will have on the ground Independent representatives/consultants Employees (U.S. or foreign or combination) Determine if Company representatives be treated and paid as employees of the U.S. company or the foreign entity, and how will that impact the business from a tax and legal standpoint Determine the employee withholding requirements for each foreign jurisdiction © 2009 Piascik and Associates, P.C.
THE WORKERS (CONTINUED) Obtain a thorough understanding of the labor laws that the foreign country employs Determine who will administer Payroll Thoroughly understand the Social Security Treaty(ies) (assuming one exists) between the U.S. and foreign country Develop a Formal Expatriate/Foreign National Compensation Program in order to prevent undue negative issues © 2009 Piascik and Associates, P.C.
OTHER TAX ISSUES Determine if there are any Transfer Pricing Agreements that need to be put into place between the U.S. and the foreign jurisdiction Obtain a thorough understanding of any other taxing systems a foreign jurisdiction may employ such as the following: Value Added Tax (VAT) Goods and Services Tax (GST) Tax Holidays Foreign Economic/Enterprise Zones © 2009 Piascik and Associates, P.C.
THE ADVISORS Understand the competencies and responsibilities of each outside advisor(s) your Company employs: International Tax Accountant(s) International Tax Attorney(ies) International HR Advisor(s) International Business Advisor(s) International Banker(s) © 2009 Piascik and Associates, P.C.
EXAMPLE Value Added Tax (VAT) - In general, in a B2B transaction, value added tax is charged to the end user of most products or services. The place of supply of services determines where the supply is subject to VAT. Under current rules, the place of supply of service is generally at the location of the service provider. However, for telecommunications services the location of the supply of service is the location of the recipient of the services. If the service supplier is located in the EU and is located in the country where the recipient is located, then the service supplier is required to collect VAT on services. If the telecommunication services are provided to a recipient in another EU country then the recipient is required to account for the VAT tax and the supplier is not obligated to collect the VAT. © 2009 Piascik and Associates, P.C.
EXAMPLE VAT tax changes in 2010 The EU Council of Ministers recently adopted a VAT Directive that makes major changes to the rules governing the place of supply of services to ensure that VAT on services accrues to the country where the services are used. The new rules will require the charging of VAT on business-to-business services at the place where the customer is located. The new rules may require companies providing services in EU countries to collect VAT for customer based on the VAT rate for those services at the customer’s location. How will VAT be collected and distributed to various countries? This issue will need to be determined by the EU Council of Ministers. © 2009 Piascik and Associates, P.C.
THE PLAN Develop a plan that is flexible and friendly that allows your Company to grow internationally while at the same time allowing you to effectively manage your GLOBAL TAX RATE and risk of doing business in each jurisdiction © 2009 Piascik and Associates, P.C.
If you have further questions, we may be reached at: Piascik & Associates, P.C. ( 866) 527-1815 4470 Cox Road Suite 250 Glen Allen, VA 23060 www.piascik.com © 2009 Piascik and Associates, P.C.
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