CALIFORNIA CANNABIS CPA

  • Home
  • About Us
  • Services
  • Blog
  • Get Started
  • Home
  • About Us
  • Services
  • Blog
  • Get Started

International Income Tax Changes for US Companies in 2018

2/21/2018

 
Picture
We’re back from our coverage of Michigan’s medical cannabis licensing updates with more tax law changes that may benefit your cannabis business. As CPAs we want to help your small business understand the implications of the new 2018 tax plan and figure out how to get the most from your tax return. Today’s topic: corporate changes for international taxes. Of course, if you have specific questions, please reach out to an expert at California Cannabis CPAs.

Background on the Federal Income Tax

Before giving you an update on the changes, let’s first have a quick recap of how US taxpayers have traditionally reported their income tax. Current law mandates the US taxpayer report their worldwide income and offers a foreign tax credit for any taxes paid overseas. For example, if you went on a trip to Europe for three months and worked during that time, you will be taxed on that income by the US government. You may also have paid taxes on that income to the country in which you worked, in which case you would receive a credit from the US compensating you for that amount.

Historically, this rule has been applied to corporations as well. Foreign income earned by a foreign corporation that is owned by a US citizen was not subject to US taxes, unless the income was distributed in the form of a dividend.

Changes to the International Income Tax

The new law deploys a “territorial” income tax system. Under this system, companies are only taxed on their US earnings, meaning that any foreign income can be excluded from your income report. Why? The goal of the new law is to encourage companies to bring their profits back to the US.

The new provisions incentivize the repatriation of foreign income to the US with tax-free status. Cash repatriated back to the US will be untaxed when the transfer takes place, however no foreign tax credit is allowed for taxes paid overseas. Essentially, this is both a carrot and stick approach to bringing your profits stateside. If you bring your cash back to the US economy, you’re rewarded with tax-free status. If you don’t, the US will no longer be reimbursing international taxes.

International Income Tax: The Details

As with any tax law, the new bill includes many provisions to ensure that corporations do not have excess untaxed returns on earnings from low tax jurisdictions:

  • Cash will no longer be taxed on repatriation, but currently untaxed earnings overseas will be subject to an immediate tax.
  • Liquid assets will be taxed at 15.5% and illiquid assets taxed at 8%.
  • US taxpayers those owning more than 10% of a foreign corporation will be required to pay in the liability over an 8-year period.
    • 8% of the liability will be payable in years 1–5;
    • 15% in year 6;
    • 20% in year 7;
    • and 25% in year 8.
  • Any US taxpayer owning 10% or more of a foreign corporation will have taxable income on the deemed repatriation of its share of all foreign income not considered previously taxed. Basically, if you own more than 10% of a foreign company, you could be taxed when you bring the money back the US.

It’s also important to note that C-Corporations will get a 100% dividends-received deduction on the repatriation of foreign income in the future where the US Corporation owns 100% of the foreign company.

What does this mean for your cannabis business?

If you’re just starting to form a business and considering what business structure is right for your cannabis business, a C Corporation may look more appealing. In addition to being able to take advantage of the DRD, a C Corporation has many benefits if you’re looking to eventually expand internationally. And international expansion might be the next big move for cannabis companies: the California is in good company with 20 other countries that have legalized cannabis to some degree. Besides commonly known places like The Netherlands, Uruguay, Peru, and Jamaica all have cannabis legalization rules in the books. Likewise, Germany, Spain, Portugal and the Czech Republic are all weed-friendly communities well on their way to full legalization. If you’re looking to diversify your customer base, consider expanding outside of US borders.

Curious what other deductions the new tax law holds? Talk to one of our experts or sign up for our email newsletter for new updates each week.

    Categories

    All
    Accounting
    Banking
    Business
    Cannabidiol
    CBD
    Compliance
    Cultivation
    Distribution
    Hemp
    Insurance
    Investing
    IRS
    Licenses
    Manufacturing
    Marketing
    Taxes
    Testing

California Cannabis CPA is owned and operated by GreenGrowth CPAs.
The information contained in this website is meant only for guidance purposes and not as professional legal or tax advice.  Further, it does not give personalized legal, tax, investment or any business advice in general.  For professional consultation, please sign-up for our services. California Cannabis CPA disclaims any and all liability and responsibility for any and all errors or omissions for the content contained on this site. 
*California Cannabis CPA does not provide Audit and Assurance related services directly to its clients - all professional services are provided by GreenGrowth CPAs. 
Please review our privacy policy here. California Cannabis CPA is owned and operated through GreenGrowth CPAs.