One of the best parts about running a business is the flexibility that a global economy can afford you. In today’s connected world, we can run a company anywhere, allowing us to take advantage of international tax planning.
However, companies that fail to implement strategic international planning are subject to pay high foreign taxes. This guide will cover the best strategies to manage customs, duty costs, and withholding taxes.
What Is Tax Planning?
International tax planning requires understanding offshore regulations to help you ethically pay the least amount of taxes possible. The best way to reduce a company’s tax burden is to hire consultants with a corporate accountant such as MI Tax CPA.
CPAs do more than file taxes for you. These experts devise a comprehensive plan by considering all the available codes and regulations to limit your liability.
With their expertise, CPAs can develop various strategies to optimize taxes for a global business. The four most prevalent strategies are below:
1. Foreign Credit
Foreign tax credits help to avoid double taxation by offsetting income from taxes paid abroad. The credit is for U.S. citizens who also have to pay income taxes in a foreign country. As a result, they receive a deduction in their U.S. federal income tax. You can utilize the money you’ve saved from foreign credits to scale your international business.
2. Tax Calculators
Business decisions may have unexpected consequences that can catch leaders off guard. Before expanding global sales, hiring international talent, or outsourcing work, consider the potential international obligations for taxes owed. Remember, being non-compliant can lead to unexpected fees and penalties.
Use an international tax calculator to ensure you understand any ramifications or outcomes that may come your way due to your business decisions.
3. Tax Havens and Offshoring
With many foreign countries looking to stimulate their economies, some countries have adopted tax-friendly policies. There are roughly 40 tax havens around the world. People have become more mobile, and many digital nomads and business owners relocate to countries with lucrative advantages.
For example, it’s possible for businesses to establish specific business functions in another country, such as call centers or manufacturing centers, to receive offshoring benefits. Additionally, the cost of goods, materials, and labor may be cheaper, allowing businesses to increase their profits.
4. Deferral
Paying taxes upfront can be costly and stunt the growth of your international business. Deferral is a strategy that allows you to keep more capital in your pocket and reinvest it into your business.
This strategy lets you defer taxes on earnings and contributions. For example, contributing to pre-tax funds like an annuity premium can reduce your taxable income. You still have to pay taxes once you take money from the fund. However, as interest accumulates over a longer time horizon, the taxes owed would be less than paying upfront.
Final Thoughts
Businesses that sell globally, have a foothold in another country, or outsource intellectual property abroad must abide by the foreign country’s jurisdiction. Systematic international tax preparation is the most effective way to reduce the amount owed to the government. These strategies can help ensure you comply with your business and home country’s tax obligations while giving you a competitive advantage in the global market.
