Mata & Baker Tax Consultants, P.A.
How Trump's Tax Plan Provides "Exceptional Benefits" to International Investors
Written by Eldar Mata on March 20th 2018
There are many changes happening in the U.S. right now. After much discussion, President Trump was able to push through a number of brand new tax laws. After the house and senate came to agreement, we ended up with the largest U.S. tax reform since 1986. While on paper almost everyone benefits from this new law, the biggest beneficiaries of the tax overhaul are the top 20% of investors, and specifically, foreign investors

Although President Donald Trump takes a very had stand against illegal immigration and is particularly tough on international trade agreements, the tax bill treats non-American shareholders in US companies better than most Americans. The tax bill has foreign investors smiling as the corporate income tax rate was lowered from 35 percent to 21 percent. It is clear that adding 14 percent to the bottom line of a company will directly reduce costs and improve corporate profitability.

For many reasons (which I will not get into here) a U.S. corporation is typically the best choice for U.S. non-residents who are doing business in the U.S. Corporations are used by most U.S. real estate investors and almost 100% of the time for operational businesses in the U.S. This will make the real estate market an especially ripe target for new investors. 

In a wonderful technical article written by Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, he estimated the potential financial benefit for foreign holders of US-domiciled companies' stock. He wrote "I estimate that foreign investors own about 35 percent of U.S. corporate stock and thus would receive about 35 percent of the short-run benefit."
Rosenthal then goes on to say "I conclude that 35 percent of the approximately $200 billion in annual corporate tax savings in the first years after the proposal comes into effect would accrue to foreign investors. This amounts to $70 billion a year."

That is a big benefit for foreign investors, and it doesn't even factor in the the new repatriation tax rules being proposed by President Trump.

To keep it brief, when a U.S. company has untaxed income held abroad, the company normally has to pay the corporate rate (35 percent) to bring it back to the U.S. In the new tax law, there is a one time lowering of this rate to about 10 percent. The calculation is very complicated. This is noteworthy, but does not affect foreign investors as much so I am not going into further detail.

I am not here to discuss the overall economic impact of the new tax law, but to bring into focus how great it is for U.S. non-residents.

If this tax plan passes, the amount of foreign investment in the U.S. will greatly increase and thus the price of the underlying investments on both corporate stocks as well as other common investments (like U.S. real estate) should increase as well. Especially on real estate here in Miami.
We will also see more international businesses try to expand their businesses to the U.S. market. With the reduced tax rate, there is more incentive than ever to tap into the enormous consumer market here.

However, it is important to note that while the government is enticing further foreign investment, the reporting and compliance requirements are as complex as ever. Most cross border transactions need to be reported to the IRS annually, and U.S. subsidiaries must withhold taxes on "fixed, annual, determinable or periodic income" paid to any foreign person or company, which would include dividends sent to their foreign parents.

I mention this just to remind the readers to do all due diligence before running to the U.S. full speed ahead. Don't buy an investment property or start a business in the U.S. just because the tax rates are lower, do it because it's good business… Do your research (and consult an expert). That being said, making more money because the tax rates are lower is indeed good business.

At Mata & Baker Tax Consultants, we advise U.S. investors and non-residents of the U.S. tax rules everyday. We help U.S. investors structure their holdings to minimize tax exposure and maximize security.

We keep our clients in compliance and informed. If you want to see if expanding to the U.S. is right for you, schedule a call with one of our professionals today.

Eldar Mata, EA

 helps international investors and businesses lower their US income tax bill with custom tax plans. We help our clients through the whole process and work hard to make things super simple to understand.
If you're interested in lowering your tax bill and ensuring that your assets are safe from the IRS, then definitely reach out and request a free strategy session today -
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