Foreign Tax
September 5, 2018

Foreign Tax

Taxpayers can use an Interest Charge Domestic International Sales Corporation (IC-DISC) to obtain a tax incentive available to manufacturers, producers, resellers, and exporters of goods that are produced in the United States with an ultimate destination outside the United States.

An IC-DISC reduces its shareholders' income tax liability by converting ordinary income from sales to foreign unrelated parties into qualified dividend income. An IC-DISC must be set up as a corporate entity separate from the related producer, manufacturer, reseller, or exporter.

Qualifications for IC- DISC include:
• Goods exported from the United States.
• United States content of goods must be at minimum 50% (no more than 50% of sales price can be foreign content).
• Goods manufactured in the United States.
• Goods cannot be further manufactured by another party.

FATCA Compliance
The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets.

FATCA will also require certain foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

FATCA requires certain U.S. taxpayers who hold foreign financial assets with an aggregate value of more than the reporting threshold to report information about those assets on Form 8938, which must be attached to the taxpayer’s annual income tax return. Reporting thresholds vary based on whether the taxpayer files a joint income tax return or lives abroad. If the taxpayer
is single or files separately from their spouse, they must submit a Form 8938 if they have more than $200,000 of specified foreign financial assets at the end of the year and live abroad; or more than $50,000 if you live in the United States. If the taxpayer files jointly with their spouse, these thresholds double. A taxpayer is considered to live abroad if they are a U.S. citizen whose tax home is in a foreign country and have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.

FIRPTA (Foreign Investment in Real Property Tax Act) Withholding is the withholding of tax on dispositions of United States real property interests. The disposition of a U.S. real property interest by a foreign person is subject to the FIRPTA income tax withholding. Withholding is intended to ensure U.S. taxation of gains realized on disposition of such interests.

FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered U.S. real property holding corporations. Persons purchasing U.S. real property interests from foreign persons, certain purchasers’ agents, and settlement officers are required to withhold 15% of the amount realized.