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Common international tax mistakes U.S. businesses should avoid

On Behalf of | Feb 24, 2022 | International Tax Law |

Of all the complex issues that arise when doing business internationally, tax complications often rise to the top of the list. By avoiding a few common mistakes, you can maximize profitability while steering clear of potentially devastating pitfalls. A few common tax mistakes businesses make when conducting operations internationally include:

Failing to report

Tax reporting requirements are complex enough when doing business only in the U.S. When conducting business internationally, those requirements expand to every jurisdiction your business comes into contact with. You can trigger new reporting requirements simply by opening a bank account or establishing a phone number in a new jurisdiction.

Common IRS forms that businesses often neglect to file include Form 3520, 5471, 5472 or the Foreign Bank and Financial Accounts (FBAR) (Form 114a). Businesses often realize this years after they should have been reporting, which can lead to costly cleanup efforts. By far the most efficient and cost-effective option is to understand and comply with the full scope of reporting requirements as early as possible.

Creating an inadvertent branch

By establishing a branch, you are exposing yourself to a number of legal requirements and potential liabilities. The act of opening a branch in another country is one that should be undertaken only after extensive legal and tax planning.

It is possible to inadvertently create a branch simply by hiring an employee who works remotely in another country or hiring an overseas company to host an e-commerce site. Problems that could arise from such an inadvertent act include accusations of:

  • Failure to register your branch with the proper government agencies in the country where the branch is located
  • Failure to pay taxes on income attributed to the branch

The laws and regulations regarding establishing opening branches vary from country to country. To avoid problems, make sure you understand the laws in every country in which your business has dealings.

Planning opens the door to profit

All of these mistakes can be avoided with careful legal tax planning. By understanding and complying with the laws in all the countries you are doing business in, you can begin to harness the great financial potential of conducting business internationally.  And in doing so, be sure to be cognizant of the laws in the US so you stay on top of your game.