US expat business owners in Oz hit hard by Trump tax plan

American expat business owners in Australia are about to get an unpleasant surprise courtesy of the controversial Trump tax reform bill.

The problem is the so-called ‘one off deemed repatriation tax’, levied at 15.5 per cent for internet giants such as Google and Apple, but also affecting any dual USA expat citizen operating a private foreign business which includes retained earnings. One US tax lawyer working in Canada explains it succinctly, saying the one-time tax you’re going to have to pay is a ‘killer’. It’s not just the 15.5 per cent levied on assets held in cash, it’s the further eight per cent levied on non-cash assets.

The lawyer gives the example of a dual-citizen or green card holding American doctor with a successful practice in Australia and some $2 million accumulated wealth. This doctor is facing a US tax bill of some AU$300,000. Wage and salary earning expat Americans won’t be affected, but anyone who’s successfully grown their business in a foreign land is about to be the victim of a US government rip-off.

According to American Citizens Abroad, any US green card holder or citizen owning 10 per cent or more of what’s referred to as a ‘controlled foreign corporation’ - an overseas business in which over 50 per cent of voting rights are controlled by US shareholders - must pay the tax deemed due within the following eight years. The previous law stated non-US businesses could keep any earnings over $102,100 as a tax-deferred sum, and was used extensively by firms of all sizes.

The fact that massive internet giants were taking advantage of the scheme by stashing billions in offshore jurisdictions was the motivation for the poorly conceived new law. Those forced to tap dividends to pay the US taxman will find themselves in a double whammy as, for example, if a business owner is taxed on $1 million retained earnings, he’ll need to find $150,000 from somewhere. If he declares a $300,000 dividend and pays tax on that amount in order to finance the previous $150,000 tax bill, he’s forced to pay tax in order to pay tax. US tax advisors are predicting the new tax rules will lead to yet another surge in US expats looking renounce their citizenship.

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