Foreign Companies Taxation – Form 1120F

A foreign company investing in the US, either directly or via American entities, is subject to the US company tax;

It is progressive, and changes according to income level.

The company is subject to taxation from the “first earned dollar”, unlike an individual who is exempt from the first $4,050.

Ownership of a foreign company may exempt from the estate tax imposed on the foreign individual with assets whose fair value exceeds $60,000.

Branch Profits Tax

An additional tax imposed on foreign companies at a 12.5% rate,

In accordance with the tax treaty between Israel and the US concerning profits that are not reinvested.

This tax is imposed on the sum owing company tax.

That is, in this manner the foreign company may have to pay higher taxes than the Israeli tax ceiling.

This tax balances out the relationship between a foreign parent company and an American subsidiary.

The tax is in fact a dividend equivalent amount.

The branch profits tax may be avoided by reinvesting profits or offsetting it with liabilities in the US.

“Check the Box Election” – The US tax authorities grant benefits to owners of foreign companies who are willing to classify their company for tax purposes.

In this manner the profits, properties and obligations are transferred directly to the shareholders.

This is yet another way to avoid the branch profits tax and avoid high expenses involved in preparing a tax return for a foreign company.

This choice is available via form 8832, when an individual shareholder is classified as a disregarded entity, and multiple shareholders as a local partnership.