President Trump on December 22 signed and signaled a new Law that focused on amending changes in specific regions of the prevailing US law like Tax cuts related to businesses, individual, multinationals and most importantly Jobs.
One of the primary focus was on foreign and offshore incomes that are earned, and multinational corporations and the bill is framed in a way that it has specific new provisions to attract the deemed expatriate income back to the US.
Here are the new tax rates and modifications that are done under the new US “Tax Cuts and Jobs” bill.
- 100% deduction for foreign-source dividends received by U.S. corporate owners
- Elimination of U.S. tax on re-investments in the U.S.
- Change to Subpart F
- Base erosion provisions
100% Deduction for Foreign-Source Dividends Received by U.S. Corporate Owners
The new bill replaces the current tax calculation system of US corporations and adds new section as per which the 100% of foreign source portion if earned from any 10% US shareholder owned company will be exempted from the taxation.
The new provision also waves the “Lockout” and now focuses on encouraging the Multinational corporations to bring back their foreign accrued income generated offshore back to the US.
Elimination of Tax on Re-investments in U.S.
The new provision on expatriate tax on offshore income in the new “Tax cuts and Jobs” law states, that if now any parent US Multinational Corporation can invest its offshore earned profit in the US. The investment will be excluded from tax, unlike before, if any corporation wanted to reinvest its offshore earned profits in the US it was deemed to be taxed as per the old tax law.
Changes to Subpart F Rules for US Corporate Owners
The new provisions on the offshore income will now repel the foreign shipping income and oil related rules. The bill also adds an inflation adjustment to subpart F rules.
After the amendment of the law on 31st Dec 2017 the US parent of a foreign subsidiary is now subjected to taxes as per its pro-rata share even if the share is not distributed to the US parent corporation.
But if the gross income of the parent US corporation is less than 5% of its Foreign subsidiaries gross income or less than the value of $1 million the US parent corporation will not be taxed.
Base Erosion Provisions
The US “Tax Cuts and Jobs” law states that the US parent corporation of one or more than one foreign subsidiary will be deemed to be taxed on 50% the US parent foreign returns.
Payments made by the US corporations to other foreign corporations that can be added to the goods value or can be included as depreciation incurred is subjected to 20% excise tax unless the foreign corporation treat as income as per US trade will be exempted. The foreign corporations net profits will also be deemed to be taxed as per the US Tax Law.
How it Affects you?
The new tax provisions added in the US “Tax Cuts and Jobs” is said to be done with a motive to support the US economy with the offshore earned money by the US multinational corporations.
No tax on Reinvestment of offshore earned money in US though seems to be good choice but answering if the rest of the new amendments will it actually help or not seems to be tough call. Share your thoughts on this topic!
