How Do New 2021 Tax Changes Impact Foreign Businesses?

The new U.S. Administration has ambitious 2021 tax changes, so foreign individuals and businesses arriving in the U.S. should be sure to plan for them.

Examples of proposed changes

Top U.S. corporate tax rate may increase from 21% (under the previous Trump Administration) to 28%.

U.S. tax rate on one broad category of income from foreign corporations may increase from the favored rate of 10.5% to 21% or 28%.

Income from foreign production by U.S. businesses for sale into the U.S. may also be taxed at an extra 10% rate.

Top U.S. individual tax rate may increase slightly from 37% to 39.6%, deductions from taxable income may be substantially reduced, and long-term capital gain rate for high-income individuals may increase from 23.8% to 40.4%.

Gift and Estate Tax exemptions for U.S. citizens and domiciliaries may decrease from over $11.5-million under the previous Administration to as low as $3.5-million, with excess assets taxed at 45%, and heirs may no longer receive tax basis in inherited assets at fair market value but only at the decedent’s tax basis.

How to plan for changes

How should foreign individuals and businesses arriving in the U.S.– or already here – plan for such potential changes? Here are a few (but hardly all) ideas:

Consider de-controlling foreign assets by sale, gift, or joint ventures, especially before taking up U.S. residence or domicile.

Use non-U.S. entities owned jointly with foreign investors to create or hold valuable international intellectual property and foreign business operations.

Capitalize U.S. businesses by purchase, license, and financing from foreign parties.

Turn to long-used U.S. trust and other structures to pass assets to donees and heirs with minimal U.S. Gift and Estate taxes.

In other words, be proactive in planning for U.S. tax changes!

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