American International Tax Advisers (AITA) is a US-centric tax firm that focuses on assisting expatriates with US tax planning, consulting, and tax return preparations. We hear from Thomas Carden, Founding Director of IATA, as he provides tax advice to Cambodian-based US expats and to those looking to invest in the US.
While the US Internal Revenue Service (IRS) does not have offices in Thailand or Cambodia, AITA serves clients all over Asia and the USA from their offices in Bangkok, Phnom Penh, Kuala Lumpur, and Sarasota, Florida.
B2B Cambodia Director Anthony Galliano spoke with Thomas Carden and we find out more on US taxes for expatriates based in Cambodia, 1040 tax returns, Foreign Earned Income Exclusion Form, Foreign Bank Account Reporting (FBAR), and other tax matters relating to an individual or company looking to invest in the United States.
Watch Thomas Carden (AITA) discuss US Taxes and Investment (Part 1)
What Tax Forms Are Required For Us Citizens Living Abroad?
Carden says that all Americans are required to file a US tax return, regardless of how long they have lived outside the United States.
This applies if their income exceeds USD $12,500 per annum, with the exception being individuals who solely rely on social security and have no other sources of income.
There are forms such as the regular 1040 tax return, in which the taxpayer has to file for the Foreign Earned Income Exclusion form to subsidise their tax. However, if the earned salary in the US citizen’s country of occupation falls below certain thresholds, the standard deduction would be implemented.
What Is The Foreign Bank Account Reporting Form (FBAR)?
In addition to the income tax filing to the US IRS, US expats living abroad must declare all of their bank accounts to the US government through FBAR, which must be filed to the US Treasury Department at the Financial Crime Center, not the IRS.
Every foreign bank account must be reported, even if it has a single dollar.
“It is not per account balance, but how many accounts and how much money you have overseas, so you will report the balance of each account, even if it has one dollar in that account, the account number, and the name of the bank. What this does, is it forces you to report all your receipt accounts,” Carden added.
Failing to file FBAR can result in a penalty of either a minimum of USD $10,000 or 50% of the highest balance of any bank account in the taxpayer’s name.
Watch Thomas Carden (AITA) discuss US Taxes and Investment (Part 2)
What If A Cambodian Individual Or Company Wants To Invest In The US?
Carden confirmed that there are several ways that a foreign company can own a US investment. These include shareholdings in US companies or US stocks, or rental properties. If a company or individual already has a US Social Security number (SSN), different forms are required.
If the company looking to invest is not US-based, Carden said that if a foreign company has a client such as IBM or Apple and sells intellectual property to them, the client would need to fill out form W-8BEN – this indicates that the foreign company is not subject to US taxation because all of the work is being done outside the United States.
If A Foreign Company Has A Subsidiary With Operations In The US?
If a foreign company has a subsidiary with operations in the United States, the situation is more complex.
In this case, Carden indicated that the company would generally need to establish a corporate structure, such as a Limited Liability Company (LLC) or a regular C corporation, and comply with US tax laws. If the company plans to have employees working in the United States, they would also need to navigate the complex US tax system.
The US tax code is generally complex, he added, as it contains over 80,000 pages, with the vast majority being tax regulations for companies. Failure to properly deal with payroll taxes for employees in the US can result in the IRS shutting down the company.
In addition, the taxation rate on income from US sources is a flat 30% for non-US individuals or entities, and this rate can be withheld on investments such as shareholdings, which can have a significant impact on cash flow.
Can Foreigners Own A US Rental Property?
Owning US rental properties can be a good way for foreign individuals or companies to build wealth in the United States. By checking the box for net tax on income, they can use depreciation to offset the rental income and reduce their tax liability. This can result in a positive cash flow for the property, with no immediate tax consequences in the current tax year.
For foreigners who buy shares in the United States through a Charles Schwab or TD Ameritrade account and are fortunate enough to have capital gains, dividends, or interest from bonds, do they have to pay tax in the United States or file any form in the United States?
Carden stated that interest in many cases, for foreign residents (especially bank interest in the United States), is not taxable. While for dividends, if the income is from US sources, it would be subject to a 30% tax withholding on the dividends.
However, capital gains as foreign nationals are free of US capital gains tax. Therefore, as a tax planner, you would generally advise not to go for a dividend yielding stock, but to invest in something that is appreciating in capital.
How Easy Is It For Foreign Companies To Establish A Subsidiary In The US?
Caden added that each of the 50 states in the US has different tax regimes. In addition to filing with the IRS, foreign companies have to file taxes with the individual state too.
What Services Do AITA Offer?
American International Tax Advisers provides specialised services for individuals and companies that wish to engage in business activities in the United States while complying with US tax laws.
For Cambodian companies seeking to sell products in the United States, AITA helps to identify the most appropriate structures and methods to minimise US tax obligations. This includes advising on the best way to bring employees into the country and determining the most favourable state in which to operate. AITA also assists with the necessary annual filings and other requirements for US investments.
For individuals, AITA can provide guidance on owning rental properties in the United States. For companies, they can help set up warehouses for product shipments.
We advise you to always do your own due diligence and consult with professionals on all legal and tax matters.