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| Do you know the difference between this two type of transactions? Guillen Serrano & Associates will explain it to you! |
If you’re a foreigner doing business within the United States or if you’re an American investing abroad, cross-border taxation is something you should always have in mind. International markets keep on growing each day, and the U.S. is continuously updating its policies to adapt to new global trades and treaties with other countries. In this regard, understanding and defining your taxes is a complicated matter, and it’s always best to seek trustable consulting. However, there are some key terms that you should be familiarized before putting your money out there..
Inbound or outbound transactions?
The first thing you need to know is that cross-border taxation is calculated depending on the type of transaction you or your company have done. Americans are taxed on their global income, which means that it doesn’t matter if our earnings come from foreign or homeland investments; they’ll be taxed all the same. Inbound transactions respond to the type of financial activities in which a Non-U.S. person earns money by doing business within American territory.
That way, for example, even though Mitsubishi is not an American company, it will have to pay taxes for the revenue generated by their offices and the products that are sold in the U.S. It doesn’t matter whether the product is imported or is manufactured here. Typical cross-border tax issues related to inbound transactions will include: U.S. withholding taxes, transfer pricing, branch profits taxes, branch interest taxes, earnings stripping, income tax treaties, etc.
On the other hand, outbound transactions refer to when a U.S. person earns money from activities made with a non-U.S. person. It’s precisely the opposite of inbound transactions. For example, a company like Apple sells its products all around the world and it also purchases products from suppliers that are located outside the U.S. That way, it’s generating outbound transactions that are also taxed. Traditional cross-border tax issues related to these types of activities include foreign withholding taxes, transfer pricing, foreign tax credits and foreign tax credit limitations, income tax treaties, etc. Tax policies in the U.S. consider outbound transactions to prevent tax avoidance through the use of external entities.
Why the country matters
Whether you’re making inbound or outbound transactions, the country you’re doing business with will always play a key role in defining your cross-border taxes. That’s because there are nations that hold special treaties with the U.S. In these cases, you can enjoy things such as tax reductions for specific items. It’s vital that you also understand the tax policies of the countries you’re working with so that you can avoid paying the same taxes twice.
The U.S. wants to stay attractive to foreign investors, which is why tax policies are thought to charge similarly for inbound and outbound transactions. This way, it avoids discriminating between domestic and international investors concerning their U.S. tax obligations.
Because cross-border policies are so complex depending on the types of transactions and the countries that are involved, you should always hire consultancy services to make sure you’re doing your taxes right. Call Guillen Serrano & Associates to find the best experts in the area to help you with cross-border taxes!
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| Whether your business is inside or outside the United States, you will have to pay taxes. |
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