U.S. Tax Advice for Your USA Project

Those considering doing business in the USA must not only consider tax aspects when choosing the legal form for their business. They must also keep in mind that they may be taxed in both the USA and in your home country. Such double taxation should be avoided if possible. With careful planning, considering the double taxation agreement between the USA and other countries, this is often achievable.

However, even if successful, there is a downside: Intensive contact with the USA generally results in a significantly higher tax administration burden for the person involved (tax declaration obligations in both the home country and the USA, complex tax structuring considerations, etc.).

German foreign tax law has a special provision for entrepreneurs who hold a stake in a corporation in Germany: if they completely relocate their place of residence from Germany to the USA, the German Foreign Tax Act provides for so-called exit taxation in certain cases. This means that income tax must be paid on shares in corporations at the time of departure from Germany, based on their value at the time of departure.

However, exit taxation may not apply if the residence is only temporarily transferred abroad. If you start your tax planning well before moving to the USA, you may also be able to avoid exit taxation by reorganizing your company under corporate law. If the exit tax catches the taxpayer by surprise, it often leads to a significant financial burden, which can derail plans to move.

If the U.S. project results in the establishment of a permanent establishment or a subsidiary in the USA and the U.S. subsidiary has a business relationship with the foreign parent company, the strict requirements of U.S. law regarding transfer prices and their documentation must be adhered to. In other words, the affiliated companies cannot set their own prices, as this could lead to a shift in the tax base between the countries. If companies do not follow international transfer pricing standards, this can result in substantial additional tax claims.

Many SMEs venturing abroad for the first time underestimate the significant risks associated with transfer pricing, as well as the associated costs of proper transfer pricing documentation. In fact, this topic should be considered before every foreign investment so that the entrepreneur is aware of what they're getting into.

Once you have established a presence in the USA, you should consult a U.S. tax advisor for your ongoing U.S. tax obligations. We are happy to recommend local tax advisors who can assist you in this regard and professionally manage your business and private tax matters. Our esteemed partners include Taxpatation.

Conversely, it's not advisable for U.S. consultants to take control too early in the process. It's may happen that they view an investment in the USA solely through their “U.S.-centric” lens. However, neglecting to consider international tax law can result in significant tax disadvantages. Therefore, it's strongly recommended to not proceed with the second step (ongoing tax consultation for the future U.S. company from your advisors) before completing the first (structuring the relocation, choosing the legal form, transfer pricing documentation, contract drafting, etc. from the perspective of your home country's tax law).