Advisers have warned the tax -aimed at the likes of Apple, which holds huge sums offshore – could trip up expats who set themselves up as limited companies when working as consultants.
The law requires individuals in this bracket to pay a transition tax on the previously untaxed foreign earnings as if those earnings had been repatriated to the US.
The guidance includes details on the information needed to complete a transition tax statement, how to pay transition tax owed and how to elect to pay over eight years.
The IRS (Inland Revenue Service) provides detail on several important parts of the filing and payment process, including:
- Details that a taxpayer must include with their section 965 transition tax statement, including total inclusion amount, aggregate foreign cash position, total deductions, deemed paid foreign tax credits, disallowed deemed paid foreign tax credits, total net tax liability, instalment payments (if applicable), deferral if elected, and a listing of elections. Examples of statement are included in the guidance appendices.
- Taxpayers should make one payment reflecting any tax owed without regard to section 965 and a second separate payment reflecting tax owed as a result of section 965. The 965 payment must be made either by wire transfer, check, or money order. Taxpayers who are normally required to pay through the Electronic Federal Tax Payment System should submit by wire transfer.
- According to note from Mazars if the taxpayer’s non-965 tax position is a refund, a separate payment should be made for the full amount of 965 tax due on April 17, 2018.
- Notably taxpayers may elect to pay the tax in specified instalments over eight years. The guidance clarifies that the decision to elect is made at the individual shareholder level, not the entity level.
