US Market Entry Event – Brisbane – 27 February 2018

Matthew Marcarian   |   20 Feb 2018   |   2 min read

CST is pleased to be supporting a special event with Trade & Investment Queensland and Littler on Tuesday 27 February 2018.

We will provide essential information for Queensland businesses looking to expand to the United States.

The event will be held at The Precinct, Level 2, 315 Brunswick Street, Fortitude Valley QLD 4006.

A great panel of speakers will include Naomi Seddon from Littler, our own Peter Harper and Matthew Marcarian from CST. They will share their areas of expertise and  experiences in expanding to the U.S.A.

The event was a great success when it was last held in 2016 and we are looking forward to another excellent event under the auspices of Trade & Investment Queensland.  Naomi Seddon from Littler will provide valuable insights into US employment law, a critical area that many companies overlook when establishing their first US office. CST will provide answers to the top tax questions often asked by clients who are setting up in the USA.

With the U.S. Government announcing radically lower business taxes, Australian interest in expanding to the USA is even stronger than ever.

For further details please visit the website of the Trade and Investment Queensland and you can register for the event by clicking here.

Topics which will be covered will include;

  • The Trump Tax changes
  • Setting up a corporation or an LLC in the USA;
  • Immigration under the Trump Administration and what US visa options are available;
  • Engaging contractors in new markets
  • Sending employees to the USA and local hires
  • Immigration and tax considerations
  • Other global issues to consider in U.S. expansion

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Doing Business in the United States – Sydney Event – 21 February 2018

Matthew Marcarian   |   10 Feb 2018   |   2 min read

CST is very pleased to be supporting a special event with NSW Trade & Investment and Littler on Wednesday 21 February 2018.

We will provide essential information for businesses looking to expand to the United States.

The event will be held at Sydney’s iconic MLC Centre – at the offices of NSW Trade, Level 48, MLC Centre 19 Martin Place.

A great panel of speakers will include Naomi Seddon from Littler, our own Peter Harper and Matthew Marcarian from CST, as well as Hugh Massie (DNA Behaviour), Ben Kerr (Eco Outdoor) and Bruno Mascart (Altios Australia). They will share there areas of expertise and their own experiences in expanding to the U.S.A.

The event was a great success when it was last held in 2016 and we are looking forward to another excellent event under the auspices of NSW Trade & Investment. Naomi Seddon from Littler will provide extremely valuable insights into US employment law, a critical area that many companies overlook when establishing their first US office. CST will provide answers to the top tax questions often asked by clients who are setting up in the USA.

With the U.S. Government announcing radically lower business taxes, Australian interest in expanding to the USA is even stronger than ever.

For further details please visit the website of the NSW Department of Industry and you can register for the event by clicking here.

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  • Engaging contractors in new markets
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Expanding to the USA – Market Entry Event for Victorian Technology Companies – 15 February 2018

Matthew Marcarian   |      |   1 min read

CST is pleased to be sponsoring and presenting at a Littler and Trade Victoria workshop being held in Melbourne on Thursday 15 February 2018.

If you’re a Victorian digital technology company seeking to tackle the US market, or looking to grow your business and enter the market, or expand your existing activities in the region, Trade Victoria invites you to this exclusive half-day workshop.

Trade Victoria has partnered together with Littler and CST Tax Advisors to host an exclusive afternoon event aimed at providing essential information to companies looking to expand and enter the US market.

The event will feature a panel of experts and companies that have experienced the pitfalls and successes of expanding into a new market. You will also hear from other Victorian companies who have successfully taken their business to the US market, as they share their expert local knowledge and experience.

More about the workshop please visit the website of the Trade Victoria by clicking here – click here.

Interested parties are welcome to Register for the event by completed the following webform provided by Litter- we look forward to seeing you at the event.

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Expanding to the USA (Part 3) – Setting up a C-Corporation

Matthew Marcarian   |   23 Nov 2017   |   2 min read

In our Expanding to the USA (Part 2) blog post we discussed that many Australian companies and entrepreneurs set up their US operations by using an Limited Liability Company (an LLC). However they are often later surprised to find out that the LLC is treated like a partnership under US tax law and also as partnership under Australian law if the foreign hybrid rules apply.

The alternative to establishing an LLC, which we think is commonly overlooked, is for Australian business and entrepreneurs to establish a C-Corporation. The name stems from the fact that a C-Corporation is governed by subchapter C of the Internal Revenue Code.

In many respects the C-Corporation in America works exactly like an Australian Private company.

The C-Corporation has directors, shareholders (stock holders) and has its own tax identity that is separate from its stock holders. By default it is taxed as an entity, keeping profits and taxation separate from the stock holders until such time as a dividend is declared by the corporation. Tax is payable at US Federal Rates (graduated rates between 15%-39%) but state income tax may also apply depending upon the state of incorporation and where business is carried on. As compared to a flow through LLC the C-Corporation is a simply structure because US tax filings are not required to be made by Australian shareholders.

In the case of Australian resident shareholders owning a C-Corporation, when dividends are declared, a dividend withholding tax arises on the dividend paid. This means that Australian shareholders will receive a dividend paid to them net of US withholding tax. If the reduced tax treaty rate applies then that dividend withholding tax can be reduced to 5% in certain situations.

Depending on a client’s situation in Australia, a C Corporation may be the appropriate US business structure.

CST focuses on advising clients with international tax issues, many of whom expand into and invest in the United States.

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Expanding to the USA (Part 2) – Establishing an LLC

Matthew Marcarian   |   11 Jul 2017   |   4 min read

Each year hundreds of Australian businesses establish US operations. The question which is most often asked by our clients is whether they should establish a Limited Liability Company (LLC) or a C Corporation.

We often find that clients proceed with the establishment of an LLC simply because it is cheaper and more cost effective than a C-Corporation but without really knowing the tax consequences of that choice. In this blog post we explain simply what an LLC actually is and describe the general tax treatment in the US and Australia.

What is an LLC?

An LLC is an innovation of American law. It is a simplified form of company which is established under the corporate laws of the relevant US State of incorporation. A US LLC is quite a different beast to an Australian company and it is a mistake to think of it in the same terms.

In America, an LLC is a Limited Liability Company, which has members (i.e shareholders) but does not have Directors. The importance of not having directors cannot be overstated. LLC’s are not managed by Directors, they are managed by the members or an appointed manager. This is completely different to an Australian company (which also has limited liability) which is managed not by its shareholders, but by its directors who owe statutory duties under Australia’s Corporations Act.

The ownership of an LLC is with the members who have membership interests in the LLC. You will not typically hear of an American accountant or attorney speaking about ‘shares’ in an LLC, but rather they will refer to the ‘membership interests’.

How is an LLC typically taxed?

In the USA if an LLC is chosen as a business structure the tax consequences are usually that the LLC is treated for tax purposes as if it was a partnership. This means that the profits are taxable to the members of the LLC, similar to the way that partners in an Australian partnership are taxable on the profits of a partnership.

Example (all names entirely fictional)

Pineapple Co LLC (“Pineapple”) is formed by two members who each own 50% of the interests in Pineapple. The two members of Pineapple are Geoff Gates, an American who lives in Park City, and Scott Cannon, an Australian who lives in Melbourne.

Assume that Pineapple makes $500,000 of net profit by the end of the tax year. By default, unless certain elections are made, Geoff and Scott would be taxable on $250,000 each. The LLC, Geoff and Scott would need to lodge income tax returns with the US Internal Revenue Service and include their share of Pineapple’s income in their tax returns.

If a loss had been made, then generally speaking each member, Geoff and Scott, would also be able to take their share of the loss.

What are the consequences for Scott the Australian?

For Scott Cannon, the consequences of having an LLC would simply be that he would need to include $250,000 in his Australian tax return as partnership income.

This treatment arises under Division 830 of the ITAA 1997 which treats an LLC, not as a corporation for Australian tax purposes, but rather as a partnership.

US income taxes are paid on Scott’s share of the LLC’s profits which would generally be claimable as a credit in Scott’s Australian tax return.

More complexity, but also more opportunity, would arise if Scott decided to hold his membership interest through an Australian company or Australian trust. That is something that Scott should take integrated Australian and US tax advice on before establishing the LLC.

If Scott is the sole owner of the LLC, and did not have an American partner then the LLC would be known as a sole member LLC. An LLC with a sole Australian member creates some significant issues namely that often partnership treatment under Australian law is not available creating potential double taxation between Australia and the US.

If you are an Australian resident and need advice in relation to a US LLC please contact CST.

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Guide: Moving to USA

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Guide: Australians Moving Abroad

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The move to Expatland is an exciting time. However, on the topic of tax we often find that Australians departing do not receive the right initial advice and therefore often make costly errors as result of complex outcomes they have not seen coming.

To help, we have developed our guide ‘Australians Moving Abroad’ which provides answers to the most commonly asked questions. The guide covers many tax issues such as Tax Residency, Capital Gains Tax, Australian property issues,  Foreign Earnings, CGT Main Residence Exemption issues, and Non-resident Tax Rates.

If you need specific advice about your situation we would be delighted to assist you through CST’s Departing Australia Tax Review service.

For clients with significant domestic and/or international investments our advisors will recommend our Strategic Tax Review service to provide you with more detailed advice.

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Australian Expat Alert – Budget announces main residence CGT changes

Matthew Marcarian   |   24 May 2017   |   2 min read

Background

Many Australian citizens who leave Australia and become non-residents (i.e foreign residents for tax purposes) rent their former main residence while they are living overseas.

Presently these Australian citizens are able to benefit from a CGT main residence exemption under the ‘6 year absence’ concession (Section 118-145 of the ITAA 1997).  In essence the absence rule means that a person can move out of their main residence, rent it out, and then move back into it before the end of 6 years and the property will retain its 100% CGT free status when it is sold.
Further, where a former main residence is not rented out at all – the property can remain exempt from CGT indefinitely (See Section 118-145(3)).
CST has many expat clients who have moved overseas and who are renting out their family homes.

New Budget Announcement

On the 9 May 2017 the Treasurer announced that the Government “would stop foreign and temporary residents from claiming the main residence capital gains tax exemption when they sell property in Australia from Budget night”. The a transitional rule is to be provided so that people who own such property on 9 May 2017 can sell by 30 June 2019 without paying capital gains tax.

However the announcement was included in a series of measures aimed at improving the integrity of Australia’s CGT rules for foreign investors.
Naturally enough, most Australian expats living abroad would not consider themselves to be ‘foreigners’ and the loss of a CGT exemption on their former main residence would be a very bad outcome.
Unfortunately it is not yet clear whether this announcement was actually intended to apply to foreign residents (meaning foreign tax residents, which would include Australian citizens who are non-resident of Australia) or whether the announcement is intended to apply to foreign nationals only.

Given the lack of detail in the announcement we will have to wait until legislation is introduced before being sure of the Governments intentions in this area. If you are an Australian expat living abroad please do not hesitate to contact us to discuss any concerns you may have or if you require advice.

Please see – http://www.budget.gov.au/2017-18/content/glossies/factsheets/html/HA_16.htm

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Expanding to the USA – (Part 1) Setting up in the USA

Matthew Marcarian   |   17 Mar 2017   |   4 min read

For Australian entrepreneurs, the excitement and the promise of establishing a business in the United States can often be too much to resist! Indeed in this day and age it can be all too easy to establish a US entity. However, in the rush to do so one needs to be very clear about the tax consequences.

We are often approached by Australians entrepreneurs who have established US entities without a proper understanding of the tax consequences & filing obligations. As a result they have faced fines and penalties that they would never have expected.

In a later blog we will address the question of whether to establish an LLC or a C-Corporation, which is the typical starting point for an Australian business wanting to set up in the USA.

However before addressing this question, we wanted to make some basic observations which we will feel will help people and will encourage them to seek advice on their situation. The American tax systems is not a DIY system !

Basic starting points to note about establishing an entity in the USA;

  • There are plenty of states to choose from, other than the usual suspects, such as Delaware and Nevada;
  • Despite being a very complex business tax system, the US system is also a very flexible one. For example, in Australia it is not possible to establish an entity and choose the basis on which the entity is taxed so that it better suits your situation. But this is exactly what is achievable in the US. A business is essentially able to choose whether it wishes to have flow through taxation, where the members are taxed on the income of the entity, or whether the business will be taxed at the entity level.
  • In the US you can set up a business entity without needing to have a U.S based director. This provides opportunities for quick expansion of your business presence, but you also need to understand that from an Australian perspective, it is likely that the US entity will be treated as an Australian tax resident, paying Australian company tax on profits but also paying US tax without the ability to claim tax credits. Not exactly the result most people would want or expect.
  • Don’t assume that you can set up a US entity, leave it dormant and not have to file taxes – false assumption and a very costly one to make. Australian’s are often caught out by filing deadlines in the US – perhaps it is cultural but in the United States – a deadline is a hard deadline. The Australian ‘she’ll be right mate attitude’ to deadlines will not fly. So even dormant entities are expect to file, and penalties for late filing will arise.
  • The US tax year end is the calendar year, so don’t get caught out with the 30 June mentality. In addition if you are a member of an US LLC, take note that if flow through taxation applies then you will be expected to lodge a tax return with the IRS in the U.S in respect of your membership interest in the LLC.
  • It is important to plan how the Australian shareholders will be able to access US business profits. Clients need to be aware of the US branch profits tax, how foreign income tax offsets can be claimed in Australia and what the effective global tax rate is on their US sourced business income, after taking into account US and Australian tax;
  • Always consider the tax residency issues of the entity you are setting up the US and speak to your tax accountant about ensuring that your not unwittingly taxed twice on the same income by the IRS and the ATO. Never assume that the U.S. – Australia Double Tax Agreement would necessary work to ensure you are not taxed twice. Unfortunately it can happen.

If you are planning to set up your business in the USA or if you have already set up a US entity – our US tax team would be delighted to assist you. We are very passionate about helping clients navigate the complexities that they will face on tax so that they can go about focusing on the growth of their US business.

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14th Feb 2021
Matthew Marcarian

If you’re an Australian who is moving to the United States, there are many tax issues to be aware of Here’s a basic overview of what you need to...