As explained by the Internal Revenue Service (IRS), form 5472 should be used to provide the information required under Section 6038A and Section 6038C when reportable transactions occur during the relevant tax year of a reporting corporation with a foreign related party or a foreign corporation engaged in a US Trade or Business. Needless to say, the official IRS explanation of this form is not a very clear one. IRS form 5472 is challenging to complete and file and, if it is not done correctly, it could lead to serious problems. In this article, I explain what IRS form 5472 is, why you need to file it, and how it should be completed. What is IRS Form 5472? Foreign taxpayers and those involved in international business or global trade often ask: What is form 5472? The most straightforward answer is that IRS form 5472 is fundamentally designed to prevent tax evasion. The U.S. government is concerned that companies with substantial foreign ownership could potentially evade American taxes through disguising transactions.IRS form 5472 is used by the federal government to ensure that companies with substantial foreign ownership accurately report comprehensive financial information. IRS Form 5472: Understanding the Requirements As a starting point, you need to know whether or not you have a duty to submit form 5472 at all. To do this, you must determine if your company is a ‘reporting corporation’ for the purposes of United States tax law. Reporting corporations are U.S. corporations that are 25% owned by a foreign person or foreign entity or a foreign corporation that is engaged in a trade or business within the United States. For reporting corporations, the form 5472 disclosure requirements are broad. Transactions that may need to be reported include: Sales or purchases of investors; Sales or purchases of real property; Royalty payments and licensing agreements; Commission paid or obtained; Borrowing or lending arrangements; and Any other consideration offered for goods or services. More simply, if a transaction with a related foreign entity affects the U.S. tax obligations of the reporting corporation — meaning it resulted in an increase in revenue or an increase in expenses — it is likely that the transaction should be reported using IRS form 5472. With very limited exceptions, the IRS requires the reporting of all related party transactions with international entities. Penalties There are strict penalties for failure to properly file IRS form 5472. In fact, among many other things, the Tax Cuts and Jobs Act of 2017 enacted increased sanctions for violating this tax law. As of December 31st, 2017, the failure to file form 5472 could result in a $25,000 fine. Do not ignore form 5472. If you do not know what to do, get professional help. Instructions for Completing IRS Form 5472 Given the industry-specific terminology and language the IRS uses in its official documents, completing IRS form 5427 can be a complicated endeavor. You will find that the IRS 5472 instructions contain eight sections. This includes: Part I: Reporting companies must give the IRS sufficient identifying information, including the name, address, and a description of principal business activities. Part II: In addition, 25% or more foreign-owned corporations and LLCs must provide basic information identifying the foreign owner(s). Part III: This section is for identifying the related party with which the reporting corporation had reportable transactions during the relevant tax period. Part IV, Part V, Part VI: These sections are all for the reportable transactions. What specific information should be provided will depend on a number of different factors. Part VII: Part VII asks for additional financial information and offers guidance on certain deductions. Part VIII: Finally, the last section is for matters of base erosion and related tax issues. Once again, the process of completing and submitting IRS form 5472 can be confusing and overwhelming. As there are strict penalties for non-compliance, it is crucial that any and all errors are avoided. If you have any questions or concerns regarding your company’s responsibility to submit this form or about how the form should be completed, an international tax attorney will be able to offer actionable guidance. Get Help from an International Tax Attorney I am an experienced international tax law attorney. With an office in Miami, FL, I represent clients from the United States and from German-speaking regions. To schedule a fully confidential consultation, contact me today.
A distributor agreement is a commercial contract between a supplier of goods and a distributor of goods. The supplier may be a manufacturer, or it may be a reseller of the products. In the modern business world, more and more companies are involved in distribution arrangements that cross international boundaries. According to data provided by The World Bank, international trade accounted for nearly one third of U.S. gross domestic product (GPD) in 2017. Companies engaged in this type of cross-border business need well-structured international distributor agreements. Key Clauses in an International Distribution Agreement An international distribution agreement is essentially a contract that creates a framework for a business relationship between global parties. To ensure effective and efficient transactions, an international distribution agreement should be comprehensive. Among other things, some of the main clauses that you typically will find in an international distribution contract include products and territory, obligations of the parties, exclusivity provisions, renewal/termination, and dispute resolution. Products and Territory As a starting point, international distribution agreements will generally provide details regarding the specific products and the specific territory that will be covered by the contract. Obligations of the Parties Similar to other commercial agreements, it is imperative that an international distribution contract clearly outlines the responsibilities of each party. Both the supplier and the distributor must have clarity regarding their duties to perform under the terms of the deal. Exclusivity Provisions Some international distribution agreements include exclusivity provisions. While not all of these agreements are exclusive, this is an issue that should be addressed within the contract negotiations. Renewal/Termination The agreement should also define the length of the commercial relationship. In addition, procedures should be created to deal with issues related to renewal and termination. Dispute Resolution Finally, distributor agreements should include dispute resolution provisions. No matter how good the relationship between the supplier and the distributor, there is always a risk of dispute. With international business contracts, it is often advisable to include an arbitration provision. Arbitration offers many advantages compared to handling disputes under local laws. Of course, this list is just a brief sampling of the important contract terms that you will find in an international distributor agreement. These agreements should always be customized to meet the unique needs of each party. Get Help From an International Business Attorney Today If your company is considering entering into an international distributor agreement, it is essential that you seek professional guidance. As these are complex agreements, there are a number of different unique issues that need to be addressed. I will make sure that the agreement is properly drafted and that it protects the rights and business interests of your company. I frequently represent American clients doing business abroad and German speaking clients doing business in the United States. If you have questions about international distributor agreements, I’m happy to help. To schedule a fully confidential consultation, please contact me today.
If you are considering an international real estate investment, there are some things you should know before moving forward with buying international property. Whether you are currently a resident of the EU and considering a foreign real estate investment in the US, or you are a U.S. citizen and thinking about purchasing property in Europe or elsewhere in the world, the process can be complicated and confusing if it is your first time buying property in another country. Here are some tips for handling your first international real estate investment. Identify Your Goals in Investing in International Real Estate There are many different kinds of real estate, and it is important to consider your own goals—both short-term and long-term—when making a decision about the type of property in which you want to invest. For example, do you want to invest in residential property that you can use as a vacation home but also as a source of rental income when you are away? Or, do you want to invest in commercial real estate that will be rented out to a business in the country where you are investing? And, are you willing to invest more time and money up front to see a bigger return later on in the future, or do you need to begin seeing profits immediately? An article in Forbes emphasizes that you should have specific goals when you decide to invest in real estate. The answers to some of the questions above can help you as you get started. Determine Where You Want to Buy Property As you think about where in the world you want to invest in property—and then in which city and neighborhood specifically—you will want to consider a number of different factors. For example: How much does the type of property cost, on average, in the area where you want to buy? Is it a buyer’s market or a seller’s market? Will you be able to turn a profit if you decide to sell in the near future? What is the long-term economic outlook for the area where you are considering a property investment? Space and Budget: Decide What You Need in a Specific Property Once you identify your large-scale goals and the area where you want to invest in international real estate, your next step should be deciding about the type of property you want and its specifications. For example, you might ask yourself: how large or small do I want the property to be? If you are considering a residential real estate investment, are you willing to invest in a property that will require you to rent it out? What is your ideal budget, and what is the maximum amount you are willing to pay? Additionally, when considering your budget, keep taxation in mind. Every country has unique property tax laws. Learn About Your Options for Financing As an article in The Washington Post explains, bank financing often is not an option for people buying foreign property. While many people invest with cash, you may be able to borrow from “a local lender,” or you may be eligible to get financing from the seller or a real estate developer. Contact an International Real Estate Investment and International Taxation Lawyer Investing in international real estate comes with many complications, but an international investment attorney can help. Contact me to discuss your investment plans.
Whether you currently own foreign property or are considering an investment in foreign property, you should consider how foreign assets will affect your estate planning. Generally speaking, estate planning with foreign property is much more complex than estate planning with U.S. property alone. When you have an international estate, you need to consider the intricacies of international estate planning in order to avoid unnecessary costs and confusion later on. Most importantly, you will need to think about your will (and whether you need a different will or multiple wills), as well as issues of estate tax. We want to provide you with some key pieces of information to keep in mind about international estate planning. You May Need More Than One Will If you are a U.S. resident but own property in, for example, Germany, it may not be sufficient only to have a will that you have drafted in accordance with U.S. law. For instance, if you live most of the year in Miami and have a will that takes into account Florida law, you should know that owning real estate in Germany or another country could mean that the foreign property does not pass according to the terms of your will. Rather, the foreign country in which you own property might require your property to pass according to its own intestacy laws if you do not have a will that is specific to that country’s laws. An international lawyer can explain how foreign inheritance law works and what you will need to do to ensure that any foreign property passes according to your wishes. You have a few options: Create an international will; Develop a U.S. will that will be recognized by the foreign jurisdiction where the property is situated; or Have multiple wills. You Will Need to Take Steps to Avoid Double Taxation As an article from the American Bar Association explains, one major issue with foreign property is that it often ends up getting taxed twice: once by the foreign country in which the property is situated, and then again in the U.S. when the property passes to a U.S. resident. If the rest of your estate is subject to U.S. estate taxes, then the foreign property also will be subject to those estate taxes. You should discuss with a lawyer the ways in which U.S. estate tax treaties with foreign countries can help to prevent double taxation. There also may be other ways to avoid the property getting taxed twice. Seek Advice from an International Estate Planning Lawyer Estate planning is complex even when you only own property in one location. When you begin thinking about foreign property, and assets located across multiple national boundaries, the estate planning process becomes even more complicated. If you own foreign property, it is extremely important to work with an international estate planning lawyer. I work with co-counsel in many jurisdictions. Contact me to learn more about the services I provide to clients in the U.S. and abroad.
In the United States, citizens and lawful permanent residents are normally required to file an annual income tax return. This return must include any income earned throughout the world. That is to say, even if an American lives in a foreign country, he or she must still report any income earned there to the United States. This can lead to a double-taxation scenario if the foreign country where the person lives also imposes an income tax. To help minimize double taxation, the United States government has negotiated reciprocal tax treaties with a number of foreign nations, such as Germany. The German-American tax treaty has been in effect since 1990. The treaty has two main goals. First, to avoid double taxation of income earned by a citizen or resident of one country in the other country. And second, the treaty helps to promote residents of either country from avoiding taxes. In fact, under a 2006 amendment to the U.S.-Germany income tax treaty, the governments of both countries are allowed to share tax information with one another. This makes it possible, for instance, for the IRS to see what income taxes a U.S. citizen living in Germany is paying in that country. How the German-American Tax Treaty Works in Practice The treaty itself covers a number of income scenarios (including but not limited to the following): Corporate Profits Profits earned by a U.S. or German business is normally taxable in the country where the business is registered. But if the business in one country creates a “permanent establishment” in the other country, then the profits attributed to that establishment are taxable in the other country. For example, if a German company establishes a branch office in Florida, the profits attributed to that branch are taxable in the United States because the German company has created a “permanent establishment” in the United States. Corporate Dividends The tax treaty provides that corporate dividends are taxable in the country where the shareholder resides. But dividends may also be taxed in the corporation’s country of residence as well. To minimize double taxation, the treaty limits each country’s dividends tax to 5 percent of the gross amount for foreign companies who own at least 10 percent of the corporation’s voting shares; otherwise, the tax is capped at 15 percent. Under certain circumstances each country’s dividends withholding tax can even be reduced to zero. Individual Employees and Personal Services If a resident of Germany temporarily works in the United States, the treaty states that income is not taxable in the U.S., and vice versa. There are several caveats here. The German resident must not remain in the U.S. for more than 183 days during the applicable calendar year, their income must be paid by a German employer, and that income must not come from a permanent establishment of the German employer in the U.S. Special Rules for Educational Professionals A professor, teacher, or other scholar who is a resident of one country may work for, or research in, the other county for up to 2 years without having to pay taxes on their income from such activities to the host country. Note this exception only applies to individuals affiliated with an accredited educational institutional or other organization that conducts “public benefit” research. Need to Know More About the USA-Germany Tax Treaty? This is only a brief overview of some of the subjects covered by the tax treaty between the U.S. and Germany. If you have additional questions or concerns, contact my law office to schedule a consultation.
There are many methods by which a foreign national can become a lawful permanent resident of the United States. One way is to apply for what is known as an EB-5 visa (or an “investor visa.”) Essentially, the EB-5 visa encourages foreign investors to start a new business in specially designated areas that traditionally have high unemployment. This means that a critical condition of the investment visa is to actually employ a certain number of people as part of an ongoing, for-profit business. Visa Applicants and Qualifying Commercial Enterprises Congress initially authorized the EB-5 visa program in 1990 as part of a larger legislative package designed to stimulate investment in rural and other distressed areas. To qualify, the visa applicant must “invest in a new commercial enterprise.” The enterprise itself can take just about any legally recognized business form, such as a sole proprietorship, partnership, limited liability company, corporation, business trust, joint venture, or holding company. This means, for instance, that an investor visa applicant could invest in a holding company that has several U.S.-based subsidiaries that engage in separate for-profit activities. It is critical to emphasize the EB-5 visa only applies to individuals who plan to engage in commercial activities. Noncommercial activity is excluded. In other words, if you are a German citizen and create a business entity whose sole purpose is to manage a residence in Florida for your personal benefit, that does not qualify you for an investor visa in the United States. Nor can you simply create a shell company that is not actively engaged in business. To the contrary, the EB-5 visa applicant must invest enough capital to create at least 10 full-time jobs at the associated commercial enterprise. Regional Centers Eligible for Commercial Enterprises As noted above, Congress originally created the investor visa for the United States to help economically distressed areas. To facilitate this goal, the U.S. Department of Homeland Security designates a number of “regional centers,” including more than 30 in Florida alone. If an EB-5 visa applicant creates a new commercial enterprise in association with one of these approved regional centers, the government will count “indirect jobs” created as a result of the applicant’s business towards the 10-employee minimum. But if the applicant decides to start their enterprise outside of a regional center, the business must directly employee at least 10 people. Also keep in mind, the 10 qualifying employees must be U.S. citizens or individuals who are otherwise legally authorized to work in the United States. The investor visa applicant cannot include themselves, their spouses, or their children as qualified employees. And all qualifying employees–including those indirectly employed as a result of the applicant’s commercial enterprise–must work at least 35 hours per week. Need Help Applying for an Investor Visa in the USA? The process of applying for an investor visa is not simple. First, an applicant must have a petition approved by U.S. Citizenship and Immigration Services. Then the National Visa Center will conduct an extensive review of the EB-5 application. To help move the process along, you should work with an experienced business attorney who focuses on helping non-citizens start businesses in the United States. Contact me today to schedule a consultation, and we will discuss the best visa option for you.
For anyone who is currently living in the U.S. and is looking to invest in or start a business or anyone who currently lives abroad and is considering investing in or opening a business in the US, it is important to learn more about how employment contracts work in this country. While different employment contracts can vary considerably depending upon the specific role for which an employee is being hired, as well as the type of business doing the hiring, there are common elements to U.S. employment contracts. Here, I explain the variation from one U.S. employment contract to another, as well as to say more about what elements often are included in an employment contract USA. Not All Employment in the USA Requires a Contract The first thing to know is that there are no wide-ranging laws that govern employment contracts in Florida or in the U.S. more generally. In fact, there is no requirement under U.S. law that an employee has a written contract whenever there is an employer-employee relationship. In the US, many employees are what are known as “at-will” employees, which means that their employment is not governed by a work contract USA or another type of employment agreement. Rather, at-will employment means that either the employer or the employee can terminate the employment at any time and without cause. Even if an employee in the U.S. gets an offer letter, it is important to know that an offer letter is not the same thing as an employment contract. Typically, however, professionals and highly skilled employees in the U.S. will have an employment contract. Variation in U.S. Employment Contracts Even when employees are highly skilled or working in professional positions in which employment contracts are common, there is great variation in the types of employment contracts in the USA that can exist. Examples of some of the ways in which employment contracts vary include but are not limited to: Term of the employment contract: there is no specific employment law requirement that an employment contract be for a particular period of time. Some employment contracts have fixed terms, while others are open-ended in terms of the employment term. These variations can even exist within the same profession. Trial period: some employers have a trial period for new employees, while others do not. For most employers who require a trial period—also known as a probationary period or an introductory period of employment—the employee typically will receive a review after a specified period of time. Notice requirement: employment contracts may or may not include a notice requirement, meaning the amount of time an employer must give when terminating an employee. Common Employment Contract Sections While employment contracts in the U.S. do vary widely, they frequently have similar sections, including but not limited to: Employee’s responsibilities; Compensation; Benefits; Methods of dispute resolution; Nondisclosure and/or confidentiality agreements; Non-compete clauses; and Termination information. Differences Between U.S. and European Employment Contracts The main differences between U.S. and European employment contracts are vacation days, sick days, and maternity leave. For U.S. employees it is common to have only 10 vacation days plus some holidays per year and maybe 7 paid sick days (longer periods apply under the Family Medical Leave Act). Paid maternity leave extends only 6 weeks after birth. In Europe, all of these periods are considerably longer and governed by law. Get Help With Your USA Employment Contract If you have questions about U.S. employment contracts, you should get in touch with an international business law attorney who has experience with businesses in the U.S. and in Europe. Contact me today for more information.
If you are considering investing in a U.S. business, or if you own a business in the U.S. and plan to have foreign investors, you should learn more about how the taxation of foreign investors in U.S. real estate works. There is tax on foreign property owners and specific laws govern taxation in these circumstances. These laws are very complex, and it is always important to work with an experienced commercial real estate lawyer on your business dealings. Even if you are considering investing in residential real estate as a second home or a vacation home, you should learn more about taxation of foreign investors in U.S. real estate. There are many factors that can impact how a foreign investor will be taxed. These are the key elements involved in determining the taxation of foreign investors in U.S. real estate. Residency Status of the Foreign Investor The foreign investor’s residency status can be extremely important in determining how and whether taxes get paid. If you own real estate or have invested in real estate in the U.S. but you are a non-resident, then the Internal Revenue Service (IRS) likely will only require you to pay taxes (federal taxes, and in some cases state taxes) on any income you earn from real estate within the US. To be clear, both non-resident aliens and non-resident corporations are only required to pay taxes on earnings from property that is situated within the United States. However, if you are a U.S. resident, the IRS will require you to pay taxes on any income, earnings, and other assets both within the U.S. and in other parts of the world. Income and Earnings from Renting Property You Own in the United States If you own property in the U.S. and rent it out, you will be required to pay U.S. taxes on any profits you make from the property. This is true for non-resident aliens, non-resident corporations, and residents of the US. The amount of tax a non-resident alien pays on rental property depends upon a couple of different factors. Generally speaking, non-residents pay a federal tax of 30 percent of the gross received from rental income. However, if the non-resident classifies the rental as a business, then it can be taxed at graduated rates. In the latter situation, the non-resident is also eligible for deductions. The Foreign Investment in Real Property Tax Act In addition, if you sell the property, your residency status will not have any bearing on whether you will be required to pay federal tax on the sale. To be clear, both residents and non-residents must pay federal income tax on earnings generated from the sale of a property in the U.S.. Under the Foreign Investment in Real Property Tax Act (FIRPTA) non-residents are also required to pay a withholding tax, but there are exceptions. Learn More from a Tax Attorney Taxation of real estate for foreign investors can be extremely complicated. Accordingly, you should always discuss your tax situation with an international tax lawyer who has experience assisting clients with issues specific to the taxation of foreign investors. Contact me for more information.
For anyone outside the US who is considering doing business in America, the first step is learning more about how to start a company. Starting a business in the USA as a foreigner is challenging. There are many complex laws that apply. Here is an overview of how to open a company in the US. 1. Choose Your Business Structure The first step in starting any kind of business in the US is to choose the business structure that is best suited to your needs. The U.S. Small Business Administration (SBA) explains that there are numerous types of business structures, and each has its benefits and limitations. At the same time, not all business structures are right for—or even available—to everyone. Here is information about some of the business structures that you may be considering: Partnership This is the simplest type of business structure for two or more people who want to form a business together. You can form a limited partnership (LP) in which one general partner has unlimited liability while the rest have limited liability, or a limited liability partnership (LLP) in which all partners have limited liability. In this type of business, profits pass through personal tax returns. Limited liability company (LLC) This type of business has some elements of a partnership, but it also protects the business owners from personal liability in most situations. Unlike other states in the US, LLCs do not have a limited life span in Florida. Corporation There are different types of corporations, and this type of business structure provides owners with the most protection from personal liability. However, corporations cost more to form, and they have many more requirements than the other types of businesses listed above. 2. Choose Your Business Name and Location Once you determine the appropriate business structure for your business or company, the next step is choosing a name for your business and deciding where to open it. 3. Develop All Necessary Legal Documents and Filings for Your Business If you plan to start a corporation, for example, you will need to file articles of incorporation. Then, if you are starting a corporation, you will need to develop the corporation’s bylaws and maybe a shareholder agreement. If you are starting an LLC, you will have to file articles of organization and maybe need to develop an operating agreement. Shareholder and operating agreements are similar to one another, but they are specific to the type of business structure you choose. Depending upon the type of business, there may be other important local documents or filings that a business law attorney can discuss with you. Contact a Business Formation Lawyer in America There are other important steps in starting a company in the USA. An experienced business formation attorney can discuss your options with you and can help you to begin the process of opening a new business. Contact me today to get started.
Unlike real or physical property, intellectual property (IP) refers to a class of intangible rights in the implementation of specific ideas and concepts. Because of its intangible nature, IP often requires protection in multiple countries with different laws. International intellectual property law therefore represents an attempt to develop certain common standards for protecting the rights of creators and other IP holders. Protecting Copyrights, Patents & Trademarks on a Global Scale The term intellectual property is itself rather broad. It does not refer to a specific type of property but rather an entire group of intangible rights. The most common forms of international intellectual property are copyrights, patents, and trademarks. Copyright The Berne Convention for the Protection of Literary and Artistic Works is an international treaty that establishes certain minimum standards for copyright law. It also requires each member country to treat works created in another member state the same as their own when it comes to copyright protection. A second agreement, the 1996 WIPO Copyright Treaty, further extended international copyright protection to computer programs and materials contained in electronic databases. Patents The Patent Cooperation Treaty (PCT) makes it possible for inventors to file a single international application to seek patent protection in over 150 countries. It is important to understand that there is no such thing as an “international patent.” Each individual country must still review and approve patent rights for their jurisdiction. But the PCT greatly simplifies the process in seeking cross-border patent protections. Trademarks The Madrid protocol (also known as the Madrid system) is the equivalent of the PCT for trademarks. When a business applies for, or obtains a trademark in its home country, the Madrid System allows the business to simultaneously seek “international registration” of the same mark in other participating countries. This protection can also be extended to countries who later join the Madrid system. Need Help Developing a Comprehensive International IP Strategy? It is generally a good idea to consult with an attorney if you are looking to protect your international intellectual property. The agreements referenced above are complex documents, and each contains specific registration requirements that must be carefully followed. You should never assume that just because your IP is protected in the United States that it will automatically be protected in other countries as well. That includes even those who are signatories to the above-referenced treaties. And keep in mind, registration is just the first step in protecting your company’s international intellectual property. Your business will also need advice and assistance when it comes to licensing intellectual property across international lines and potentially asserting your rights in non-U.S. courts. If you are looking to develop a comprehensive international intellectual property strategy, contact me today. I work with specialized IP Attorneys internationally and together we will develop a worldwide strategy to protect your IP.