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US persons abroad hit by Trump’s repatriation tax

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One of the major provisions of the US tax reform forced large US companies like Apple and Google to pay a sizable tax on profits they held outside the US in their foreign subsidiaries (controlled foreign corporations). Under the reform, all profits of these CFCs that accumulated between 1986 through 31 December 2017 are treated as income to their US parent company (Apple and Google, for example) and taxed at 15.5% for profits held in cash form, and 8% for profits held in non-cash form.

This has major unintended consequences for American individual expats (US citizens or green card holders) living outside the US who own or have interests in companies incorporated outside the USA. Why? The US reform treats such individuals exactly the same way as it treats large US corporations. Therefore, if an American expat owns at least 10% of a foreign corporation, and over 50% of that foreign corporation is owned by Americans, that corporation is a CFC for purposes of the tax. Accordingly, the individual US expat will pay the same tax as Apple on accumulated profits.

Many American expats conduct their business through companies in their countries of residence. For expats, working through a CFC has several income tax and US social security-related benefits. While Trump and the US congress were focusing on multinational corporations, they simply did not notice that US expats were subject to the same penalty. This provision does not only impact the super wealthy. No matter what the size of the CFC, its accumulated profits are subject to 15% tax.

There are also serious questions as to whether this tax, payable to the US starting 31 December 2017, will be entitled to tax credit in the expat’s country of residence. Or alternatively, whether the expat will be able to avoid the US tax by having the CFC distribute a post-2017 dividend, paying personal income tax on the distribution in the country of residence, and then seeking a foreign tax credit against this new US tax. This opens the very real possibility that despite tax treaties, expats will effectively pay tax twice on this money – to the US now, and later to the country of residence when the CFC distributes dividends. 

Monte Silver, Eitan, Mehulal & Sadot (

Issue: 1386
Categories: In brief