Tag Archive for Corporations

Foreign Corporations and Subpart F Income – Part III

TaxConnections Offshore BusinessFundamental Foundation of Foreign Base Company Income and Controlled Foreign Corporations© Generally.

Foreign Base Company Income

Therefore the first type of Foreign Base Company Income, Foreign Base Company Sales Income has as its function to be utilized as a sale or trade conduit offshore corporation in an international corporate structure. Certainly the intra activity sequences have many facets and planning opportunities. Those will be discussed subsequently in a more specific discussion of offshore companies that come within the characterization as a Foreign Base Company Sales Income.

Foreign Base Company Service Income

A second category of Foreign Base Company Income whose activities are subject to Subpart F Income treatment is Foreign Base Company Service Income. This type of Subpart F Income is income derived by a foreign corporation in connection with the performance of technical, managerial, scientific, skilled, industrial, commercial or similar type services. In practicality corporate structures tend to find their utility most beneficial as an administrative or service oriented company in a favorable tax preferred Financial Center. Read More

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Foreign Corporations and Subpart F Income – Part II

TaxConnections Offshore BusinessFundamental Foundation of Foreign Base Company Income and Controlled Foreign Corporations© Generally.

The essence of this corporate structure planning is to combine the concept of ownership structure that subjects a foreign corporation to a controlled status and activities of the corporate entity. The two concepts of controlled foreign corporate status and Foreign Based Company Income are intertwined in the implementation of Subpart F Income tax consequences.

The importance stems from the concept that Foreign Base Company Income and a controlled foreign corporation’s characterization subjecting it to Subpart F Income taxation are two separate considerations. One is whether a foreign corporation is a controlled foreign corporation. The second is whether the controlled foreign corporation has Foreign Based Company Income.

If a foreign corporate entity has Subpart F Income because it has Foreign Base Company Income, but it is not deemed a controlled foreign corporation by virtue of ownership, it is not subject to Subpart F Income treatment. Those are two distinct planning features. Read More

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Foreign Corporations and Subpart F Income – Part I

TaxConnections Offshore BusinessForeign Corporations Generally. A foreign corporation entity is the vehicle of choice in utilizing the benefits of Financial Centers Offshore. A foreign corporation is one which is not created or organized in the United States and therefore is not a domestic corporation. A domestic corporation is taxable on its worldwide income. By definition, a foreign corporation is not a United States person and income is not taxable as a United States person. It is not subject to taxation of its accumulated earnings and profits until distributed to its United States shareholders. The general taxation of a foreign corporation is subject to the application of Subpart F Income taxation which is specifically designed to re-characterize foreign corporations as controlled foreign corporations.

Subpart F Income Taxation. Subpart F income rules are the core legislation designed to create controlled foreign corporations. By virtue of the codification, United States shareholders’ accumulated earnings of a foreign corporations’ profits are deemed distributed each taxable year. The accumulated earnings that would otherwise be lodged as foreign corporate accumulated earnings and not taxable until distributed, becomes taxable by Subpart F Income Read More

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Professional Corporations

TaxConnections Picture - Government EmployeesOverview

For a number of years, provincial governing bodies of regulated health professionals (1) and other professional organizations (2) have allowed the incorporation of the professional practice. The major tax advantage of incorporation, is the ability to defer tax by retaining income in the corporation that would otherwise be taxed at a much higher personal tax rate if you earned the same income as a sole proprietor or as a partner.

Commencing in 2006, family members of doctors and dentists may hold non-voting shares of the professional corporation. Other professional corporations may not have family members as shareholders.

Non-voting shares may include both non-voting common and non-voting special shares. Common shares participate in the value of the corporation, preferred or special shares do not. The advantage in having family members as shareholders is that the corporation may pay your parents, adult children and spouse, dividends taxed at lower tax rates to finance tuition and other personal expenditures as opposed to you receiving the income and having to pay more tax at your marginal tax rate to finance the same expenditure. Dividends are not paid to minor children because they will be subject to tax at 32.57% (ie., kiddie tax). Read More

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