Where you have cross-border investment or business operations, my starting point is to create a legal structure (companies and all that stuff) that is nonexistent for U.S. tax purposes.“Invisible for U.S. tax purposes” simply means that the companies you use will not pay income tax in the United States, even if they do pay tax in other countries. Partnerships work this way. So do limited liability companies and Subchapter S corporations. And, magically, all sorts of foreign corporations fall into this category through the magic of tax law. You can make some–not all–foreign corporations disappear for U. S. income tax purposes. The liability protection of a corporate entity remains intact. You have a locally-formed company, making it easier to do business in the foreign country. Cheaper, simpler to run The first reason I like this concept is that an invisible structure is usually cheaper to operate–in legal fees, accounting fees, tax returns, and the like. Passes tax credits upstream easily The second reason I like this is because it makes it easy for the U. S. company to take a credit (against U. S. income taxes) for taxes paid overseas. And that is the key to having a dollar of profit taxed once, not twice. You frequently don’t care WHERE you pay the tax (Germany or the United States) as long as you don’t pay it in both countries. Next Next, we look at times when the “invisible is best” structure is not the best. Warning: we’re going to talk about present value.
Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.