US expat SMEs in UK hammered by Trump tax law change

Published:  1 Aug at 6 PM
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In spite of appeals to US lawmakers, US expatriate small business owners in the UK are caught up in IRS demands intended for multinationals which shift profits overseas.

The Trump tax bill was signed into law last December, with new taxes introduced for corporate behemoths such as Microsoft which regularly move their profits overseas for tax purposes. However, unlike other provisions in the bill, the international changes don’t specify a financial profit point at which the law kicks in, forcing small and single-owner expat business to operate under the same law as multinationals.

One US expat business due to be affected is based in Bristol, with its owner Travis Baldwin having arrived in the UK ten years ago to start an industrial design company. He’s now firmly on the new law’s hook, even although his annual receipts have never exceeded $100,000, and is now terrified the two new taxes he’s got to comply with will render his business unprofitable in the long run. He's had huge problems finding a competent tax lawyer conversant with the new rules and, after finally engaging a specialist Florida tax lawyer, he still doesn’t known how much he owes the IRS. However, his bill for preparing his business accounts taking in the new law is estimated at $20,000.

The changes US expat small business owners are most concerned about are the one-off repatriation levy charged at 17.5 per cent of all previous profits and the yearly 'global intangible low-tax income levy' referred to as GILFY and paid on profits going forward. According to tax experts from the Association of Americans Resident Overseas, the changes are convincing a number of expats there’s no point in retaining their US citizenship. Others, apparently including those who haven’t being paying tax but were considering becoming legitimate, are now deciding to keep their heads down and stay off the IRS’s radar. One US expat with a business in France has been told her effective combined US and French tax payments are estimated at 70 per cent. She’s planning to close down, saying ‘it’s just not worth it’.

The crunch for the majority of US expat-owned SMEs is that owners pay their own salaries at a rate which represents a small fraction of their actual profits, investing the remainder in the business to improve it until their retirement falls due. The new law means the repatriation tax must be paid on profits although it’s a certainty the money itself will never be returned to the USA. In order to pay their unfair dues to the IRS, expat business owners will likely have to pay themselves a dividend, thus triggering higher local taxes.
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