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Doing Business in the U.S. Tax Considerations American-Hellenic Chamber of Commerce

Doing Business in the U.S. Tax Considerations American-Hellenic Chamber of Commerce Tuesday, 22 February 2011, Athens Hilton. US taxation of foreign companies doing business in US Acquisition or startup Direct or indirect sales Real estate investments.

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Doing Business in the U.S. Tax Considerations American-Hellenic Chamber of Commerce

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  1. Doing Business in the U.S. Tax Considerations American-Hellenic Chamber of Commerce Tuesday, 22 February 2011, Athens Hilton

  2. US taxation of foreign companies doing business in US • Acquisition or startup • Direct or indirect sales • Real estate investments

  3. Starting Point: US-Greece Income Tax Treaty • Greek individuals and companies should always consider treaty benefits • Generally, Greek residents and companies organized in Greece qualify for treaty benefits • The treaty does not have a limitation on benefits article

  4. A Greek company is exempt from tax in the United States on its US source earnings and profits unless “it is engaged in a trade or business . . . through a permanent establishment” in the US [Article III]

  5. Permanent Establishment • factory, branch or “other fixed place of business” • does not include an agency UNLESS the agent has “and habitually exercises” general authority to negotiate and conclude contracts on behalf of Greek company

  6. Permanent Establishment (cont’d) • Agency with a stock of merchandise from which orders are filled on behalf of Greek company is a PE • Use of a commission agent, broker or custodian acting in the ordinary course of its business is not a PE

  7. Permanent Establishment (cont’d) • A fixed place of business used solely to purchase goods/merchandise on behalf of a Greek company is NOT a PE • A subsidiary incorporated in the US does not constitute a PE of its parent corporation

  8. Treaty treatment of interest • No tax on interest from sources in the US if not engaged in a trade or business in the US, unless paid by a US subsidiary of a Greek company (more than 50% ownership is the test) [Article VI]

  9. Treaty treatment of royalties • No tax on royalties from sources in the US if not engaged in a trade or business in the US (intellectual property, including entertainment) [Article VII]

  10. Treaty treatment of dividends • There is no reduced rate on dividends, subject to full 30% withholding tax • Treaty does eliminate branch profits tax, creating way around 30% withholding tax on dividends

  11. Acquisition of a US business • Stock purchase • No tax on gain from sale of stock in a US company • 30% withholding tax on US source dividends paid to foreign persons or corporations

  12. Acquisition of a US business • Asset purchase • Create single member US LLC to acquire assets • Creates permanent establishment in the US; pay tax on US net income at graduated corporate rates • Avoids 30% dividend withholding as there is no branch profits tax

  13. Acquisition of a US business • Cautions • Most US States honor US tax treaties, but 13 do not (e.g., CA, CT, NJ & PA) • Transfer pricing - arm’s length standard • Too much control over US subsidiary’s activities can lead IRS to treat it as an “agent” of parent, creates branch

  14. Direct/Indirect Sales into the US • Direct Sales • No US place of business = no tax • Server in US to host website for product promotion does not amount to a US place of business • Displaying merchandise in stores only does not amount to a US place of business

  15. Direct/Indirect Sales into the US • Direct Sales • US place of business (stores, sales offices, inventory, etc.) = permanent establishment • All US source income is taxable • Consider creation of single member US LLC as sales subsidiary

  16. Direct/Indirect Sales into the US • Indirect Sales • Use of US distributor • Taxation depends upon the economic and legal independence of US distributor • Consignment sales are problematic; risk of loss must be distributor’s not foreign seller’s

  17. Purchasing US Real Estate • No restrictions on purchase of real property in US • Special tax regime (Foreign Investment in Real Property Tax Act – FIRPTA) applies even if real estate purchased as part of a business and used for operations • Applies to all real property

  18. Purchasing US Real Estate • Rent • Flat rate 30% withheld at source • Purchaser actively engaged in management of real property is deemed to have a US trade or business and is taxed at graduated rates on net income • 10% withholding tax on sale; tax withheld by buyer and paid to IRS

  19. You may contact us as follows: Stephen Flott FLOTT & CO. PC 2009 N. 14th Street, Suite 600 Arlington, VA 22201-2514 [PO Box 17655, Arlington, VA 22216-7655] Tel: +1-703-525-5110 Fax: +1-703-525-5122 Email: sflott@flottco.com Web: www.flottco.com

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