GILTI – Are you a US citizen? Do you own shares in a private company?
The recent U.S. tax reforms introduced measures discouraging U.S. companies from shifting profits to foreign countries. Specifically, the Global Intangible Low-Tax Income (“GILTI”) is a new source of income to be included in a U.S. taxpayer’s filings that is derived based on share ownership in controlled foreign corporations (“CFC”) including Canadian corporations. While the measure was targeted at getting large multi-national companies to repatriate their overseas profits, there may be unfortunate side effects on non-resident U.S. citizens operating companies outside of the U.S.
As a result of the tax reform, U.S. citizens who own shares in foreign corporations, directly or indirectly, may need to include GILTI income on their individual U.S. tax filings for 2018 and subsequent years. The inclusion of GILTI income is calculated as the individual’s pro rata share of retained earnings in the company.
GILTI will apply if ALL the following criteria are met:
- Shares with at least 50% of the votes and value of the foreign corporation are held by U.S. citizens AND;
- The U.S. Citizen owns shares with at least 10% of the votes or value of the foreign Corporation.
There may be significant tax implications from the new GILTI rules, which could result in double taxation. It would be prudent to consider alternatives to help mitigate the impact of the new tax regime, which may include corporate restructuring, filing of annual elections or renouncing U.S. citizenship. Due to the complex nature of these alternatives, they should only be pursued with appropriate Canadian and U.S tax advice.
This post has been prepared for general information purposes only and does not constitute advice nor opinion. The information presented may not be applicable in all circumstances. As such, please consult one of our trusted business advisors at RHN CPA for further clarification.