5 ms·

This seems likely to be a common situtation so I'll keep it out in the open for other people to read. I'm based in New Zealand and do my accounts here. I rent

This seems likely to be a common situtation so I'll keep it out in the open for other people to read. I'm based in New Zealand and do my accounts here. I rent virtual machines in the US which run websites etc. NZ and US have some kind of dual tax agreement. What do I need to know about US tax? Thanks for the offer and any advice given!

camz 16y ago
I've taken a 3min gander at the dual tax agreement and it sounds like your standard foreign tax credit situation. Whatever tax you pay to the US will be a tax credit for NZ and vice versa. So, you'd basically run the company in the US according to the same rules as everyone else it seems. International tax is not my specialty so I'm not going to pretend to be a pro. If I had more time, I could probably give you a better answer. Sorry!
camz 16y ago
I will note though that New Zealand is part of the tax planning strategy that Google uses to save. They've recently been destroyed by the PR machine for doing this, but its honestly pretty common. I'm constantly hearing and learning about new ways to leverage laws between federal, state and international tax rules to do the same.
- Devilboy 16y ago
  It's the same kind of thing as the low-tax IBC in the UK am I right?
  - camz 16y ago
    I think a dual tax agreement is a bit different than a low-tax IBC generally is a situation where you dont have local taxes and you pay small fees for doing business (franchise tax). The tax havens in the bermudas and carribeans do this a lot. A dual tax agreement is usually an agreement between the two governments saying that, they will give a tax credit for taxes paid to the other guy so that the same amount of income isn't taxed twice. low tax IBCs generally just dont pay tax at all.
    - rdl 16y ago
      The necessary piece of information here that most people don't make explicit is that US persons (natural or companies) are liable for all income worldwide (incl. from foreign subsidiaries when they bring that cash back to the US); the thing Google is doing just deferring that day by holding the money offshore. In practice they can defer indefinitely, and use the overseas cash to finance overseas operations, make overseas investments, etc. There are cases (Barbados!) where due to awesome double tax treaties, you can actually end up paying less US tax under a double tax treaty than in a zero tax jurisdiction subsidiary -- mainly by using the foreign entity in the double tax jurisdiction to recharacterize earnings as capital gains or dividends. There was a period where dividends were not taxed much. Even when magic loopholes like that only exist for one year, it becomes a big deal because these pools of offshore deferred earnings can all stream through during that window.
pelle 16y ago
Just having servers in the US does not mean you're doing business in the US. What is important is where your nexus of operations is or if you have actual staff working in what could be considered a branch in the US. In the early days of the internet, several US citizens setup servers in offshore jurisdictions and bragged about it. The IRS quickly established that server location does not affect nexus and the offshore server owners ended up having to pay US taxes. This all expects you are not registered as a company in the US. In theory if you have a US LLC with no real operations except outsourced hosting in the US, there would be no US tax liability either as LLC are pass through entities. A c-corp is not passthrough and you would probably be taxable in the US. Any dividends and capital gains would be under double taxation. I am not a lawyer, accountant or anything. I just know a lot of people who do these kinds of things.
- camz 16y ago
  Nexus is a state and local tax concept. Nexus is defined as the "minimum connection necessary for a state to tax a taxpayer." Generally, there are three factors that lead to nexus (there are more but i'll give you the basics.) If you have employees in a state then you have nexus (this may include contractors as well). If you have ANY type of property or rental in the state then you have nexus. If you have significant economic connection to a state then you have nexus (notice this is a very subjective and BROAD concept.) Having servers in a foreign country isnt really important because YOU the owner = nexus to the state that you're living in. So, your state has the right to tax you. The IRS doesn't care about your nexus because they dont have that rule. The IRS is the shit because they dont deal with silly questions of "the relation to income earned and the US." Their rule is simple, "All income you earn is taxable period unless we say it isn't"
barrydahlberg 16y ago
Thanks for all the comments, I am way more confused now! I guess the lesson is... go spend more time with my real accountant.

camz 16y ago

I've taken a 3min gander at the dual tax agreement and it sounds like your standard foreign tax credit situation. Whatever tax you pay to the US will be a tax credit for NZ and vice versa. So, you'd basically run the company in the US according to the same rules as everyone else it seems. International tax is not my specialty so I'm not going to pretend to be a pro. If I had more time, I could probably give you a better answer. Sorry!

camz 16y ago

I will note though that New Zealand is part of the tax planning strategy that Google uses to save. They've recently been destroyed by the PR machine for doing this, but its honestly pretty common. I'm constantly hearing and learning about new ways to leverage laws between federal, state and international tax rules to do the same.

Devilboy 16y ago
It's the same kind of thing as the low-tax IBC in the UK am I right?
- camz 16y ago
  I think a dual tax agreement is a bit different than a low-tax IBC generally is a situation where you dont have local taxes and you pay small fees for doing business (franchise tax). The tax havens in the bermudas and carribeans do this a lot. A dual tax agreement is usually an agreement between the two governments saying that, they will give a tax credit for taxes paid to the other guy so that the same amount of income isn't taxed twice. low tax IBCs generally just dont pay tax at all.
  - rdl 16y ago
    The necessary piece of information here that most people don't make explicit is that US persons (natural or companies) are liable for all income worldwide (incl. from foreign subsidiaries when they bring that cash back to the US); the thing Google is doing just deferring that day by holding the money offshore. In practice they can defer indefinitely, and use the overseas cash to finance overseas operations, make overseas investments, etc. There are cases (Barbados!) where due to awesome double tax treaties, you can actually end up paying less US tax under a double tax treaty than in a zero tax jurisdiction subsidiary -- mainly by using the foreign entity in the double tax jurisdiction to recharacterize earnings as capital gains or dividends. There was a period where dividends were not taxed much. Even when magic loopholes like that only exist for one year, it becomes a big deal because these pools of offshore deferred earnings can all stream through during that window.

pelle 16y ago

Just having servers in the US does not mean you're doing business in the US. What is important is where your nexus of operations is or if you have actual staff working in what could be considered a branch in the US. In the early days of the internet, several US citizens setup servers in offshore jurisdictions and bragged about it. The IRS quickly established that server location does not affect nexus and the offshore server owners ended up having to pay US taxes. This all expects you are not registered as a company in the US. In theory if you have a US LLC with no real operations except outsourced hosting in the US, there would be no US tax liability either as LLC are pass through entities. A c-corp is not passthrough and you would probably be taxable in the US. Any dividends and capital gains would be under double taxation. I am not a lawyer, accountant or anything. I just know a lot of people who do these kinds of things.

camz 16y ago
Nexus is a state and local tax concept. Nexus is defined as the "minimum connection necessary for a state to tax a taxpayer." Generally, there are three factors that lead to nexus (there are more but i'll give you the basics.) If you have employees in a state then you have nexus (this may include contractors as well). If you have ANY type of property or rental in the state then you have nexus. If you have significant economic connection to a state then you have nexus (notice this is a very subjective and BROAD concept.) Having servers in a foreign country isnt really important because YOU the owner = nexus to the state that you're living in. So, your state has the right to tax you. The IRS doesn't care about your nexus because they dont have that rule. The IRS is the shit because they dont deal with silly questions of "the relation to income earned and the US." Their rule is simple, "All income you earn is taxable period unless we say it isn't"

barrydahlberg 16y ago

Thanks for all the comments, I am way more confused now! I guess the lesson is... go spend more time with my real accountant.