Tax law can be a daunting topic to research on your own, especially if you are an international citizen.
The US imposed the nation’s first income tax in 1862. This is why there are several things you need to know about the existing tax laws and the recent changes to them because long gone are the days of no income tax.
The information in this guide will give you a basic understanding of the new tax laws with international applications.
UK Residential Property
This past April 2022, there was a residential property development sector tax (RPDT) introduced. This new law applies to either a corporate group or a company that has held interests in property or land, or that currently holds an interest as trading stock.
The RPDT applies at a rate of 4% to all annual profits that exceed GBP 25 million.
Automatic Exchange of Information
Also known as AEOI, this is where countries exchange information without another country having to request the information. This was put in place to help reduce tax evasion on a global basis.
Different countries such as Hong Kong, Greenland, Canada, Colombia, etc. have already joined AEOI. You can also read more info about AEOI to see how this tax law has affected international relationships.
Taxes are not only for US residents or citizens living in the states. Foreigners that are living and working in the United States are also subject to US income tax on their US source of income.
Foreigners are subject to two different tax rates. One is for fixed or annual income and the other is for effectively connected income.
Fixed or annual income is the money someone collects from either working a job for a corporation or from self-employment. Effectively connected income (ECI) is money that is earned from operating a business in the United States.
Any income that is passive (also known as FDAP income) is taxed at a flat rate of 30%. This rate does not change unless a tax treaty with the person’s country of citizenship specifies a lower rate. Passive income includes money coming in from royalties, interest, rent, or dividends.
Global Minimum Tax
With the global minimum tax, there is a 15% effective tax rate for large corporate entities that are on a jurisdiction-by-jurisdiction basis.
Once normal corporate income taxes are paid under controlled foreign corporation rules, then a 15% top-up might be assessed to ensure that the effective tax rate is being applied.
C Corporation Taxes
Currently, the tax rate for C corporations is 21%, but the new tax rate can go up to 28% after December 31, 2022 tax year. Keep in mind that this is currently a proposed change to the tax law and is not completely in place as of the writing of this post.
Feeling Like a Pro About New Tax Laws?
Now that you are familiar with new tax laws to watch for, you can make sure you stay out of any legal troubles with tax evasion accusations.
Individuals and businesses should review the changes and consult with a tax advisor to ensure they are in compliance with the new laws. Remember, the changes are designed to simplify the tax code and make it more equitable.
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