A tax law passed during US President Donald Trump's first term is set to be extended in a move that could increase additional costs for US business owners overseas.
GILTI (pronounced “guilty”), was first adopted as part of the 2017 Tax Cuts and Jobs Act to target multinationals such as Google and IBM that sought to evade taxes by shifting profits to low-income territories. Legislators are now debating a bill that would extend the provision – called Global Intangible Low-Taxed Income – beyond this year.
This could leave US business owners and shareholders who receive international income facing unexpected costs and a convoluted web of forms to remain compliant – or be hit with steep fines.
“US citizens overseas are caught in these laws, even though, as far as they're concerned, they didn't create a foreign corporation, they created a corporation in the country in which they live,” Olivier Wagner, of US expatriate service 1040 Abroad, told The National via email.
Mr Wagner, an accountant who specialises in US expat taxation, said his clients typically have “no idea” of the tax obligations they would be subject to when setting up a corporation overseas.
GILTI is similar to other idiosyncrasies of the US tax system. For example, unlike almost every other country, the US taxes people based on citizenship rather than residency.
The business's only affiliation with the United States is the citizenship of its owner
Laura Snyder,
president of Stop Extraterritorial American Taxation
And while GILTI was designed to ensure multinationals repatriate income to the US, Laura Snyder, a lawyer in Paris, said “that logic is completely inapplicable” to a business owned by an American citizen who lives and runs their business in another country.
“The business's only affiliation with the United States is the citizenship of its owner,” said Ms Snyder, president of the non-partisan group Stop Extraterritorial American Taxation.
How does Gilti work?
GILTI is a minimum tax that targets foreign earnings from intangible assets and applies only to what is known as a controlled foreign corporation (CFC). A business is considered a CFC if more than half of its shares are owned by a US shareholder who owns at least 10 per cent of that company's shares.
GILTI taxes most active earnings that exceed 10 per cent of depreciable assets, even if they are not intangible.
The GILTI tax rate for corporate shareholders ranges from 10.5 per cent to 13.125 per cent. But for individual shareholders this could range from 10 per cent to 37 per cent, as the tax rate is based on their income tax bracket.
“The US tax code penalises most non-US sources of income – your retirement income, your investments, mutual funds,” Ms Snyder said. "And it does a lot to penalise small businesses outside the United States."
But this can create a double taxation problem, whereby US business owners living abroad face tax liabilities for both the US and whichever country they established their corporation.
“They live their life overseas and create a corporation, taking into account the tax implications for the country they’re in,” Mr Wagner said.
Complicated filing
Those obligated to comply with GILTI face a complex and time-consuming filing process that can cost thousands of dollars.
US corporations and shareholders must fill out form 8992, called "US Shareholder Calculation of Global Intangible Low-Taxed Income", to report inclusion amounts to the IRS. They must also file form 5471, called "Information Return of US Persons with Respect to Certain Foreign Corporations", to register ownership of a CFC.
One of the 12 schedules in form 5471 they must complete is Schedule I, a key form to determine the filer's appropriate tax liability.
Reporting requirements then kick in and fees are incurred, even if the business is losing money. “This is a burden American citizens have that competitors do not,” Ms Snyder said.
Failure to file comes with a $10,000 penalty per form, with a maximum fine of $50,000.
What's next for GILTI?
US business owners abroad can expect the GILTI tax rate to increase from next year.
Changes to the law would adjust the deduction from 50 per cent to 37.5 per cent after December 31, effectively increasing the GILTI tax rate from 10.5 per cent to 13.125 per cent for designated CFCs.
The adjustment is one of many in the 1,000-plus page "One Big Beautiful Bill Act" that is circulating through Congress. After it passed the House of Representatives last month, it now must go through the Senate.
While legislators are debating several provisions in the bill, GILTI is likely to stay. Republican leaders in the Senate have set a deadline of July 4 for the bill to be passed.
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BOSH!'s pantry essentials
Nutritional yeast
This is Firth's pick and an ingredient he says, "gives you an instant cheesy flavour". He advises making your own cream cheese with it or simply using it to whip up a mac and cheese or wholesome lasagne. It's available in organic and specialist grocery stores across the UAE.
Seeds
"We've got a big jar of mixed seeds in our kitchen," Theasby explains. "That's what you use to make a bolognese or pie or salad: just grab a handful of seeds and sprinkle them over the top. It's a really good way to make sure you're getting your omegas."
Umami flavours
"I could say soya sauce, but I'll say all umami-makers and have them in the same batch," says Firth. He suggests having items such as Marmite, balsamic vinegar and other general, dark, umami-tasting products in your cupboard "to make your bolognese a little bit more 'umptious'".
Onions and garlic
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Your grain of choice
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UAE currency: the story behind the money in your pockets
Global state-owned investor ranking by size
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Honeymoonish
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Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened.
He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia.
Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”.
Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
Attacks on Egypt’s long rooted Copts
Egypt’s Copts belong to one of the world’s oldest Christian communities, with Mark the Evangelist credited with founding their church around 300 AD. Orthodox Christians account for the overwhelming majority of Christians in Egypt, with the rest mainly made up of Greek Orthodox, Catholics and Anglicans.
The community accounts for some 10 per cent of Egypt’s 100 million people, with the largest concentrations of Christians found in Cairo, Alexandria and the provinces of Minya and Assiut south of Cairo.
Egypt’s Christians have had a somewhat turbulent history in the Muslim majority Arab nation, with the community occasionally suffering outright persecution but generally living in peace with their Muslim compatriots. But radical Muslims who have first emerged in the 1970s have whipped up anti-Christian sentiments, something that has, in turn, led to an upsurge in attacks against their places of worship, church-linked facilities as well as their businesses and homes.
More recently, ISIS has vowed to go after the Christians, claiming responsibility for a series of attacks against churches packed with worshippers starting December 2016.
The discrimination many Christians complain about and the shift towards religious conservatism by many Egyptian Muslims over the last 50 years have forced hundreds of thousands of Christians to migrate, starting new lives in growing communities in places as far afield as Australia, Canada and the United States.
Here is a look at major attacks against Egypt's Coptic Christians in recent years:
November 2: Masked gunmen riding pickup trucks opened fire on three buses carrying pilgrims to the remote desert monastery of St. Samuel the Confessor south of Cairo, killing 7 and wounding about 20. IS claimed responsibility for the attack.
May 26, 2017: Masked militants riding in three all-terrain cars open fire on a bus carrying pilgrims on their way to the Monastery of St. Samuel the Confessor, killing 29 and wounding 22. ISIS claimed responsibility for the attack.
April 2017: Twin attacks by suicide bombers hit churches in the coastal city of Alexandria and the Nile Delta city of Tanta. At least 43 people are killed and scores of worshippers injured in the Palm Sunday attack, which narrowly missed a ceremony presided over by Pope Tawadros II, spiritual leader of Egypt Orthodox Copts, in Alexandria's St. Mark's Cathedral. ISIS claimed responsibility for the attacks.
February 2017: Hundreds of Egyptian Christians flee their homes in the northern part of the Sinai Peninsula, fearing attacks by ISIS. The group's North Sinai affiliate had killed at least seven Coptic Christians in the restive peninsula in less than a month.
December 2016: A bombing at a chapel adjacent to Egypt's main Coptic Christian cathedral in Cairo kills 30 people and wounds dozens during Sunday Mass in one of the deadliest attacks carried out against the religious minority in recent memory. ISIS claimed responsibility.
July 2016: Pope Tawadros II says that since 2013 there were 37 sectarian attacks on Christians in Egypt, nearly one incident a month. A Muslim mob stabs to death a 27-year-old Coptic Christian man, Fam Khalaf, in the central city of Minya over a personal feud.
May 2016: A Muslim mob ransacks and torches seven Christian homes in Minya after rumours spread that a Christian man had an affair with a Muslim woman. The elderly mother of the Christian man was stripped naked and dragged through a street by the mob.
New Year's Eve 2011: A bomb explodes in a Coptic Christian church in Alexandria as worshippers leave after a midnight mass, killing more than 20 people.
