US Expats Caught In Repatriation Tax Net

Yet another hit at US expats living and working overseas has emerged as a result of the controversial Trump tax reform bill.

Growing concern within the American expat community overseas is focused on the ‘deemed repatriation tax’ calculated on profits made overseas by US businesses, whether or not the gains are repatriated. The format of the tax has increased the risk for US expats with stakes in businesses overseas, as it’s possible they may qualify for ‘controlled foreign corporation tax status’ (CFC). To make matters worse, the previous 30-day grace period for ignoring CFC status is now off the books.

Originally, the CFC was intended to encourage massive IT companies including Google and Apple to repatriate profits stored overseas in low tax jurisdictions but, as pointed out in the Financial Times, the wording is such that CFC status could be a major hit on American expats holding just 10 per cent in a foreign company. Green card holders in addition to US citizens are likely to fall victim to the new tax.

Tax experts in major financial centres including London, Washington and Tel Aviv report many of their clients will be affected by the relevant clause in the tax reform legislation. The FT article notes CFC refers to overseas businesses with US shareholders who control over 50 per cent of voting rights. Legal council for American Citizens Abroad Charles Bruce is warning those affected must pay the tax within eight years, and Israel-based US tax lawyer Monte Silver foresees an uproar as more and more US expats realise they are to be forced to pay up.

It’s estimated around nine million US expats may be liable for the tax, with one lawyer saying he knew of hundreds of expats in Israel who might qualify. The new tax is likely to cause anger all across the worldwide US expat community as it applies to a person’s citizenship rather than their residency, as does America’s extremely unpopular taxation of overseas earnings.