Trump Repatriation Tax Hitting Hard On US Expats Overseas

As if being double-taxed wasn’t enough, US expats in Germany are now suffering from the effects of the poorly structured Trump tax bill.

The USA is one of only two world countries which taxes overseas-based citizens on their foreign earnings. The other is Eritrea, which says it all. Not only are US expats taxed as if their wages and other incomes were being paid within the USA, they’ve now become undeserving victims of the ill-considered Trump tax bill passed late last year. After having to face up to FATCA and its disruptions, they’ve now been caught by the so-called ‘repatriation tax’ and are being forced to pay tax at a far higher rate than that paid by Google and other huge corporations.

In a recent article by a tax lawyer, a hypothetical American citizen living overseas and running his own small business was used as an example. The 30-year expatriate had started a company in Germany when he arrived and is now getting ready to retire, having saved a nest-egg of around €100,000 on which German taxes have been paid. Out of the blue and after the Trump tax reform bill and its repatriation tax passed into law, a tax demand of €17,540 arrived from the IRS, based on profits made overseas from 1986 and 2017.

Briefly, the US taxman is now treating all its’ expats’ overseas earnings as taxable under the new law, which was originally brought in to force multinationals to bring their offshore subsidiaries’ profits back to the USA as promised by Trump during his presidential campaign. The only difference is that US expat SMEs are being forced to pay the tax at a far higher rate than the rate for multinationals, which only pay 17.54 per cent tax on cash profits or 9.05 per cent on non-cash profits held offshore.

In addition, US expat-owned German businesses’ net incomes are taxed at 37 per cent, but Google pays between zero and 21 per cent as it’s on the highest corporate tax rate whilst SMEs overseas are charged at the highest individual tax rate. Google and other affected multinationals get other perks as well. Tax experts believe Washington in general didn’t intend to target US expats overseas, but the tax reform bill is riddled with similar mistakes due to its being rushed through the necessary process without close examination.

Various campaign groups are now attempting to put the issue straight before too many expat SME owners go bankrupt, and tax lawyers believe a few Washington lawmakers are still ready to listen and maybe even help to kill this injustice. These groups have a voice – as more join them the louder it becomes.