Taxation in the U.S.: Planning Your Business’s Tax Strategy

Taxation can be one of the most daunting and stressful parts of entering the U.S. market. However, there are usually many ways to maximize your benefits under U.S. Tax Law. Our experienced team can support German and European companies in this endeavor with tax filings, registration, and developing a strategy to meet your business goals.

Our firm will assess the details and structure of your business to find the best strategy to meet your business goals. This includes filling out IRS Form W-8BEN-E with the U.S. Internal Revenue Service (IRS), a critical part of expanding German Companies’ business activities in the U.S., especially if your business will be claiming treaty benefits between the U.S. and Germany. We can find the most advantageous tax registration, and corporate structing to suit your company’s needs, and correctly file your business’s registration status.

U.S.-Germany Double Tax Treaty

The Double Tax Treaty (formally, “The Convention between the Federal Republic of Germany and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to taxes on income and capital and to certain other taxes”) is an agreement between the U.S. and Germany that generally allows a resident in one state not to pay income taxes on business activity in the other state.

This benefit allows German businesses to open their products and services in the U.S. market without paying a double tax on their income. However, the benefit may not be available to certain aspects of business activity, and if your German business has a physical presence in the U.S. In this case there are still other tax benefits that may apply. If you want to claim tax benefits under this treaty, you must use the IRA Form W-8BEN for individuals, or W-8BEN-E for businesses.

IRS Form W-8BEN-E for your U.S. tax benefits

IRS Form W-8BEN-E is important to enable foreign businesses operating outside of the U.S. to claim tax exemption on income within the U.S., and requires careful assessment of your business structure, activities and legal status to be able to accurately complete the form and file it with the IRS.

Unfortunately, if German companies fail to file this form correctly, there can be significant consequences, including 

  • withholdings of 30% of your business’s income under foreign-person status, 
  • civil fines, or even
  • the termination of the business partnership in accordance with U.S. Federal Laws.

IRS Form W-8BEN-E can be a complicated bureaucratic process. This form is complex and sometimes not very intuitive and completing IRS Form W8BEN-E correctly can be challenging. Your business will also need either 

  • a foreign tax identification number, 
  • a U.S. Taxpayer Identification Number (TIN), or 
  • U.S. Employer Identification Number (EIN). 

Our team can handle this process in a fast and efficient manner and can also assist individuals connected with your business who require an International Tax Identification Number (ITIN), EIN or TIN with the IRS.

Does my business qualify for special benefits under U.S. Tax Law?

Some non-U.S. entities are Exempt Beneficial Owners (EBOs), who are entitled to special tax relief in the United States. An EBO can be

  • a governmental organization,
  • an international organization whose income does not benefit private persons,
  • a central bank,
  • a qualifying retirement plan, or
  • an entity wholly owned by an EBO (this specifically relates to a FATCA status).

The U.S. law “Tax Cuts and Jobs Act” (TCJA) passed in 2017, dropped the U.S. corporate income tax rate from 35% to 21%, making restructuring as a C corporation a desirable change for business owners of LLCs, partnerships, or S corporations, as this new tax rate is sometimes lower than the income tax bracket that affects many business owners.

There are also significant deductions for businesses with on “pass through” income, or income that falls under “Qualified Business Income” (QBI), which allows for a deduction of up to 20% of the total income. There are restriction and limitations as to what businesses are eligible for this benefit based on income and type of activity. We are ready to evaluate your status as a business in the U.S., and see if new structuring and strategies can benefit your goals, or if you already qualify for certain tax benefits you are not yet receiving.

Ongoing compliance with U.S. regulations

There are many laws, some of which are relatively new, that require special reporting and disclosure of financial assets and income for individual. Some even have far reaching effects on non-U.S. financial institutions (FFIs as defined by the IRS) that have accounts from U.S. individuals or entities, such as the Foreign Account Tax Compliance Act (FATCA).

This law requires all FFIs that accept or deposit money to search their records for customers with indicia of a connection to the U.S., including records of birth, U.S. parentage or prior residency in the U.S. and to report the assets and identities of such persons to the U.S. Department of the Treasury. A business’s “FACTA Status” is also a requirement to be reported on IRS Form W-8BEN-E.

Businesses are often penalized for failing to comply with such laws, as even a reasonable or “good faith” lack of understanding of the law in these areas is not a defense to violating them. Our team can review and evaluate your Company’s status and help keep your business in compliance, and is ready to work through all other procedures in this process.

Your attorney for U.S. tax law in Germany

You have questions concerning the taxation of your U.S. business? We are here to help! Your attorneys for U.S. tax matters are:

We can provide you with a consultation and ongoing legal services in German and English. Get in touch! The easiest way to reach us is by email (info@winheller.com) or by phone (+49 (0)69 / 76 75 77 80). Tell us more about your U.S. business and we will offer a service package tailored to your particular needs.

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Awards

Juve AwardLegal 500 Germany 2019
azur100: Top Employer for Lawyers 2021