International Tax Pitfalls for U.S. Business Owners with Operations Abroad - MABE International Advisors

International Tax Pitfalls for U.S. Business Owners with Operations Abroad

Expanding your business across borders opens doors to growth and opportunity. But for U.S. citizens and green card holders, it also brings a maze of international tax rules that can be confusingand costly if overlooked. From reporting requirements to tax treaties, understanding your obligations is critical to protecting your profits and avoiding penalties.

At MABE, we specialize in guiding business owners through the complexities of international taxation. Below, we highlight the most common pitfalls and how you can avoid them.

FBAR vs. FATCA Compliance: More Than Just Paperwork

Many business owners mistakenly believe that reporting foreign accounts is optional or only applies to large balances. In reality, U.S. taxpayers must comply with:

• FBAR (Foreign Bank Account Report / FinCEN Form 114): Required if you have foreign bank accounts exceeding $10,000 in aggregate at any point during the year.
• FATCA (Form 8938): Requires reporting of specified foreign financial assets above certain thresholds, depending on your filing status.

Failing to comply can result in severe penalties, often far greater than the balance in the account.

Foreign Tax Credit vs. Double Taxation

One of the biggest fears for U.S. business owners abroad is paying tax twiceonce overseas and again in the U.S. Fortunately, the Foreign Tax Credit (Form 1116) helps offset U.S. liability by granting credit for income taxes paid to another country.

Common mistakes include:

• Misclassifying foreign taxes that dont qualify.
• Forgetting carryovers of unused credits.
• Claiming credits when a deduction would be more beneficial.

Proper planning ensures you minimize double taxation while staying compliant.

GILTI, Subpart F, and Form 5471 Issues

If you own shares in a Controlled Foreign Corporation (CFC), you may be subject to Subpart F income and GILTI (Global Intangible Low-Taxed Income) ruleseven if no cash is distributed to you.

Errors often occur when filing Form 5471, which is required for U.S. shareholders of foreign corporations. Mistakes can include:

• Incomplete reporting of ownership percentages.
• Misapplication of attribution rules.
• Missing schedules that trigger automatic penalties.

These filings are complex, but failure to get them right can lead to hefty fines.

The Role of Tax Treaties

The U.S. has tax treaties with many countries, designed to reduce double taxation and clarify taxing rights. However, business owners often:

• Assume a treaty eliminates U.S. reporting (it rarely does).
• Misinterpret savings clause provisions.
• Miss opportunities for reduced withholding on dividends, royalties, or interest.

Leveraging treaties properly requires careful analysisbut when used strategically, they can significantly reduce your tax burden.

How MABE Supports International Tax Compliance

At MABE, we help U.S. entrepreneurs and business owners with international operations by:

• Conducting compliance diagnostics to identify risks.
• Preparing and reviewing required forms (FBAR, Form 8938, 5471, 1116, etc.).
• Structuring entities to reduce exposure to GILTI and Subpart F.
• Applying tax treaties and credits to minimize double taxation.

Our goal is simple: protect your global profits while ensuring full compliance with U.S. tax law.

Dont Let Tax Pitfalls Cost You

International growth should be rewardingnot stressful. The right planning can save you from penalties, unnecessary taxes, and sleepless nights.

 Book a compliance diagnostic with our international tax team today and take the first step toward stress-free global operations.