Extracting Profits From Your U.S. Corporation
This page will show you how to extract money from your U.S. C-Corporation.
Anyone who has established a successful C-Corporation in the U.S. needs to know how to distribute or withdraw any profits from it. This will be discussed in detail on this page.
If you have not yet established a U.S. company, then you may be considering a U.S. commercial partnership instead. That can offer significantly lower taxation options than a C-Corporation, however, as a legal entity a LLC is not always the best option but may be more preferable to create a Limited Partnership (LP).
Distribution of Dividends.
After tax your U.S. C-Corporation can distribute its net profits to shareholders as a dividend.
This may include a withholding tax in the U.S. of between 15% and 30%, depending on whether your resident country is a DBA state. Typically, in your country of residence, tax on capital profits is still due.
Usually, calculated in the U.S., you will be credited the withholding tax on your home country taxation. This avoids any possible double taxation error.
If dividends are distributed to a holding company, such as in the U.K. or Germany, then the withholding tax can be reduced to 5% or eliminated completely. This depends on the DBA.
Billing Your U.S. Company.
If you have set up a foreign company in a tax-favorable state, for example, Malta or Ireland, then that foreign company can bill your U.S. company for the following:
Administration costs – accounting, logistics, management, marketing, website development, etc.
Specialist costs – for example, you have a software developer that you “loan” to the U.S. company for $2,000 a day.
Any rental of special machines, tools, personnel – for example, a cameraman can lease his cameras belonging to his British company to his U.S. one.
Purchasing company – this is with the view of generating a part of the profit margin in the foreign company.
Royalties –from Intellectual Property (IP) if that has been suitably licensed.
Loans From the Foreign Company.
Your foreign company may lend funds to your U.S. company and the interest from this may be claimed back as a cost against your U.S. company.
Business Expenses and Investments.
In the U.S., only 50% of entertainment costs can be claimed as a business expense. Hotels are fully deductible though. Other business expenses are treated more favorably by the tax system. And remember since you will have a Visa or Mastercard with your U.S. company’s corporate bank account, you can use that account to pay for any business expenses.
As a part of the Trump tax reform, stipulations on capital goods, valued at $1,000,000, can be written off immediately, treated as operating expenses.
Loans to the Managing Director and Shareholder.
Your U.S. company can lend money to the company’s managing directors and shareholders. This is quite common in the U.S. This is okay as long as the agreement passes a third-party comparison, especially in terms of estimated interest rates, the term of the loan and the avoidance of covert profit distribution.
Salary and Company Retirement.
You can benefit from the lower income tax rates and also be paid a salary as a manager but this only works if you live in the U.S.
Any profits invested in occupational pensions are not taxed up to a set limit.
Stock Options.
Again, this only works if you live in the U.S. If you issue stocks to employees (including yourself), future dividend and sales income could be taxed in favor of you.
This is because, ultimately, the income is taxed as capital profits tax and not income tax. This depends, however, on the structure of the company.
Need Advice on Taxation, Company Formation, and Residency in the United States?
If you are planning a project in the US you will probably have begun already your research into the business framework Stateside. Available on line on this, as on most subjects, there is a wealth of information.
And that can be the problem.
Saturation point in terms of information is not the same as being informed. And there is no getting away from it: tax, whether locally or internationally, is never less than complex.
In addition, most locally based US accountants know little of the international tax contexts from which you have come and for which you need answers.
To move beyond this impasse, we now offer the Mount Bonnell one-hour telephone advice session. All the questions you have on taxation, incorporation, and residency in the US and then some.
This conversation can be about specific, more technical, issues, whether it is US tax or corporation, or on the subject of LLCs, or maybe it’s just a need to discuss various strategic options now under consideration. Whatever it is, we can help you by talking matters through with some expert advice that takes you towards a satisfactory conclusion.