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Step Arabia

Business Tax - 16 Nov 2018

Michael Lewis presented at the STEP ARABIA conference in Abu Dhabi on Sunday 11 November. He succinctly covered the enormous US tax changes introduced in December 2017. As Michael mentioned in his presentation “these are the most fundamental US tax changes since 1986”.

The changes have significant implications for both US persons and non-US persons. US persons owning 10% or more in a foreign company get a particularly raw deal under the new rules. Where such interests are held in companies deemed to be controlled foreign corporations, there are two major new taxes which need to be considered namely:

a) The one off ‘repatriation tax’ calculated on accumulated profits – the first instalment of which must be paid by 15 April 2019, and;

b) The new Global intangible low taxed income (“GILTI”) regime – which although designed to attack US multinationals has huge implications for US individual shareholders.

To make matters worse, changes to the definitions of a controlled foreign corporation significantly expand the potential number of entities exposed to the new GILTI regime going forward. US taxpayers with a 10% or greater interest in a non-US corporation should take urgent advice as to their current and future obligations.

For non-US persons who have established foreign grantor trusts, the new tax rules mean that where such trusts own US assets, new foreign corporate entities will need to be inserted. On the positive side the new lower corporation tax in the US may simplify the way non-US persons choose to invest in US real estate.

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