1 © #1 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Doing Business in the U.S. Tax Considerations American-Hellenic Chamber of Commerce Tuesday, 22 February 2011, Athens Hilton

2 © #2 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS US taxation of foreign companies doing business in US  Acquisition or startup  Direct or indirect sales  Real estate investments

3 © #3 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Starting Point: US-Greece Income Tax Treaty  Greek individuals and companies should always consider treaty benefits  Generally, Greek residents and companies organized in Greece qualify for treaty benefits  The treaty does not have a limitation on benefits article

4 © #4 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS A Greek company is exempt from tax in the United States on its US source earnings and profits unless “it is engaged in a trade or business... through a permanent establishment” in the US [Article III]

5 © #5 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Permanent Establishment  factory, branch or “other fixed place of business”  does not include an agency UNLESS the agent has “and habitually exercises” general authority to negotiate and conclude contracts on behalf of Greek company

6 © #6 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Permanent Establishment (cont’d)  Agency with a stock of merchandise from which orders are filled on behalf of Greek company is a PE  Use of a commission agent, broker or custodian acting in the ordinary course of its business is not a PE

7 © #7 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Permanent Establishment (cont’d)  A fixed place of business used solely to purchase goods/merchandise on behalf of a Greek company is NOT a PE  A subsidiary incorporated in the US does not constitute a PE of its parent corporation

8 © #8 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Treaty treatment of interest  No tax on interest from sources in the US if not engaged in a trade or business in the US, unless paid by a US subsidiary of a Greek company (more than 50% ownership is the test) [Article VI]

9 © #9 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Treaty treatment of royalties  No tax on royalties from sources in the US if not engaged in a trade or business in the US (intellectual property, including entertainment) [Article VII]

10 © #10 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Treaty treatment of dividends  There is no reduced rate on dividends, subject to full 30% withholding tax  Treaty does eliminate branch profits tax, creating way around 30% withholding tax on dividends

11 © #11 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Acquisition of a US business  Stock purchase No tax on gain from sale of stock in a US company 30% withholding tax on US source dividends paid to foreign persons or corporations

12 © #12 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Acquisition of a US business  Asset purchase Create single member US LLC to acquire assets Creates permanent establishment in the US; pay tax on US net income at graduated corporate rates Avoids 30% dividend withholding as there is no branch profits tax

13 © #13 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Acquisition of a US business  Cautions Most US States honor US tax treaties, but 13 do not (e.g., CA, CT, NJ & PA) Transfer pricing - arm’s length standard Too much control over US subsidiary’s activities can lead IRS to treat it as an “agent” of parent, creates branch

14 © #14 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Direct/Indirect Sales into the US  Direct Sales No US place of business = no tax Server in US to host website for product promotion does not amount to a US place of business Displaying merchandise in stores only does not amount to a US place of business

15 © #15 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Direct/Indirect Sales into the US  Direct Sales US place of business (stores, sales offices, inventory, etc.) = permanent establishment All US source income is taxable Consider creation of single member US LLC as sales subsidiary

16 © #16 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Direct/Indirect Sales into the US  Indirect Sales Use of US distributor Taxation depends upon the economic and legal independence of US distributor Consignment sales are problematic; risk of loss must be distributor’s not foreign seller’s

17 © #17 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Purchasing US Real Estate  No restrictions on purchase of real property in US  Special tax regime (Foreign Investment in Real Property Tax Act – FIRPTA) applies even if real estate purchased as part of a business and used for operations  Applies to all real property

18 © #18 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS Purchasing US Real Estate  Rent Flat rate 30% withheld at source Purchaser actively engaged in management of real property is deemed to have a US trade or business and is taxed at graduated rates on net income 10% withholding tax on sale; tax withheld by buyer and paid to IRS

19 © #19 F LOTT & C O. PC - A TTORNEYS DOING BUSINESS IN THE US – TAX CONSIDERATIONS You may contact us as follows: Stephen Flott F LOTT & C O. PC 2009 N. 14 th Street, Suite 600 Arlington, VA [PO Box 17655, Arlington, VA ] Tel: Fax: Web: