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Expanding into international markets can open up exciting opportunities for founders, from reaching new customers to building new revenue streams. However, growth across borders also brings new tax complexities, one of the most common being the risk of your income being taxed both in the US and in another country.
A tax treaty doesn’t automatically fix this. Planning does. That means knowing which country has taxing rights, taking advantage of available tax benefits, and understanding your reporting obligations so you can stay compliant.
Why double taxation happens
Double taxation is triggered more easily than most founders imagine. If you relocate abroad to run your business, open a foreign subsidiary or start collecting foreign dividends, royalties or consulting fees, you can end up in a second country’s tax system before you know it.
At the same time, the US taxes all citizens and Green Card holders on their worldwide income regardless of where they live or do business. While most expat founders can reduce or eliminate US tax by claiming foreign tax credits, the IRS still requires you to report your worldwide income. Additionally, some business structures trigger complex US reporting obligations on informational returns like Form 8858, Form 5471 or Form 8865, depending on your business structure, with steep penalties even when no tax is owed.
When tax treaties are helpful
The US has signed tax treaties with over 60 countries. These treaties exist to help prevent double taxation, but their existence alone doesn’t automatically mean you don’t have to worry or do anything. Treaties primarily assign taxing rights between countries, and some reduce withholding taxes on dividends, interest and royalties (often from 30% to between 0 and 15%), and they also clarify the rules for which jurisdiction taxes first, so you know in which country to claim foreign tax credits.
But treaties have limits, and all US treaties include a savings clause that can override most treaty benefits for US citizens, as though the tax treaty didn’t exist at all. Some types of income aren’t fully covered, and some countries don’t have a tax treaty with the US at all.
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