Businesses and individuals claiming resident status in the U.S. can earn a taxable gain in another country. There is a way to avoid being taxed by both your country of residence and the country where you or your company does business in. To avoid double taxation you must declare the company or yourself to be a non-resident of the foreign country in which business was conducted. Declaring residency status in the U.S. will allow for you to obtain double taxation avoidance. The United States government has income tax treaties with certain foreign countries that allow United States residents to be taxed at reduced rate or be fully exempt of U.S. Income taxes. The reduced rates and exemptions vary among countries and certain items such as gained income or royalty.
How to Avoid Double Taxation
An American corporation has to fill out and file the Form 1120 as per usual. If your corporation has more than one subsidiary Form 851, Affiliations Schedule, must be filled out. If filing as an individual you must fill out Form 1040, U.S. Individual Income Tax Return, which is the normal yearly procedure for an individual.
If a corporation or an individual conducts business outside of the Unites States, there is a process to avoid double taxation i.e. being taxed in the country of your residence as well as the foreign country you are conducting the business, these benefits are known as income tax treaty benefits. Form 8802, Application for United States Residency Certification, will need to be submitted to the Internal Revenue Service to request multiple Forms 6166. Certain countries require their specific country forms to be filled out and attached to the Form 6166. After filing for double taxation avoidance following the steps above, certain countries may require additional authentication process known as Apostille