Taxes and Tax Haven

What Is Nonresident Tax

If you go to the definition of what is a nonresident tax, it is a return that comes to a state of which you are not a natural resident of. You might be working in an another state or country or you could make earnings in another state for which you need to file a nonresident tax return. If you fall into any of these categories, you might need to be clear about nonresident tax a bit more. You will then need to figure out the amount of income that you make in the nonresident state as well as the income that you make in the home state. Most of the federal returns even include the nonresident tax returns. Thus, it is necessary to complete one’s federal returns and then make a separate effort to file in nonresident tax returns. The legalities of filing nonresident tax returns may vary from country to country.

So how do you go about listing your income and deductions? In most states you need to first list out the total income as per the federal return in one column while in the other column one needs to write in the income that comes in as a nonresident. The total in both columns needs to be considered in order to calculate the percentage of the non-resident income as per the total income. Every state has its own laws by which one needs to allocate the taxable income or one’s tax liability accordingly.

What are Tax Havens

In such cases one often seeks out tax haven. These are countries like Anguilla, Nevis, British Virgin Islands, Singapore Hong Kong, Mauritius and other countries. Over the last two decades the number of tax havens has increased. These have evolved as most people search them out in order to protect their interests. The advancement of technology and communication has allowed these tax havens to come within reach of many people and they can avail of the benefits of storing their money and saving tax liabilities on them.

Their Characteristics

So what kind of services can you expect from a tax haven? They usually have the following characteristics:

• They are usually financial centers based offshore

• It can be a country or an organization that offers business services even to non nationals

• The business services consist of offshore trusts, registration of vessels, investment funds management, offshore foundations, offshore banking and others

• It is a legal as well a safe means of reducing one’s tax liabilities

When the economy is struggling and people are reeling under effects of low income and high tax liabilities, tax haven come to the rescue. People can resort to the offshore banking services of tax havens and get their money secured and away from unwanted tax liabilities. However, before one decides to approach such a country or organization, it is best to refer to the legal guidelines of their own country or state to understand the legalities involved.

The Characteristics of U.S. Corporate Tax

Average Rate

When you run a business you need to be clear on matters of business taxation. Like all countries the US imposes a tax on the profit that the US corporations make and the rates vary from fifteen to thirty five percent. Much of the corporate income is often taxed at the minimum rate. Those who are corporate shareholders even pay individual income tax on the dividend as well as on the capital gains that they realize from the sale of the shares. The tax rate on dividends as well as on capital gains can go up to fifteen percent at a maximum. Both are scheduled to revert back to the levels that they existed in the period before 2001.

History

As per the federal revenue the following are the characteristics of the corporate income tax:

• This is the third largest source of revenue for the federal resources after the individual income tax and taxes collected from payroll

• The importance of the tax declined as a source of revenue between the period of the fifties and eighties

• Corporate tax accounts for two percent of the GDP in the US

If you are looking into the calculation of the corporate profits that are taxable one needs to equal the receipts of the corporation minus the expenses that it incurs. That includes the wages and the interest. The deductions of the inventory costs as well as depreciation of capital investments also need to be subtracted. Often many multinational corporations have their presence in other countries too and in that case nonresident tax may also come into the picture. The tax that one pays on the profits made on subsidies of foreign origin is deferred till the profits are repatriated or paid back in the form of dividends to the US parent company. The nonresident tax that may apply is usually at the individual level and not at the corporate level.

Different Features

There are other peculiar characteristics of the US corporate tax setup. For instance, there is little mechanism to prevent individuals from collecting income that is tax free within corporate. This is however discouraged as the corporate profits are taxed twice, once to the corporation and then again on the profits given out to shareholders. Again, another feature of the tax structure is that it encourages debt financing as compared to equity financing. That is mainly because the interest payments that are made by corporate are deductible while the dividends that are gained are not. Thus, it encourages corporations to retain their earnings than giving it out as dividends. Many organizations in the US are categorized as “flow through” businesses and they do not come under the purview of corporate tax.

These include partnerships or sole proprietor businesses. That is mainly because here the business owners are taxed at an individual level. At such levels nonresident tax may become applicable if they make earnings from a state that they are not resident of. It is usually calculated as a percentage of the total federal tax returns filed.

An Overview On Canadian Tax Treaties

Tax treaties are agreements that are signed between the two counties to ensure that the residents of the country are not double taxed. There are many residents of a country who work in other countries and will be liable to pay taxes in the country that they work and will also be required to file tax returns and pay taxes in the country that they are a citizen of. In such situations there are possibilities that the individual will be taxed twice for the same income by both the countries and to avoid that such tax treaties are signed between the countries. Another advantage of these treaties is that there can be sharing of information between the countries about the financial dealings of the residents so that tax avoiders can be identified. Most countries have nonresident tax that has to be paid by non residents who earn income from the country and when the person files the nonresident tax returns, it will be shared with the country that he is a resident of, provided there is a treaty that has been signed between the countries.

What Do Tax Treaties Cover

Most of the tax treaties that are signed will be in respect with the income and the investments by citizens of other countries and will generally cover the following

• Establish the taxes that are covered and who is eligible for tax benefits

• Will help to establish who can be considered as a resident of the country

• Will help to reduce the tax that is withheld from royalties, interest and dividends that are paid by a resident of one county to residents of other countries

• Will help to limit the tax that is levied on business income generated by a resident of another country

• Will help set the guidelines and the rules that will govern the nonresident tax of a country who would be residents of another country

• Help to provide exemptions to certain individuals and corporations

• Will help to provide the necessary procedural framework in cases where there is a dispute and for enforcement

Canada Tax Treaties

Canada has signed tax treaties with a lot of countries across the globe and the list of countries that have a tax treaty with Canada can be found on the official website of the Department of Finance Canada. There will be detailed reports about the tax treaties that have been signed, amendments to the treaty and all the information that one will need about any tax treaty. You can also contact the International Tax Services Office and they will be able to help you out with any information regarding the tax treaty signed with your country by Canada or on the doubts you might have regarding nonresident tax filing.

Precautions While Filing Nonresident Tax Return

It is very important to not take things for granted while filing the nonresident tax and if there is any ambiguity in the various clauses of the tax treaty that has been signed with your resident country, contact the International Tax Services Office for clarification. It will also be a good option to avail the services of tax experts to help you with your nonresident taxation procedures as they will have the knowledge of the exemptions that can be availed by you. It will also make the process a lot simpler with you not having to run around to get your income tax return filed properly.

Nonresident Taxation for Non-Residents Rendering Services In Canada

Any nonresident that offers service in Canada and earns an income out of it is liable to pay nonresident tax as per the regulations that are cited in the nonresident taxation policy of the Canadian Revenue Agency. So if you are a nonresident who is offering services or plan to offer your services in Canada then you should be aware of the entitlements, the rights and the obligations that you face when receiving such income.

Nonresident Taxation

If you are a nonresident of Canada and you render services in the country then you are entitled to pay income tax on the income that is generated by you by providing the services in the country under the provisions of the nonresident taxation policy. There are regular continuous services that one might render and there are also some services that are rendered for a short span of time. If you are a consultant, or a lecturer providing your services then you will have to pay your taxes and will have to file your returns for the income earned in Canada. For people who are involved in the movie industry, they will have to refer to the Film Advisory Services to identify the tax credit that is available to them before filing the returns.

Withholding Requirements

• If you are employed in Canada on a regular and continuous basis then a certain percentage of your income will be withheld from the person paying you and will provide you with an information slip with regard to the deduction made from your income.

• In general the percentage that is deducted is about 15% of the gross payment that is paid to you and that amount will be remitted by the employer to the Receiver General of Canada as a type of nonresident tax.

• This is a form of non resident tax deduction at source and it is the duty of the employer whether he is a Canadian citizen or not to deduct the tax and duly pay it to the concerned department.

• Failing to deduct the required amount will result in penalty and the employer will have to pay 10% of the amount that has to be deducted as penalty.

• Employers will have to file T4A-NR return to the department and will have to issue T4A-NR slips to the recipient before the end of February of the following year.

• The employee can file tax returns to report the net taxable income and in situations where excess tax has been deducted, a refund is provided by the Tax authority.

Waiver Or Reduction of Withholding

The nonresident taxation policy in Canada considered 15% tax deduction at the source to be a rough estimate of the nonresident tax liability of the person. If you are covered by treaty protection or can show that your expenses are bound to be more you can apply for a waiver or tax reduction request to the concerned department. A waiver application will have to be filled and submitted to the tax services office that is responsible for tax related functions in the area that you provide services in. The application will have to be filed 30 days before receiving the first payment and no later than 30 days from the start of providing the services. If the required details are in order then the tax office will give you a waiver or deduction certificate that can be given to the employer.

Overview On Canadian Nonresident Tax Filing

Income tax in Canada is levied not just on Canadian citizens but on non-residents too and the income that nonresidents earn from Canadian sources will be taxed. Nonresident tax is levied only on the income that is received from sources in Canada and the worldwide income of the nonresident is not considered for taxation. For most of the nonresidents that income tax is deducted at source from the gross pay when being paid to them by the employer and the tax that is deducted is deposited by the employer to the Canadian Revenue Agency (CRA). To know if you are liable to pay nonresident tax, you will first have to determine your Canadian residency status with regard to taxation.

Ascertain Your Canadian Residency Status

There are a lot of factors that are considered while determining the residency status of an individual in Canada. The most important factor is said to be the residential ties that the non-resident has in Canada or is in the process of establishing. Some of the factors that are considered to be residential ties to Canada are

• Having a home in Canada

• Having personal property in Canada (car, furniture, etc.,)

• Have economic ties with Canada

• Have a spouse or dependents or common-law partner in Canada

• Having social ties in Canada

• Canadian driving license

• Canadian bank account or Canadian credit cards

• Health insurance with any of the Canadian territories or provinces

If you still are not able to identify your residency status then you can fill in the Form NR74 or NR73 and then send it to the International Tax Services Offices to seek clarity on your residential status.

Getting the Relevant Forms Needed for Tax Return Filing

If you have to file nonresident tax then you will require obtaining a few forms like the Canadian T4 form that is supposed to be given to you by the Canadian employer. The T4 form will have a summary of all your earnings and deductions that have been made by the employer and are usually mailed to the address that is given by the nonresident to the employer. These forms are important for international tax filing and therefore ensure that the correct address is given to the employer to receive them. Employers will issue the T4 form generally between January and March so that you can file the nonresident tax return by April 30th.

Completing and Filing the Tax Return

You will require the T1 Return form to file your nonresident tax and the tax package that is required will contain forms like 428 forms, Schedule 1 Federal Tax form, Schedule A form and the T4 form. If you are not comfortable filling in the form, then you can always avail the services of a tax accountant of taxi companies who will get your form filled for a small fee. Once all the forms are filled and checked properly you can mail the return forms along with the original T4 form that is received from your employer to the International Tax Services Office.