ECOVIS Elkadeem & Co.

GILTI High Tax Election in the United States

Net income earned by a Controlled Foreign Corporation (“CFC”) may be subject to immediate US taxation to US shareholders, whether or not distributed. This results from the Global International Low Tax Income (GILTI) provisions of the US Tax Cuts & Jobs Act of 2017.

The effective tax rate on this income, governed by GILTI, is 10.5% for C corporations and as high as 37% for individuals. After 2025, the rate for C corporations increases to 13.125%. There are two significant factors in determining whether US shareholders will be subject to tax on a CFC’s net income, explain the experts from Marcum LLP*. These factors are:

• The level of asset investment by the CFC in its own country. The GILTI provisions will tax, each year, the excess return of a CFC above 10% of foreign depreciable assets, known as the Qualified Business Asset Investment (QBAI).
• The effective foreign income tax rate on the CFC’s earnings.

When to Include GILTI Income in US Income

Once the GILTI amount is determined, the US shareholder will be required to include the allocable share of this amount in US taxable income. There is an exclusion available equal to 50% of the GILTI amount, and the other 50% is taxed to the US shareholder in accordance with applicable federal income tax rates. For a corporate shareholder, the GILTI income is taxed at 21%, after taking into consideration the exclusion, for an effective tax rate of 10.5%.

Foreign income taxes paid by the CFC can be taken as a tax credit against US tax on GILTI income, subject to an 80% reduction. As such, if the CFC’s effective foreign income tax rate (determined under US tax principles) is at least 13.125%, generally there should be no net US income tax due on a corporate US shareholder’s GILTI income, after application of exclusions and foreign tax credits. US individual shareholders with GILTI income can, by election, be entitled to the same exclusions and credits as a corporation.

Make Use of the Tax Election Annually

US tax regulations finalised in July 2020 provide for a GILTI High Tax Election. Under this election, a US shareholder of a CFC will not be required to include GILTI income on his/her/its US income tax return if the CFC’s effective tax rate, as determined under US income tax principles, exceeds 18.9%. Once this threshold is met, a US shareholder can elect to exclude a tested unit’s (defined below) income entirely in determining the GILTI amount.

The election may be made on an annual basis and applies, consistently, to all CFCs owned by the same domestic controlling US shareholder and to all of a CFC’s US shareholders. A controlling US shareholder will provide notification to non-controlling US shareholders if the election is made.

We can help navigate the GILTI rules for US shareholders of foreign entities.

Mark Chaves, CPA, Co-Leader International Tax Services Practice, Marcum LLP*, Miami, Florida, USA

It is important to note that the GILTI High Tax Election is made on a tested unit basis, say the Marcum LLP advisers. A single CFC may be comprised of numerous tested units, or may itself constitute a tested unit. A tested unit may be a CFC, a branch of a CFC in certain cases, or certain entities in which a CFC has an interest. Tested units that are resident in the same country are combined.

The GILTI High Tax Election may not be beneficial in all cases. Clients should be careful to properly analyse the pros and cons before making the election on their US income tax returns.

For further information please contact:

Mark Chaves, CPA, Co-Leader International Tax Services Practice, Marcum LLP*, Miami, Florida, USA
Email: mark.chaves@marcumllp.com

*Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.

Taxes in Finland: New Tax Benefits for Foreign Companies

Foreign companies can now take advantage of new tax incentives in Finland. The tax breaks can reduce the cost of joint research and development projects by 150%. In addition, tax-free shares will encourage employee commitment and new e-identification and e-authorisations are being introduced.

The new tax incentives are for all companies operating in Finland, both domestic and international and do not constitute state aid under the EU’s definition, explain the Ecovis experts in Finland.

One of the new tax incentives encourages the share-based commitment of employees. It is not limited to start-ups, but applies to all non-listed companies. When non-listed limited liability companies issue shares to employees in Finland, the subscription price may be lower than the market value of the shares. If the subscription price is the share’s mathematical value, an individual employee who buys such shares will not be treated as having received a taxable benefit.

Would you like to take advantage of the tax conditions in Finland for your company? We will help you with settlement.

Jaana Palomäki, Managing Partner, ECOVIS SGO Finland Ltd, Helsinki, Finland

150% Tax Deduction for Joint R&D Projects

Companies conducting R&D activity with a genuine research organisation meet the criteria for a tax deduction in Finland. The new tax law came into effect in January 2021 and gives companies a 150% tax deduction for joint R&D projects from 2021-2025.

If the actual R&D work is performed by a sub-contracted party (university/research institute etc.), the deduction is 50% on top of the existing deduction, which is 100%. The minimum threshold for tax deduction of costs is EUR 10,000/fiscal year, with a maximum of EUR 1,000,000. This means that the actual deduction is between EUR 5,000 – 500,000 per fiscal year.

Suomi.fi e-Authorisations

The Finnish authorities are modernising their electronic systems. The “KATSO” service will be replaced by Suomi.fi e-identification and e-authorisations. The authorities in Finland use “KATSO” as an identification and authorisation service for companies. The “KATSO” services will cease to operate on 30 April 2021. E-authorisation is an even more secure solution that can not only be used by government services, but also by the private sector. With Suomi.fi e-authorisations, private persons, companies, and organisations can authorise someone else to act on their behalf. A mandate is an electronic power of attorney, the details of which are entered in the authorisation register.

For further information please contact:

Jaana Palomäki, Managing Partner, ECOVIS SGO Finland Ltd, Helsinki, Finland
Email: jaana.palomaki@ecovis.fi
Pertti Kivinen, Senior Partner, ECOVIS SGO Finland Ltd, Helsinki, Finland
Email: pertti.kivinen@ecovis.fi

Ecovis is now represented in Bangladesh

We are glad to welcome our new partners from ECOVIS A. Qasem & Co. (ECOVIS Bangladesh) headquartered in Dhaka.

ECOVIS A.Qasem & Co. (ECOVIS Bangladesh) is one of the oldest professional accounting firms in the country, founded in 1953 by Late Mr. Abul Qasem, FCA, who was also the first President of the Institute of Chartered Accountants in Bangladesh. ECOVIS A. Qasem & Co. (ECOVIS Bangladesh) serves their esteemed clients with 8 partners and over 300 professional staff across 3 offices in 2 major cities of Bangladesh, Dhaka and Chittagong. ECOVIS A. Qasem & Co. (ECOVIS Bangladesh) has been associated with various reputed international networks of professional firms since 1978, namely Coopers & Lybrand (C&L), PricewaterhouseCoopers (PwC), and Ernst Young (EY). Their most recent association was with EY as a Member Firm from January, 2015 until February, 2021. This long history of foreign affiliations provided them the unique opportunity to work with hundreds of clients across the globe, understand diverse requirements, gain expert knowledge on global accounting and auditing standards, and afford international exposure to their valuable workforce.

ECOVIS A. Qasem & Co. (ECOVIS Bangladesh) offers their clients and stakeholders an unmatched service experience in Assurance, Advisory and Tax. The Firm has an outstanding team of professionals, with in-depth knowledge of IFRS, specialised sector experience, and exposure of working with companies across the globe.

We warmly welcome our new colleagues from Bangladesh to the Ecovis family!