Here's an interesting strategy to delay taxes and build an export business at the same time . . .
2009-11-11 [Source: Pudaily]
Reedy International, in Keyport, N.J., sells chemical additives that plastics makers use to cut costs and operate in an environmentally friendly way, said AimeMarie Reedy, who founded the company with her husband 20 years ago. The company makes all its products in the U.S., and about 15 years ago began exporting overseas.
"Exporting helps us to be more resilient," Reedy said. "When the economy is slow here, it may be OK someplace else. It gives you a balance: Everything is not always good or bad everywhere in the world at the same time."
As companies in New Jersey and across the country struggle with the recession, some have begun looking at exporting to make up for the revenue declines they've suffered in the U.S.
And for companies considering exporting, the federal government provides tax incentives designed to help domestic firms compete in the world market said Tfcnothy A. Burley, a partner with the accounting firm Weiser LLP, in Edison.
The simplest incentive is the DISC, or domestic international sales corporation, designation, Burley said.
"If you want to export or provide services overseas, the DISC allows you to defer U.S. income taxes" on the profits of those foreign sales, Burley said. "The profits on the DISC'S sales are not taxed until the DISC distributes those profits back to the U.S. parent company. As long as the profits are kept invested in developing the export business, they are not taxed in the U.S., though you will pay interest on the tax deferred."
Burley said the foreign country where the export sales occur often won't tax the DISC profits, either. So, instead of paying U.S. corporate taxes that might be as high as 40 percent on your export profits, "you can use those profits to invest and grow your export business," Burley said. And since all DISCs are domestic U.S. corporations, "you don't have to incorporate in, orsetupabusinessin, aforeign country" to enjoy the tax advantages.
If your international sales take off, the next step to consider is setting up a foreign subsidiary, Burley said. If you're exporting to a country with a lower corporate tax rate than in the United States, you can form a foreign company that pays taxes to the foreign country, instead of paying current U.S. corporate taxes, Burley said.
He said the Internal Revenue Service has rules designed to prevent American companies from using a low-tax foreign subsidiary as a tax haven: in general, you can only avoid U.S. taxes on the profits on sales made to customers within the country where your foreign subsidiary is located. And, ultimately, this is only a deferral of US. taxes until the earnings of the foreign subsidiary are distributed to the parent company.
Companies seeking business overseas should take advantage of the tax breaks Congress has created, Burley said: "These are provisions in the tax code that are provided as an incentive or as tax policy to make sure that U.S. companies can compete" in international trade.
Exports from the US. are down, but were growing at a steady clip prior to the downturn, said Michael Manning director of the U.S. Commerce Department's Export Assistance Center. Last year, New Jersey exports were about $36 billion, which he said translates into "some pretty hefty job numbers." Even with the downturn, Manning said New Jersey's exports are supporting more of the state'sjobs today than in 2005.
Trade missions organized by Manning's office took companies from New Jersey and other states to Turkey in 2008 and Poland this past April; the next trade mission in April, to Brazil, will focus on trade with the Americas. "We're very selective; we only take companies who would be successful," Manning said.
Reedy went on both the Turkey and Poland trade missions. "We found it to be fantastic for us," she said. "It's really scary for a small U.S. company to find a distributor overseas - they really have given us a protective net to go overseas without fear."
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