Now the burning question on the minds of multi-national taxpayers everywhere is: “What do I need to know about deemed repatriation, and how do I prepare for this event?”
For the last taxable year beginning before January 1, 2018, a U.S. shareholder that owns 10% or more of a foreign corporation must include in income its pro rata share of accumulated earnings of the foreign corporation. The income inclusion allocated to the U.S. shareholder will be reduced by the U.S. shareholder’s aggregate pro rata share of accumulated losses allocable to the U.S. shareholder from foreign corporations owned 10% or more.
To the extent, the accumulated earnings of the foreign corporation are held in cash or other liquid assets this income will be taxed at an effective rate of 15.5%. Earnings not held in liquid assets will be taxed at an effective rate of 8%. The determination of how much income is taxed as held in liquid assets will be done based on the average of liquid assets held on November 2, 2017, and the last day of the two tax years ending before November 2, 2017.
A significantly reduced foreign tax credit will be allowed to offset the income included under this provision. And tax due as a result of this inclusion may be paid in installments over eight years.