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Are foreign earnings double taxed?

The great thing about small businesses in America is that they commonly don’t need a great deal of capital to start up, and they can react and adapt in much more of a nimble manner compared to large multinational companies. This is especially important when a small business attempts to expand into foreign markets.

However, with that expansion comes the potential for taxation not only in the United States, but also in the country where the business has a physical presence. This can be a huge complication; especially considering the potential for double taxation (i.e. paying a particular tax in a foreign country, then paying taxes on the same income in the United States). 

Indeed, this is a problem that has vexed large companies for decades. In recent years, this matter has led to a number of large U.S. companies pickup and basing their principal locations overseas, so that they can avoid the high corporate taxes in the U.S. And of course, a tax code overhaul is likely going to be a campaign topic next year; especially considering that some candidates (e.g. Chris Christie) believe that U.S. companies are being taxed twice on foreign revenues.

Christie’s tax concerns (with regard to how high U.S. corporate taxes are compared to the rest of the world) may be valid, but he may not be accurate when it comes to the taxation of foreign earnings. The U.S. Tax Code provides a tax credit for such earnings. So while it may be true that foreign earnings may be subject to tax twice, the credit acts as a savings that avoids and additional tax payment on the same income.

The preceding is not legal advice. 

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