International Tax

Our team is highly experienced in U.S. federal income tax matters concerning both domestic taxpayers engaged in foreign activities and foreign entities operating within the United States. With a client base spanning the globe, our firm serves individuals and corporations with unparalleled proficiency in international tax matters.

We advise on optimizing tax benefits for our clients, leveraging our deep understanding of U.S. and foreign tax regulations, FATCA compliance and reporting rules, and tax treaties to provide tailored solutions that mitigate tax liabilities globally.

In addition to tax optimization, Basswood offers strategic counsel on a wide range of multinational transactions, including mergers and acquisitions, joint ventures, and restructurings. Drawing on our global perspective and extensive experience, we assist clients in navigating the intricacies of cross-border business dealings, including FATCA and other U.S. withholding and reporting regimes, while minimizing tax exposure. We develop legal structures that effectively reduce tax burdens, whether through the use of intermediate holding companies, tax-haven jurisdictions, or other strategic arrangements tailored to each client’s unique needs and objectives.

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FATCA Model 2 Reporting

The U.S. Foreign Account Tax Compliance Act (FATCA) requires Foreign Financial Institutions (FFIs) to identify and report information regarding U.S. account holders to the Internal Revenue Service. For institutions operating under Model 2 Intergovernmental Agreements, this reporting occurs directly to the IRS, alongside strict registration, due-diligence, and annual certification obligations.

Basswood Counsel assists investment entities operating under Model 2 IGAs in meeting these requirements with precision and efficiency. We manage the full FATCA lifecycle—from initial registration and GIIN maintenance to annual reporting and procedural reviews—ensuring our clients satisfy their obligations with clarity and confidence.

Our approach streamlines Model 2 FATCA compliance for investment funds and related structures, reducing administrative burdens, minimizing errors, and facilitating coordinated reporting across jurisdictions. With a disciplined workflow and direct engagement with the IRS FATCA systems, we enable fund managers and administrators to maintain focus on their core responsibilities while preserving full compliance.

FATCA Model 2 Reporting

Frequently Asked Questions

Do I need to report and pay US tax on my foreign accounts, investments, or business interests if I live in the US?

Yes. U.S. citizens and U.S. tax residents (green‑card holders and individuals who meet the substantial presence test) must report worldwide income, regardless of where they live or where the assets are located.

You may also have additional foreign reporting requirements, such as the following:

FBAR (FinCEN 114) – if the total value of your combined foreign accounts exceeds $10,000 at any point in time of the reporting year
FATCA Form 8938 – if the total value of your foreign assets exceeds certain thresholds
Forms 5471, 8865, 8858 – for ownership in foreign companies (corporations, partnerships, disregarded entities)
Form 3520/3520‑A – for certain foreign trusts or gifts
Failure to file these forms can result in significant penalties, even if no tax is due.

What are my U.S. reporting obligations for foreign bank accounts, pensions, and companies—and what if I’ve never filed FBAR/FATCA forms?

Owning or having an interest in foreign assets often comes with additional U.S. reporting requirements. Common filings include:

FBAR for foreign financial accounts
FATCA Form 8938 for specified foreign assets
Form 3520/3520‑A for foreign pensions and trusts
Forms 5471, 8865, 8858, 8621 for foreign companies and funds

If you have not filed in prior years, there are established pathways to come back into compliance. The IRS Streamlined Procedures may allow you to correct the last 3–6 years of filings with reduced or no penalties, provided the noncompliance was non-willful.

We work with clients to assess their exposure, navigate available programs, and bring their filings into alignment with U.S. requirements.

I live abroad and pay tax locally—do I still have to file US tax returns and report my worldwide income every year?

Yes. Even when living overseas, U.S. citizens and U.S. permanent residents must file:

An annual U.S. tax return (Form 1040)
Foreign reporting forms such as FBAR and FATCA

Exemptions like Foreign Earned Income Exclusion (FEIE) or credits may offset liability, but filing remains mandatory to avoid penalties.

How do I avoid double taxation between the U.S. and my country of residence (FEIE, foreign tax credits, treaty relief)?

Avoiding double taxation involves coordinating U.S. and local tax rules so the same income is not taxed twice. Common tools include:

Foreign Earned Income Exclusion (FEIE) to exclude earned income
Foreign Tax Credit (FTC) to offset U.S. tax with foreign taxes paid
Tax treaties that offer relief for pensions, dividends, Social Security, and residency tie‑breaking rules
Totalization agreements to prevent double Social Security taxation

The right approach depends on your income profile, country of residence, and long-term plans. Thoughtful planning helps ensure these tools work together effectively.

How are my non‑US assets (foreign companies, trusts, real estate, funds) taxed by the U.S. now and in the future?

The U.S. generally taxes worldwide income, which means income from non-U.S. assets may still be subject to U.S. tax. This can include:

Employer’s contributions to your foreign retirement accounts and health insurance, unless an applicable income tax treaty provides otherwise
Rental income from foreign real estate
Dividends from foreign companies
Capital gains from the sale of foreign assets

Income from certain foreign funds, including those that may be treated as Passive Foreign Investment Companies (PFICs)

It is also important to plan for future events involving those assets. A gift, inheritance, or future sale may trigger additional U.S. tax consequences, including:

U.S. income tax
Estate tax
Gift tax

Understanding how these rules apply now and over time helps you make informed decisions and avoid unexpected exposure.

If I’m considering moving, inheriting assets abroad, or even renouncing my citizenship, what are the US tax implications (including exit tax)?

These decisions can have significant and lasting U.S. tax consequences. Key considerations include:

U.S. residency tests and how moving abroad may impact your tax obligations
U.S. taxation of foreign inheritances, trusts, and business interests
Exit tax under Section 877A for individuals who renounce citizenship or relinquish green cards
Potential gain recognition on worldwide assets at the time of expatriation
Ongoing filing and reporting obligations for certain covered expatriates and U.S.-source income

Advance planning helps you navigate these transitions with clarity, reduce unexpected tax exposure, and align your decisions with your long-term goals.

How can we avoid or minimize double taxation between the US and foreign countries (treaties, foreign tax credits, local incentives)?

Managing cross-border tax exposure requires aligning U.S. and local rules so income is not taxed twice. Common approaches include:

Utilizing bilateral tax treaties to allocate taxing rights between jurisdictions
Claiming foreign tax credits for income taxes paid abroad
Carefully reviewing deductions such as FDII and 962 election
Structuring operations to reduce withholding taxes and indirect taxes
Leveraging local tax incentives, holidays, or government grants

Aligning your global entity structure to minimize overlapping tax regimes A coordinated U.S. and international strategy help reduce tax leakage and preserve value across jurisdictions.

How should we structure our foreign operations to manage global tax (branch vs. subsidiary vs. holding company)?

Your global structure shapes how your business is taxed, how risk is managed, and how efficiently you can grow across jurisdictions. Key considerations include:

U.S. tax treatment, including exposure to Global Intangible Low-Taxed Income (GILTI)/ Net CFC Tested Income (NCTI), Subpart F, and Foreign-Derived Intangible Income (FDII)
State and local tax obligations in each operating jurisdiction
Liability protection across entities
Administrative complexity and ongoing compliance requirements

Common structures include:

Foreign branch – simpler to set up, but may result in immediate U.S. taxation
Foreign subsidiary (CFC) – often more tax-efficient with thoughtful planning
Regional holding company – useful for coordinating multi-country operations and investment flows

We model scenarios to help you choose a structure that supports growth while managing tax and complexity.

Do I need to form a separate U.S. legal entity (subsidiary), or can I operate as a foreign corporation/branch—and what drives that decision?

Key drivers are your planned footprint in the U.S. (scale, type of activity, physical presence), the long‑term vision (testing the market vs. building a permanent platform), and home‑country tax consequences (21% tax in the U.S. vs. higher tax rate in home country). Operating without a U.S. entity may work if you only sell into the U.S. through independent brokers and your business activities in the U.S. do not amount to having nexus in the U.S., which may avoid having an income effectively connected with a U.S. trade or business. Once you expect meaningful, ongoing U.S. operations, a U.S. subsidiary often provides cleaner income allocation, better limitation of U.S. taxable nexus, and clearer payroll and employment tax separation.

What level of activity in the U.S. creates “effectively connected income” (ECI) and triggers U.S. income tax for a foreign company?

Effectively Connected Income (ECI) generally arises when you are engaged in a regular, continuous U.S. trade or business, and income is connected to those activities. Typical indicators include having employees or agents with authority to conclude contracts in the U.S., operating a store, warehouse, or service office, or providing services physically in the U.S. Once you have ECI, the foreign corporation is taxed on net income (revenues minus related expenses) at corporate rates, plus potential additional taxes such as the branch profits tax.

If we’re only selling goods into the U.S. using a broker or independent agent, can we avoid ECI—and what would cause us to “trip” into ECI anyway?

Using an independent broker/agent that acts for many principals and only facilitates sales often does not, by itself, create ECI for the foreign seller. ECI risk increases if you:

Maintain a fixed place of business in the U.S. (office, warehouse with active functions).
Use dependent agents who work primarily for you and can bind you contractually.
Start performing value‑creating activities in the U.S. (manufacturing, repair, on‑site services).

At that point, it is usually advisable to re‑evaluate structure, often by interposing a U.S. subsidiary.

It is also imperative to review an applicable income tax treaty to determine your U.S. tax implications

If we provide services remotely (online/phone) from outside the U.S., does that create “effectively connected income” (ECI)—and how do dependent agents or contract authority change the outcome?

Services performed entirely outside the U.S. (for example, remote IT support from abroad) are generally sourced to, and taxed in, the country where the services are performed, and do not by themselves create ECI. The risk changes if you have dependent agents in the U.S.—individuals who mostly work for you and can negotiate or conclude contracts or perform core service functions on your behalf; they are often treated similarly to employees and can create a U.S. trade or business. Independent agents serving many clients usually do not create ECI.

Need guidance on a cross-border tax matter?

Whether you are expanding internationally, investing in the United States, managing FATCA obligations, or structuring a multinational transaction, Basswood Counsel can help you navigate the tax implications with clarity and confidence.