In order to mitigate the costs that comes when taxpayers are taxed on non-US sourced income by both the IRS and a foreign government, taxpayers can typically choose between taking a foreign tax credit or receiving an itemized deduction for foreign taxes paid. As a general rule, it is more advantageous to take the credit for foreign taxes paid. Foreign taxes paid must be translated into US Dollars according to IRS guidelines and additional tax forms must be filed with the IRS in order to receive the full benefit of the deduction or credit taken.
Foreign taxpayers are often subject to more stringent withholding requirements on income earned in the US than US citizens. Nevertheless, tax treaties between the US and certain foreign governments lower, and sometimes even eliminate. the required holding amounts. Eligible taxpayers need to file special forms, such as form W8BEN, to take advantage of the tax treaty provisions. International taxation lends itself to additional tools such as transfer pricing which can significantly lower tax liability, making the use of professional assistance essential.
