Income Tax on Overseas Franchises

One of the most intimidating aspects of franchising is understanding the different taxes a franchisee must pay to stay in compliance with local laws. It is the job of an international franchise attorney to advise clients of the ins and outs of what taxes they will owe and how they are to be paid when doing business in a foreign country. A franchisee operating overseas will have to pay income taxes regularly to the United States Treasury if operating an American business in a foreign country, just as if you had set up shop within the United States. Not every franchisee realizes this and makes a critical, life-altering mistake that can cost them their business.

For example, recently a TGI Friday’s franchisee operating in Guam was arrested for underreporting hundreds of thousands of dollars in tips that his employees earned over a year’s period of time. According to the Pacific News Center (PCN), ““(the franchisee) willfully failed to collect, truthfully account for and pay over to the IRS employment taxes on the total amount of service charges and tips earned in that quarter that were due and owed to the United States and caused a total loss of at least approximately $225,000,”

Franchisees should be aware that Congress enacted a law back in 1950 stating the federal income tax laws that are in effect in the United States apply to the territory of Guam as well. There are no state or municipal taxes. Individual and business tax is required to be estimated and paid on a quarterly basis, and annual tax returns must be filed on April 15 just as if you were operating in the US. For more information on business income taxes please visit, https://www.guamtax.com/info/structure.html.

International franchise attorney Mario L. Herman works with clients and their accountants to put their minds at ease with income tax and all other international business and legal issues. Income and sales tax are the two most common taxes that franchisees face. Don’t be caught off guard of your responsibilities as a franchisor to pay income taxes no matter where you are.