Welcome to the site. I'm PDtax, and will be helping you today. I'm a CPA with outbound international tax experience.
I just checked, and there is not a current US tax treaty with Mauritius.
http://www.mra.mu/index.php/taxation/double-taxation-agreements is a list of Mauritius double tax treaties. Neither the US nor Canada is listed.
There are other ways to structure some international tax saving without a treaty.
I see. Ok so what % of tax are we looking at if we do business and remit operating expenses to Mauritius?
Let's assume you will be repatriating the earnings back to your US partners as current earnings. If you are banking in the US, and only paying expenses out, you will be paying all US Federal and state taxes. It is as if you are operating a call center anywhere in the US.
Some enterprises treat the foreign entity as a profit center, and pay more than the cost of expenses. Current deduction in US, profits in foreign sub.
But this is the other way around...were in the US and well be sending funds (operating expenses) to Mauritius
We are aware of all applicable taxes in VA (State Taxes) but i am not aware of what witholding tax we'd have to deduct before sending operating expenses to Mauritius
I understood. The deduction you get is paying the low operating costs of the call center. since you will be paying just the expenses, the income remains and is taxed at US rates. Some businesses make the foreign sub a profit center, and pay more than the cost of service, to get the tax deduction, and accumulate dollars in the foreign sub.
Ok so will we be taxed at 30% then, is that what well need to with hold before sending operating expenses to Mauritius?
No. withholding is for items like portfolio income; interest, dividends and the like. You are doing business, and as such no withholding will be required.
Ok so what is the % applicable, i need to basically provide some nos to gauge viability of this venture, i need to know what % of tax will be applicable to the amount i owe to the Mauritius company for rendering their services. Could you help me with that?
If you are contracting with a Mauritius resident call center operation, the tax due is their responsibility, not yours. If you own the operation, issues like shifting some profits there are worth discussing.
Let's say it costs you $40,000 per month for service, and the resident operation can provide the service for $22,000. The difference is their profit, their tax burden.
Oh i see, so you are sure there is no tax or overhead applicable that i need to deduct from what i owe them?
If you don't own the operation, and are just contracting for a service, I do not believe you have a US tax to withhold.
Oh great..so basically if owe them $22K for the service, i can send them the entire $22K and they are only taxed in mauritius (Their burden) not in the US?
Yes they are just an individual service company i dont own the operation in any way
Now before i start this i need to be certain..what would you suggest i do to be absolutely certain. Perhaps you can help me with some document or such that confirms this?
Only reason im worried is a CPA friend of mine said because the US has no treaty with them..withholding tax is applicable at 30%
This is why i need to be certain
My suggestion is to confirm this tax treatment with your US tax advisor. Your CPA friend advised you without research, and you contacted this website for not much cost, but the real person to consult is your US tax advisor.
They will be aware of facts and factors that may sway the issue. Additionally, the guidance they provide will be specific to your situation, which is more than I can do without ever speaking to you or reviewing your business structure or dealings.
Would it be easier to ask the IRS directly?
Any time someone tells me they have consulted multiple professionals, I advise them to go to one professional you pay for their advise.
I do not ask the IRS for tax planning advice. They are tax collectors.
Only problem is i dont have a US TAX advisor that has expertise in this segment
Is there someone you can suggest?
I suggest engaging an international tax advisor. The US largest CPA firms offer this expertise. We can't recommend a particular firm, but what large city is your US operation in or near?
I would start by asking the largest CPA firms in your area if they can handle the international treaty and expatriate pricing and withholding questions you raise, and see if they can confirm what I told you.
VA..so Richmond i believe
Ok will do..but are you fairly certain about this -
I know it well. Used to go to Pierce's Pitt and the Smokey Pig in Ashland.
All of the Big four are represented in the area, as well as a host of large regional firms. A few phone calls will lead you in the right direction.
Thanks for asking at Just Answer, and good luck with your call center. Positive feedback closes out your question. I'm PDtax.
Sounds good...thanks for your help..ill get on it then.