Qualified Dividends from Foreign Corporations
What You Need to Know
- Section 1(h)(11)(C) of the U.S. tax code allows dividends from certain “qualified foreign corporations” to be taxed at the lower long-term capital gains rate, rather than as ordinary income. Therefore, understanding the eligibility requirements for a foreign corporation to be a “qualified foreign corporation” can be important in understanding the tax ramifications for U.S. individuals, S Corps, and partnerships earning income through a foreign corporation.
- Proper tax planning under Section 1(h)(11)(C) can significantly reduce the overall tax burden for U.S. shareholders, but it must be managed in conjunction with complex anti-deferral rules like Subpart F and Passive Foreign Investment Company (PFIC) regulations.
- This article provides a comprehensive discussion of the requirements to be a qualified foreign corporation, as well as the interactions of the qualified foreign corporation rules with Section 962 elections.
Read the full article here. Originally published in Thomson Reuters' Journal of Taxation.