There are very many benefits that are associated with outsourcing. However very few people know about the tax benefits of outsourcing. In this article we will tackle some of the tax benefits of outsourcing services to offshore outsourcing companies. The United States tax code is friendly to the companies that outsource their services to foreign companies. They allow the companies to deduct the amount of tax they have remitted to foreign nations. This amount is known as foreign tax credit. First of all they pay the taxes due to the governments of the overseas country where they earned the revenue and then report to the IRS where they are eligible for the foreign tax credit.
The United States has one of the highest tax rates in the world. In 2006 the tax rate stood at 39.3 percent. The only other country that has a higher tax rate than the United States is Japan. The lowest tax rate stands at 12.5 percent and it is in Ireland. It is for this reason that many American countries are outsourcing their services to offshore countries. After all they pay much less in terms of taxes as compared to what they would pay back home.
Another tax Benefits outsourcing brings about is payroll taxes. In most of the companies in the US the payroll expense represents half of the annual expenses. Most of the overseas companies do not have the employer contribution, unemployment taxes or the minimum wages. All these are present in the United States and they have contributed to the increases in the expenses of the company. Hence outsourcing these services to overseas companies saves the company a lot of tax money.
The US companies that make profits in overseas companies have the option of reinvesting that money in the same country. If that money is never transferred to their native country, then they will never pay taxes on those profits. Some may view this as opportunity while others view it as a loop hole.
Generally outsourcing services to an offshore company has many benefits. As you have seen the tax Benefits of outsourcing is also a major factor to consider when outsourcing services to an offshore company. If you want to lower your annual expenses, then offshore outsourcing is the way to go. It will also help your business to survive in the corporate jungle.
Daven Michaels Author of the book Outsource This!