There has been a lot of talk, both good and bad, about outsourcing. Many people view outsourcing, especially to foreign countries, as unpatriotic and providing jobs that could be given to Americans to residents of another country. With that being said, there are a huge number of financial benefits to outsourcing I.T. and India has long proven to be one of the best places to outsource to. Admittedly, there have been many jokes about outsourced companies over the years, but the tax implications could soon have you laughing all the way to the bank.

Tax Paid to another Country

An American company has the ability to deduct any tax paid to a foreign country via a Foreign Tax Credit. This can actually work out very well for an American company which is perhaps struggling to pay the costs of employment in their own country. Basically, this will involve paying tax solely on the profits that have been earned in the foreign country, this must then be reported to the IRS, and a credit will be received from them for the taxes paid.

America Has One of the Highest Tax Rates

America currently has the second highest corporate tax rate in the world, with only Japan having a higher rate. To give you an idea of how high corporate tax rates are in comparison to the rest of the world, America currently pays 39.3%, whereas this figure is only 12.5% in Ireland. Outsourcing I.T. to a foreign country is therefore a great way to save money. American companies have the ability to deduct the taxes paid for the foreign outsourced company from their own tax return, thus meaning they are basically paying the lower tax rate of the foreign country.

Reinvestment

An American company has the ability to reinvest any profits made by the foreign outsourced company back into that company. This means the profits will never be brought into the United States and therefore there is no liability to pay tax on these profits. These types of overseas profits have been named “Unrepatriated Earnings” by the IRS, and it is estimated that the total of these “earnings” is well in excess of $500 billion.

Payroll Tax

It is estimated that many U.S. companies can attribute approximately 50% of their annual expenses to payroll. However, outsourcing to a foreign country means that the U.S. based company will not have to worry about minimum wage, employer contributions, unemployment taxes, etc. You should also look at the fact that an extremely basic (almost insulting) salary in the U.S. would be considered a fantastic wage in some overseas countries. There are huge tax benefits to outsourcing abroad and most companies believe that this far outweighs any negative press they may receive for doing this.

I.T. Itself

The very nature of I.T. support makes it far easier to outsource than practically any other type of industry. We are all aware of remote access and this is used on a daily basis, which means that any I.T. issues, diagnosis of problems, and even the repair can be dealt with by anyone, irrespective of where they are in the world. So, as you can see there are various financial advantages to outsourcing your I.T. operations to a foreign country.

This post has been authored by John Cooper, a software professional working for USWired, a company providing a range of IT support services. He is a tech savvy person and he enjoys reading on the latest gadgets and appliances during his free time