Running businesses on both sides of the globe is exhilarating-but your next mistake could cost you tens of thousands in taxes, audits, or double taxation. Many CPAs treat U.S. and India as separate silos-but your reality is cross-border. If your tax strategy isn’t cross-border too, you’re leaving money on the table.
At Kewal Krishan & Co, we’ve guided Indian-American entrepreneurs to structure their cross-border businesses tax-efficiently, avoid traps like PFIC, transfer pricing, double taxation, and treaty missteps. The insights below are current as of 2025 IRS/Indian rules.
What’s Different When You Operate in Two Countries?
- You must navigate U.S. corporate / flow-through tax rules and Indian company / partnership tax rules
- Transfer pricing, repatriation, withholding taxes, and double tax credits all bite
- Mistakes can trigger IRS audits or Indian tax authority scrutiny
Key Tax Laws & Forms to Know (2025)
| Country | Key Laws / Codes | Key Forms & Regs |
|---|---|---|
| U.S. | IRC § 861-§ 865 (source rules), § 482 (transfer pricing), § 951 (CFC), § 1291 (PFIC) | Form 5471, Form 8833, Form 1120, 1065, 1040 with Schedule C, Form 1116 |
| India | Income Tax Act Sections on business profit, DTAA (Double Tax Avoidance) | Form 3CD (audit), Transfer Pricing documentation, TDS returns, Indian company / LLP returns |
Four Smart Moves for Dual-Country Business Owners
- Choose the Right Entity in Each Country
- In the U.S., an LLC taxed as an S-Corp or C-Corp may make sense.
- In India, choosing LLP vs Pvt Ltd has big implications on distributions, dividend tax, and repatriation.
- Use India-U.S. DTAA (especially its Articles on business profits, dividends, royalties) to lower withholding and avoid double tax.
- Transfer Pricing & Intercompany Charges
If your U.S. business charges your Indian company (or vice versa) for services, management fees, or IP licensing:
- Use arm’s-length pricing and document rigorously
- India mandates transfer pricing documentation for cross-border dealings
- U.S. IRS can reallocate profits under IRC § 482 if pricing is not defensible
- Understand Withholding & Repatriation Taxes
- India imposes TDS (20-30%) on dividends, fees, royalties paid out of India
- In the U.S., incoming payments from India may attract withholding under U.S. tax treaties
- Use Form 1116 (Foreign Tax Credit) to offset Indian tax paid against U.S. liabilities
- Watch Out for PFIC & Passive Investments Overhang
If your Indian business holds mutual funds or passive portfolios:
- U.S. treats them as PFICs, triggering Form 8621, excess distribution regime, or MTM rules. (IRS)
- Stay clear of having your business act as a PFIC conduit
Example: Startup Founder with U.S. LLC & India Ops
Ravi owns a U.S. LLC that builds SaaS and licenses software to his Indian subsidiary which resells locally.
- U.S. LLC reports license revenue via Form 1120 or passes through if S-Corp/LLC
- Indian side pays royalty with TDS at reduced rate under DTAA (e.g., 10%)
- U.S. credit for Indian TDS via Form 1116
- Intercompany management fee charged by U.S. must be arm’s-length, with documentation
- If any residual profits are reinvested in Indian mutual funds, watch PFIC traps
Step-by-Step Cross-Border Compliance Checklist (2025)
- Map all cross-border flows: payments, royalties, services, capital
- Select and register U.S./India entities optimally
- Set intercompany pricing rules and document annually
- Withhold properly in India and file TDS returns
- Claim U.S. credit via Form 1116 for Indian taxes
- File U.S. international forms like:
- Form 5471 (if Indian company is controlled)
- Form 8833 (if treaty-based positions)
- Schedule “Other Income / Royalties / Dividends”
- Avoid PFIC-like passive investments inside business structure
- Maintain global books, exchange rates, audit trail
- Review annually as U.S. and India tax laws evolve
Conclusion
Running businesses across the U.S. and India is a powerful opportunity-but also full of tax traps if you’re not equipped. The bulk of your “savings” come from designing the flow correctly, managing transfer pricing, leveraging treaty credits, and avoiding PFICs.
If your CPA is unfamiliar with cross-border tax, you’re exposing yourself unnecessarily.
Call to Action
Anshul Goyal, CPA EA FCA is a U.S.-licensed CPA and Enrolled Agent who specializes in cross-border business taxation. He helps Indian-American entrepreneurs structure U.S.-India operations efficiently, manage intercompany pricing, handle PFIC risk, and stay fully compliant with IRS and Indian tax authorities.
About Our CPA
Anshul Goyal advises founders and business owners on dual-country tax strategy, entity structuring, treaty positions, PFIC avoidance, and cross-border audits. His team ensures your business operations stay tax-efficient and compliant year after year.
Disclaimer
This blog is for informational purposes only and does not constitute professional tax or legal advice. Cross-border business taxation is complex and depends on your unique structure. Always consult a licensed cross-border tax specialist before implementing.
Top 5 FAQs
1. Do I need to file Form 5471 if I own more than 10% of the Indian company?
Yes. Form 5471 is required when a U.S. person holds control (10% or more) in a foreign corporation.
2. Can Indian TDS fully offset U.S. tax?
Partially. U.S. credits are subject to foreign tax credit limitations and treaty rules.
3. What happens if I don’t document transfer pricing?
IRS (U.S.) and tax authorities in India can reallocate profits or penalize up to 30%+.
4. Are Indian mutual funds inside my business automatically PFICs?
Yes, most foreign mutual funds are PFICs under U.S. law, requiring Form 8621 filings. (IRS)
5. Can I repatriate profits tax-free from India to U.S.?
Not entirely. Dividends or repatriations may be subject to Indian withholding and U.S. taxation, mitigated only via DTAA.