Just like US Citizens and Green Card holders, US businesses must report and pay tax on their worldwide income. The individual filing requirements of each entity can be dependent on a number of factors. This article aims to break down the basics of the filing requirements for common types of foreign entities.
The more common types of foreign entities:
· Limited liability
When trying to identify your businesses income tax reporting requirements it is important to evaluate the structure and characteristics of the entity and classify it according to IRS Code.
For a proper classification of your foreign entity, you may be advised to contact a tax professional.
As the owner of foreign corporations, you may be required to file a Form 5471 annually with your individual tax return. You should complete a Form 5471 if you:
· Own 10% or more of a foreign corporation
· Are an officer or director of a foreign corporation and acquired stock in the company during the year, or
· Have any amount of ownership in a controlled foreign corporation- generally, this is a foreign corporation that is 50% or more owned by US persons.
Please note: If you have transferred income to a foreign corporation during the year you may be required to complete and attach a Form 926 to your annual return. This form is required for US citizens who own more than 10% of the foreign corporation’s stock at the end of the year, or for those who have transferred more than $100,000 USD to a foreign company during the year.
If you are a US taxpayer who holds a controlling interest (over 50%) in a foreign partnership, you must include a Form 8865 with your annual individual tax return. This form is quested for those who acquire, changes or disposes of their interest in a foreign partnership, then any US person owning more than 10% of the company’s stock should attach a completed Form 8865 to their US tax returns. A form 8865 generally requires the same information as would be reported on a domestic partnership US income tax return (a Form 1065); this includes a profit and loss statement, a balance sheet, and a schedule of owners, among other things.
Foreign limited liability companies
A Foreign Limited Liability company is possibly one of the most common types of entity. If you own a Foreign Limited Liability company you will be required to file additional tax forms. A domestic LLC can be considered ‘disregarded’ for tax purposes,. This means that there is no separate filing required and all profits can be put in your individual US tax return.