If your business is expanding into the U.S. then you will need to determine exactly which forms to file and how much income to report on those forms, and as mentioned earlier, that’s what we’re here to explain. So, let’s start by explaining the two forms that tend to be the most confusing for expanding businesses: Form 5471 and Form 5472. Form 5471 is the “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” whereas Form 5472 is the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.”
You will be required to file a Form 5471 if you meet one of the following requirements:
- You are a U.S. Person who owns shares in a foreign corporation that is a controlled foreign corporation at any time during any tax year of the foreign corporation, and who owned that stock on the last day in that year on which it was a CFC;
- You are a U.S. Person who owns shares in any foreign corporation with respect to which one or more domestic corporations is also a U.S. shareholder;
- You are a U.S. Person who is an officer or director of a foreign corporation, in which a U.S. Person has acquired:
- Stock which meets the 10% stock ownership requirement with respect to the foreign corporation; or
- An additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation; or
- You are a U.S. Person who had control of a foreign corporation during the annual accounting period of the foreign corporation.
Alternatively, you will need to file a Form 5472 if you meet at least one the following criteria:
- You own, either individually or collectively with other foreigners, 25% of a U.S. corporation or disregarded entity; or
- You own a foreign a corporation that is engaged in a trade or business within the U.S.
To summarize, you will generally be required to file a Form 5471 if you are a U.S. citizen or resident and an officer, director, or shareholder in a controlled foreign corporation. Alternatively you will need to file a Form 5472 if you are a foreign person that has an ownership interest in an entity that has a total minimum amount of 25% U.S. ownership, or have an ownership interest in an entity that is engaged in a U.S. trade or business. When determining whether you need to file and which form you need to complete, you will need to look at what you “own” and what you “control.”
For assistance with filing these forms, or determining whether you have an obligation to file either one of these forms, please contact us at asenaadvisors.com.