Global Business Compliance: Do You Own a Foreign Entity?
For the global entrepreneur, a business in India, the UK, or Singapore is often the cornerstone of their wealth. However, the IRS treats foreign entities with extreme scrutiny. If you are a U.S. person with a 10% or greater interest in a foreign company, the reporting is no longer optional—it is critical.
In 2025, the IRS increased its focus on Category 1 and 5 filers, specifically looking for “GILTI” (Global Intangible Low-Taxed Income) that hasn’t been properly reported.
1. Foreign Corporations (Form 5471)
If you own shares in a foreign corporation (like a Private Limited company in India), you likely need to file Form 5471.
- The Threshold: Generally, reporting is triggered if you own 10% or more of the total value or voting power.
- The “Attribution” Trap: Even if you personally own 0%, but your spouse or parents own 100%, the IRS may “attribute” that ownership to you, triggering a filing requirement.
- The Penalty: $10,000 per year, per entity. If the IRS requests the form and you don’t provide it within 90 days, the penalty can climb to $60,000.
2. Foreign Partnerships (Form 8865)
For those involved in foreign partnerships or multi-member LLCs outside the U.S., Form 8865 is the equivalent of the domestic Form 1065.
- Who Files: U.S. persons who “control” a foreign partnership (more than 50% interest) or contribute substantial property to one.
- Schedule K-2 & K-3: Since 2021, these complex schedules are required to report relevant international tax items. Missing these can lead to additional penalties.
3. Foreign Trusts (Form 3520-A)
If you are the “grantor” or owner of a foreign trust, you have a unique deadline that comes earlier than your personal taxes.
- The Deadline: March 16, 2026 (for calendar-year trusts).
- The Responsibility: While the trustee usually files this, if they fail to do so, the U.S. owner must file a “Substitute Form 3520-A” to avoid a $10,000 penalty.
4. Why “Dormant” Entities Still Matter
A common mistake we saw in 2025 was clients ignoring “dormant” companies that had no revenue. The IRS does not care if the business made money. The requirement is based on ownership, not profit. While dormant companies may qualify for simplified reporting, the form itself is still mandatory.
The KKCA Compliance Advantage
Filing these forms requires a deep understanding of U.S. GAAP vs. Foreign Accounting Standards. At KKCA, we don’t just translate currencies; we translate financial statements into IRS-ready disclosures.
Our 2025 Corporate Review Includes:
- GILTI & Subpart F Analysis: Ensuring you don’t pay more tax than necessary on your foreign earnings.
- Entity Classification Elections: Helping you “check the box” to treat a foreign corporation as a partnership for better tax flow-through.
- Penalty Abatement: If you missed these forms in the past, we use the Delinquent International Information Return Submission Procedures to get you current.
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.