Does Your Indian Startup Trigger U.S. Reporting? Form 5471 & GILTI Rules for U.S. Shareholders

Form 5471 & GILTI Rules for U.S. Shareholders

If you’re a U.S. person (citizen or green card holder) holding shares in an Indian private limited company (Pvt Ltd), you may have serious IRS filing requirements—even if that company never earned U.S. income.

Form 5471 and GILTI reporting are two of the most overlooked traps for Indian entrepreneurs and startup investors living in the U.S. At Kewal Krishan & Co, we help founders avoid IRS penalties and navigate these complex international disclosures.

Why Form 5471 Is a Big Deal for Indian Founders

Per IRC §6038 and §6046, any U.S. person who owns or acquires 10% or more of a foreign corporation (including Indian Pvt Ltds) may be required to file Form 5471 with their Form 1040 or 1120.

Triggers for Form 5471 include:

• Acquiring 10% or more of voting power or value
• Owning 50%+ of an Indian corporation (Control Test)
• Being an officer/director when a U.S. person acquires shares
• Being a U.S. shareholder in a Controlled Foreign Corporation (CFC)

Form 5471 includes income statements, balance sheets, shareholding details, E&P, subpart F income, and GILTI inclusions.

Penalty for late/missed Form 5471? $10,000 per form, per year.

GILTI Tax Applies Even If Indian Profits Stay in India

Global Intangible Low-Taxed Income (GILTI) under IRC §951A is one of the harshest rules on U.S. shareholders of CFCs. Even if your Indian startup earns profits in INR and reinvests everything, the IRS wants you to pay tax as if the income was distributed.

GILTI Applies If:

• You are a U.S. person
• You own 10%+ of an Indian Pvt Ltd
• That company is a Controlled Foreign Corporation (CFC) (50%+ U.S. ownership)

GILTI income gets reported on Form 8992 and included on your Form 1040 or 1120, taxed at ordinary tax rates, unless you make special elections.

Example: Indian Founder with U.S. Green Card

• Owns 60% of an Indian startup (Pvt Ltd)
• Indian company earns ₹50,00,000 profit in 2024 (~$60,000)
• Profit is not distributed—kept in India

U.S. Reporting Requirements:

• File Form 5471 Category 4 & 5
• Report foreign balance sheet, P&L in USD
• Calculate and include GILTI on Form 8992
• File Form 1116 to claim FTC if Indian tax was paid
• Failure to file → $10,000+ penalties and audit risk

Step-by-Step IRS Compliance for Indian Startup Shareholders

1. Determine Ownership %
   • Use voting power or value
   • Check if total U.S. ownership in company exceeds 50% → CFC
2. Identify Required Forms
   • Form 5471 (Category 2/3/4/5)
   • Form 8992 (GILTI), Form 1118 or 1116 (FTC), Form 8938
3. Convert INR to USD
   • Use IRS yearly exchange rates
   • Report in U.S. GAAP or local standards with reconciliation
4. Prepare Full Indian Financials
   • Balance Sheet, P&L, Capital account, Share register
5. Attach to U.S. Tax Return
   • E-file with Form 1040 or 1120
   • Use correct category based on ownership and role
6. Plan Ahead for Tax Mitigation
   • Consider Section 962 Election to treat GILTI as corporate income
   • Use Foreign Tax Credit (Form 1116)

U.S.-India Treaty Does NOT Eliminate Reporting

Even though the U.S.-India tax treaty helps eliminate double taxation, it does not excuse Form 5471 or GILTI filings. Reporting is still required for U.S. shareholders.

Treaty relief may reduce tax, but not paperwork.

Conclusion

Owning an Indian startup is exciting—but for U.S. tax purposes, it’s a regulatory landmine. Between Form 5471 and GILTI, founders can face tens of thousands in penalties or IRS audits if they ignore their filing duties. Don’t wait until tax season to scramble—plan ahead and comply properly.

Call to Action

Anshul Goyal, CPA EA FCA, is a licensed U.S. tax advisor, authorized to represent clients before the IRS. If you own or plan to invest in an Indian Pvt Ltd while living in the U.S., consult with him to ensure you’re compliant, protected, and not overpaying in taxes.

About Our CPA

Anshul Goyal is a U.S.-licensed CPA, EA, and FCA who specializes in international tax compliance for Indian entrepreneurs, H-1B holders, green card holders, and expats with foreign corporations. He helps clients file Forms 5471, 8992, 1116, and strategize around GILTI, Subpart F, and tax treaties.

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.

Top 5 FAQs on U.S. Tax & Indian Startups

1. Do I need to file Form 5471 if I just own 10% of my Indian startup?
Yes, 10% ownership is one of the thresholds for mandatory reporting.

2. What’s the penalty for skipping Form 5471?
$10,000 per form, per year—can be increased with continued noncompliance.

3. What is GILTI and why does it matter?
GILTI is a U.S. tax on your share of foreign profits—even if not distributed. It applies if your Indian company is a CFC.

4.  Can I avoid GILTI if I make a Section 962 election?
Yes, this election may allow you to pay tax at the corporate rate and claim foreign tax credits.

5. Does the U.S.-India tax treaty eliminate the Form 5471 filing?
No. Treaties reduce tax, but the IRS still requires the form to be filed.