Foreign company tax reporting for US expats: the 2026 complete guide

Owning a foreign company means two separate US obligations: information returns that report your ownership and transactions to the IRS, and income tax returns that report the earnings those entities generate.

Missing an information return can trigger a penalty even if you owe no US income tax, but the amount depends on the form. Form 5471, Form 8858, and Form 8865 generally start at $10,000; Form 5472 starts at $25,000; FBAR penalties are separate; and Forms 3520, 3520-A, and 926 have different penalty rules.

This guide covers both. It runs through every major form, who must file, when it is due, and what happens if you miss it. It also covers a separate but related scenario: when a foreign corporation itself operates in the US and owes US corporate tax directly.

Who this applies to:

• US citizens living abroad who own or co-own a foreign corporation, partnership, or disregarded entity
• Green card holders with ownership interests in foreign businesses
• US corporations with foreign subsidiaries
• Foreign persons who own a US LLC (a distinct scenario covered in its own section below)

Key takeaways

The five entries below give you a fast-reference summary of the main foreign corporate tax reporting obligations covered in this guide.

Penalties vary by form and continue to grow after IRS notice. Form 5471, Form 8858, and Form 8865 generally start at $10,000; Form 5472 starts at $25,000; and Forms 3520, 3520-A, and 926 follow different penalty formulas.

 

FBAR and Form 8938 are separate requirements filed with different agencies. FBAR covers foreign accounts over $10,000 in aggregate.

Form 8938 covers a broader range of foreign financial assets, with higher thresholds: $200,000 at year-end (or $300,000 at any point) for single filers abroad, and $400,000/$600,000 for married filing jointly abroad. Filing one does not satisfy the other.

Foreign company defined for US tax rules

Under IRC §7701, a domestic corporation is one created or organized in the United States or under US or state law. Every other corporation is foreign. That single distinction drives every filing obligation that follows.

The four main entity types below each carry a different set of US reporting requirements.

 

The tax code defines "US person" broadly. It includes citizens, residents, domestic corporations, domestic partnerships, and certain trusts and estates. A foreign company can be owned by a US person, and a US company can be foreign-owned. The reporting rules are not symmetric in those two directions.

Your business structure – and what you need to report

For Forms 5471, 8858, and 8865, late, incomplete, or incorrect filings generally start at $10,000. Other foreign reporting forms use different penalty rules: Form 5472 starts at $25,000; Forms 3520 and 3520-A use separate percentage-based formulas; Form 926 is generally 10% of the transferred property; and FBAR penalties follow separate inflation-adjusted rules.

 

Two separate issues come up whenever a foreign corporation is involved.

First, there is the information return obligation: US owners report their ownership, control changes, and related-party transactions to the IRS regardless of whether any income flows.

Second, if the foreign corporation itself earns income connected to the US, it may owe US corporate tax directly. These are covered in separate sections below.

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Foreign corporations

US owners of foreign corporations face the most complex reporting in this area. The form required, Form 5471, covers ownership stakes, control changes, related-party transactions, and CFC-level income items, all in one filing.

A foreign corporation becomes a controlled foreign corporation (CFC) when US shareholders who each own at least 10% collectively hold more than 50% of the vote or value. CFC status triggers additional income inclusions, covered in the income reporting section below.

Form 5471

Form 5471 applies under several separate filing categories. A 10% ownership stake is only one possible trigger; the category you fall into determines which schedules you file. It is an information return filed with your income tax return (Form 1040 or Form 1120), not a standalone submission.

Each category below carries different schedule requirements. The wrong category is treated the same as a missing filing.

 

TFX client scenario: A US software engineer owns 60% of a UK Ltd. US shareholders collectively own more than 50%, so the company is a CFC. The engineer is a Category 5 filer and must attach Form 5471 with the applicable GILTI/section 951A schedules for TY2025. Use NCTI wording only for tax years beginning after December 31, 2025.

Form 926

Form 926 is required when a US person transfers property or cash to a foreign corporation and either holds 10% or more of the stock immediately after, or you or a related person transfers more than $100,000 of cash during the 12 months ending on the transfer date. The filing obligation comes from IRC §6038B.

Cash and property transfers are treated differently. A cash transfer above the $100,000 threshold by you or a related person always requires Form 926 regardless of your post-transfer ownership percentage. A property transfer triggers the form as soon as you hold 10% or more after the transfer, even if the amount is below $100,000.

TFX client scenario: A US founder wires $150,000 in three installments over eight months to capitalize a German GmbH. After the final transfer, she holds 20% of the company. Form 926 must be filed with her income tax return for the year of the final transfer. The obligation arises from the aggregate cash threshold, not the ownership percentage alone.

Foreign partnerships

A foreign partnership is a separate entity category from a foreign corporation. The reporting form, thresholds, and income treatment all differ. A US person owning a stake in a foreign partnership reports on Form 8865, not Form 5471.

Form 8865

Form 8865 applies to US persons who meet any of the four filing categories below. Like Form 5471, it is filed with your income tax return, and continuation penalties apply after IRS notice.

The four categories below each have different schedule requirements. Filing under the wrong category triggers the same $10,000 penalty as not filing.

Schedule K-2 and K-3

Schedule K-2 reports partnership-level international items (foreign source income, taxes paid, effectively connected income, treaty disclosures). Schedule K-3 gives each partner their share of those items in a standardized format.

Filing exceptions apply in certain circumstances; refer to the current IRS instructions for Schedule K-2 and K-3 for the specific conditions under which K-2 and K-3 are required or may be omitted.

Foreign-owned US LLCs

This section covers a different scenario from the rest of the article. A foreign-owned US LLC is a US entity owned by a foreign person, not a US expat owning a company abroad. If you are a US person owning a foreign company, see the sections above.

A US single-member LLC owned entirely by a foreign person is disregarded for income tax purposes. That does not mean it has no reporting obligations.

Form 5472 and pro forma 1120

A foreign-owned US disregarded entity must file Form 5472 for every tax year in which it has reportable transactions with related parties. It attaches to a pro forma Form 1120 that contains only the LLC's name, address, and EIN.

Form 5472 is due with the related return, including extensions. For a foreign-owned US disregarded entity, it is attached to a pro forma Form 1120 and filed by that form's due date. Extensions are available using Form 7004 filed with the Form 1120 code.

The following five transaction types are the most commonly missed reportable transactions:

• Capital contributions from the foreign owner
• Payments for goods or services between the LLC and related parties
• Loans in either direction
• Reimbursements
• Use of property

The authority comes from IRC §§6038A and 6038C, extended to foreign-owned US SMLLCs since 2017. The IRS instructions for Form 5472 contain the complete definition of a reportable transaction and the full list of filing requirements.

Foreign disregarded entities

A foreign disregarded entity is not a taxable entity under US law. Its income flows directly to the US owner and is reported on the owner's return, typically on Form 1040 with Schedule C for business income, Schedule E for rental or pass-through income, or another applicable schedule depending on the activity.

The entity itself is not ignored for information reporting purposes. Form 8858 is due every year that ownership or branch activity exists.

Use the three questions below to determine whether a check-the-box election is needed before you start reporting:

• Single owner? A foreign single-member entity with limited liability is classified as a corporation by default under Treas. Reg. §301.7701-3. An election on Form 8832 is required to treat it as a disregarded entity.
• Single owner without limited liability? Classified as a disregarded entity by default. No election needed.
• Multiple owners? Classified as a partnership by default. An election is needed to treat it as a corporation.

The default classification depends on the number of members and whether they have limited liability, not on the label the entity uses in its home country.

Form 8832

Form 8832 sets the US tax classification of a foreign eligible entity. The election generally takes effect on the date specified on Form 8832.

The effective date generally cannot be more than 75 days before the filing date or more than 12 months after the filing date; if no date is specified, the election is effective on the filing date. Once made, the entity generally cannot change its classification for five years.

The table below shows how foreign eligible entities are classified before any election is made.

 

The Littriello v. United States decision affirmed Treasury's authority to issue these check-the-box regulations, and courts have consistently upheld the regime. Use the election to align the entity's US classification with your treaty access, GILTI/NCTI exposure, and PFIC considerations before income begins.

Form 8858

Form 8858 is required each year a US person directly, indirectly, or constructively owns a foreign disregarded entity or operates a foreign branch. Schedule M covers related-party transactions between the entity and its US owner.

The three main foreign entity reporting forms each target a different structure:

• Form 8858 covers foreign disregarded entities and foreign branches.
• Form 5471 covers foreign corporations where a US person meets one of the five filing categories.
• Form 8865 covers foreign partnerships where a US person meets one of the four category triggers.

The TFX guide to foreign disregarded entities and Form 8858 covers the complete ownership attribution rules.

Foreign trusts

Foreign trust reporting has its own separate deadline calendar and its own penalty structure. It does not follow the same rules as the entity forms above.

Form 3520 and Form 3520-A

Form 3520 is filed by the US person; Form 3520-A is filed by the trust itself. Missing either form triggers separate penalties.

 

One important distinction on extensions: extending your income tax return does not extend Form 3520-A. The trust must file its own Form 7004 using the trust's EIN to get an extension. If the trust fails to file, the US owner must attach a substitute Form 3520-A to their own Form 3520 by the Form 3520 due date.

For guidance on abatement options, see TFX's Form 3520 late filing penalty resources.

FBAR

FBAR (FinCEN Form 114) is due April 15 after the calendar year ends, with an automatic extension to October 15. It is filed electronically through FinCEN's BSA E-Filing System, not with your income tax return.

No separate form is required to get the extension. Filing is required when the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year, not just at year-end.

Business accounts count. If you have signature authority over a company operating account, a business PayPal or Wise account, or a local payroll account held at a foreign bank, those accounts must be included in your aggregate calculation.

For penalties assessed on or after January 17, 2025, the amounts are:

• Non-willful violations: up to $16,536 per annual report
• Willful violations: the greater of $165,353 or 50% of the account balance at the time of the violation

In Bittner v. United States (2023), the Supreme Court held that non-willful penalties apply per annual FBAR report, not per account. That ruling significantly limits non-willful exposure for taxpayers with multiple accounts.

See TFX's guide to FBAR penalties for abatement options.

Foreign corporation tax in the US: When does the company itself owe US tax?

A foreign corporation's tax in the US depends on whether it has income connected to US business activity. Most of this guide covers US owners reporting foreign company interests.

This section covers the reverse: a foreign corporation that earns US income and owes tax on foreign companies directly to the IRS.

Two income categories determine the analysis.

• Effectively connected income (ECI) arises when a foreign corporation conducts a trade or business in the US. ECI is taxed at the standard 21% corporate rate after deductions, reported on Form 1120-F. A corporation that fails to file Form 1120-F loses the right to claim deductions against its ECI, which means it gets taxed on gross income instead.
• FDAP income (fixed, determinable, annual, or periodical income such as dividends, interest, rents, and royalties from US sources) is generally subject to 30% withholding at source. No deductions are allowed against FDAP income. A tax treaty may reduce the rate or eliminate it, but the foreign corporation must file Form 1120-F to claim a refund if too much was withheld.

Two additional considerations apply when a foreign corporation operates in the US:

• Permanent establishment: If a treaty applies, business profits are generally taxed only to the extent attributable to a US permanent establishment. Treaty positions may need to be disclosed on Form 1120-F and Form 8833.
• Branch profits tax: A 30% tax (or lower treaty rate) applies to after-tax ECI that is deemed repatriated to the foreign parent. It functions similarly to a dividend withholding tax and is reported in Section III of Form 1120-F.

The foreign company tax rate in the USA is therefore not a single number. ECI is taxed at 21%. FDAP income is withheld at 30% unless a treaty applies. Branch profits tax adds another 30% layer on repatriated earnings.

Noncompliance penalties, costs & fines

The penalties below are the IRS's primary enforcement tool for foreign corporate tax reporting failures. They apply per entity, per year, and continue to grow after IRS notice.

An incomplete filing carries the same starting penalty as no filing at all.

Big fines for foreign entity missteps (5471, 5472, 8865, 8858)

Forms 5471, 8858, and 8865 each start at $10,000 per entity per year when late or incomplete. After the IRS mails a notice, an additional $10,000 applies for each 30-day period of continued failure, up to a maximum of $50,000 in continuation penalties per entity.

On top of that, late or incomplete Form 5471 filings can reduce foreign tax credits by 10%, with an additional 5% reduction for each 3-month period after IRS notice, subject to the statutory limits under IRC §6038(c).

Form 5472 starts higher. The base penalty is $25,000 per reporting corporation per year, and the continuation amount is also $25,000 per 30 days after 90 days of non-compliance following IRS notice.

An incomplete filing is not treated more favorably than no filing. Submitting a Form 5471 without the required schedules, or a Form 5472 that omits reportable transactions, triggers the same starting penalty.

See the TFX guide to Form 5471 penalties and Form 5472 penalties for abatement options.

Transferring assets abroad? Here are the Form 926 penalties

Failing to report a transfer to a foreign corporation on Form 926 triggers a penalty equal to 10% of the fair market value of the property transferred at the time of the transfer. The penalty is capped at $100,000 unless the failure was due to intentional disregard, in which case the cap does not apply. The authority is IRC §6038B.

Example: a US person transfers real estate worth $300,000 to a foreign corporation and fails to file Form 926. The penalty is $30,000 (10% of $300,000), capped at $100,000. If the IRS determines the failure was intentional, there is no cap, and the penalty remains at $30,000 – but the statute of limitations stays open until the required information is filed.

Reasonable cause can abate the penalty in either case. See the TFX Form 926 guide for the full penalty and filing rules.

Foreign trusts and gifts: Form 3520's harsh penalties

Failing to report a foreign trust transaction on Form 3520 can cost the greater of $10,000 or 35% of the gross value of any transfer to or distribution from the trust. For unreported ownership, the penalty is the greater of $10,000 or 5% of trust assets.

For large foreign gifts or bequests over $100,000 from nonresident alien individuals or foreign estates that go unreported – or gifts from foreign corporations or partnerships over the TY2025 section 6039F threshold of $20,116 – the penalty is 5% per month up to 25% of the gift's value.

Reasonable cause relief may be available, but the penalty rules are fact-specific. Refer to the current IRS Form 3520 instructions for the full penalty provisions.

The TFX late filing penalty abatement guide walks through the available relief options.

Trust ownership slip-ups? Form 3520-A penalties bite hard

The penalty for a late, incomplete, or incorrect Form 3520-A is the greater of $10,000 or 5% of the gross value of the US-owned portion of the trust's assets. After 90 days of continued non-compliance following IRS notice, an additional $10,000 applies for each 30-day period. That continuation amount is capped at the gross reportable amount for the year.

Hidden foreign accounts? FBAR penalties stack fast

For penalties assessed on or after January 17, 2025, non-willful FBAR violations carry a maximum civil penalty of $16,536 per annual report. Willful violations can reach the greater of $165,353 or 50% of the account balance at the time of the violation. Criminal penalties also exist for the most serious cases.

In Bittner v. United States (2023), the Supreme Court confirmed that non-willful penalties apply per annual FBAR report, not per account. A taxpayer with five unreported accounts who files one late FBAR faces one non-willful penalty, not five.

Willful violations are assessed per account, per year – meaning multiple accounts and multiple unfiled years multiply rapidly.

See the TFX FBAR penalties guide for a full breakdown of relief options, including delinquent FBAR submission procedures and streamlined filing.

Report foreign business income correctly

The income tax form you file depends on your entity structure. US corporate tax on foreign income flows through several different returns depending on whether you operate as an individual, through a corporation, or via a CFC. Information returns and income returns are separate obligations; this section covers the income side.

• Sole proprietors and single-owner disregarded entities report business income on Form 1040 with Schedule C. If the foreign disregarded entity has rental activity, Schedule E applies. The entity's income is taxed at the individual's rate, not a corporate rate, because the entity is ignored for US income tax purposes.
• US corporations with foreign subsidiaries file Form 1120 for their US corporate income and attach Form 5471 for the foreign subsidiary's information return. If the subsidiary is a CFC, current-year income inclusions may apply under the GILTI (renamed NCTI for tax years beginning after December 31, 2025) and Subpart F rules covered below.
• CFC shareholders who own 10% or more of a CFC may have to include CFC income in their US return even without receiving a distribution. For TY2025, this falls under the GILTI regime under §951A. For tax years beginning after December 31, 2025, GILTI is renamed NCTI (Net CFC Tested Income) under OBBBA. Subpart F income under §§951–952 also applies regardless of distributions. Both are reported via Form 8992 and the applicable Form 5471 schedules.
• Foreign corporations with US-source income file Form 1120-F to report ECI and claim deductions, or to recover over-withheld FDAP tax. See the inbound section above for the full breakdown.
• A note on foreign-owned US disregarded entities: the owner – not the LLC – reports the income. If the owner is a foreign person or corporation, they file Form 1040-NR or Form 1120-F, not Form 1040. The LLC itself files Form 5472 and a pro forma Form 1120 for transaction reporting, which is separate from the owner's income tax return.

The Foreign Tax Credit is often the most effective tool for reducing US corporate tax on foreign income when the same income is taxed abroad. The next section covers how the credit works for both individuals and corporations.

Foreign tax credits and deductions for corporate owners

Foreign tax credits and deductions are the primary tools for eliminating double taxation when a US-owned foreign company pays taxes to a foreign government. How each tool works – and which one to use – depends on the owner's entity type and the income category involved.

• Foreign tax credits for corporations allow US owners of foreign companies to offset US tax with taxes already paid to a foreign government, reducing or eliminating double taxation on the same income. The mechanics differ depending on whether the owner is an individual or a corporation.
• Individual owners claim the foreign tax credit on Form 1116. The credit is limited to the proportion of US tax attributable to foreign-source income. Unused credits can carry back one year and carry forward 10 years.
• Corporate owners claim the credit on Form 1118. Corporations must apply the credit within separate foreign tax credit baskets (passive, general, section 951A/GILTI for TY2025, and others), which limits the ability to cross-apply credits across different income types. For tax years beginning after December 31, 2025, the section 951A/GILTI basket is replaced by the NCTI basket.
• The deduction vs. credit election matters in certain situations. Under IRC §164, a corporation can deduct foreign taxes instead of claiming a credit under IRC §901. The credit is almost always more valuable because it reduces tax dollar-for-dollar rather than reducing taxable income. The exception arises when the foreign tax credit limitation would otherwise make the credit worthless in a given year.
• Foreign tax credit carryover for corporations works as follows: unused credits carry back one year and carry forward 10 years within the same basket. One important limit under the current GILTI rules (and the renamed NCTI rules for tax years beginning after December 31, 2025): foreign taxes deemed paid with respect to GILTI/NCTI inclusions cannot be carried back or forward.
• The foreign tax deduction for corporations is generally the fallback when the credit is not available or produces no benefit. It is simpler to calculate but less powerful.

OBBBA 2025 – impact on expat foreign company reporting

The One Big Beautiful Bill Act, signed July 4, 2025, made the most significant changes to US international tax rules since the Tax Cuts and Jobs Act of 2017. The changes are effective for tax years beginning after December 31, 2025 – meaning TY2026, not TY2025. If you are filing a 2025 return in 2026, the existing GILTI rules still apply.

The core information-return framework is unchanged. Forms 5471, 8858, 8865, 5472, Form 8938, and FBAR remain required exactly as before. OBBBA did not modify those obligations.

The key distinction: 2025 filing vs. 2026 planning.

 

The rename from GILTI to Net CFC Tested Income (NCTI) is not cosmetic. The computation changes as well: the 10% qualified business asset investment (QBAI) return is eliminated, which means capital-intensive CFCs that previously generated little GILTI exposure may now generate significant NCTI. Review your structure before your first TY2026 return is due.

For the full analysis of NCTI planning implications, see the TFX GILTI/NCTI guide.

Foreign company tax reporting checklist for 2026

Use the table below as a starting point to identify which forms may apply to your situation for TY2025. The checklist is not exhaustive; the right answer for any specific structure depends on the full ownership and transaction facts.

Identify your situation first, then verify the form and deadline before filing.

 

For foreign corporation tax returns and the full schedule requirements by filer category, see the TFX guide to all common expat IRS forms. Current-year form versions and instructions are available in the IRS forms and instructions library.

Why partner with Taxes for Expats

Reporting foreign company income means three big responsibilities – timely filing, choosing the right IRS form, and staying alert to anti-deferral rules like GILTI or Subpart F. Miss any one of these, and penalties or double taxation can follow quickly.

This is where Taxes for Expats comes in – we handle the heavy lifting so you can focus on running your business abroad. From mapping your structure to the right forms to reviewing thresholds and elections, we ensure every detail is documented correctly.

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