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Tax Guide
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Small business owners

Small business owners

Running your own business has multiple advantages - who doesn’t want to be their own boss? But it can obviously confer a number of challenges, especially if you are living abroad. We can handle your US tax issues stemming from running a foreign business.

For American expat entrepreneurs, there are tax implications of every decision -- from how you structure your business to how you pay yourself and your employees. Where your company is located, whether there is a Tax Treaty and/or Social Security Agreement between your host country and the USA, and where your employees are based will all have an impact on your business taxes. In addition to federal tax filing requirements, you must also consider the possibility of paying US payroll taxes and Social Security. Even if your business operates 100% outside the USA, you may still need to file informational reports to the IRS such as Form 5471, which is required for anyone who owns 10% or more of a foreign corporation.

Many of our clients have foreign corporations - and we intimately know the issues with owning one and how to handle them from a US tax perspective.

Frequently asked questions

1. I am up to date with my tax returns, but I did not complete form 5471 for my foreign corporation, what do I do?
  • There is a special program for this - the Delinquent Informational Return Program. Examples of informational returns are 5471 (foreign corporation), 3520-A (foreign trust)
  • Participating in this program would entail 3 amended returns for each of the past 3 years (assuming you have not filed the informational return for all three years), and forms 5471 (assuming that is the missing form) for each year.  Finally, a reasonable cause statement must be attached.
  • Potential for filing FATCA (form 8938) if the balance on the company accounts (previously unreported) puts the taxpayer over the threshold
2. I have own my own French company (SARL). Do I need to file form 5471?

Yes, SARL is considered a foreign corporation and requires filing of Form 5471.

As opposed to SARL or EURL, EI (Entreprise Individuel)  is not a corporation and can be reported via Schedule C.

3. I own a foreign corporation with my 4 siblings- all US citizens - do we need separate forms 5471?

No - we can definitely file one form 5471 that will report all U.S. shareholders.

When U.S. shareholders are not related it may be not safe because you never know if other shareholder who was supposed to file included your information or not.

Since you are all family members you will each have a copy of that form. It is important that everybody is served by the same CPA to facilitate information sharing.

4. What information do I have to provide so that you can prepare Form 5471 for me?

TQ you will have to answer question 4.12 "Do you own 10% or more of a foreign corporation?" with a YES.

Then you will be asked to complete a specific Questionnaire for Form 5471 and upload documents related to the company ownership

5. I have earnings from a business that I am an owner but not directly involved in the day to day business - does this need to be reported?

If the business is incorporated - we will determine your earnings based on the corporate return.

Other Income ->

4.8 Do you own at least 10% of a foreign corporation (ie are you a part or whole owner of a private non-US company)?

If sole proprietorship - Earned Income -> Self Employment

6. I own more than 50% of the shares of a foreign company. That company in turn owns less than 50% of a second foreign company. I have signature on the bank account of this second company. Do I have to report the second company account on FBAR?

Bank account for the first company is reported as your personal account because you have control ownership over 50%.

Bank account for the second company is reported separately as account for which you have signatory authority but no control.

Further reading