U.S. Reporting Requirements for Foreign Owned Subsidiaries

If your company is a foreign-owned U.S. subsidiary, you will be subject to specific reporting requirements with the IRS. If you don’t meet the reporting requirements, you might be subject to penalties and not receive tax treaty benefits that you are eligible for. What are the reporting requirements that your foreign-owned subsidiary is subject to?

Form 5472

This reporting requirement has to be completed by all 25% foreign-owned U.S. corporations or foreign corporations engaged in trade or business with the U.S. If you fail to complete and file the form, you could be subject to a $25,000 penalty. The transactions reportable on these forms include sales of goods or services, loans, rent, royalties, commissions, interest or other amounts. We can help you to determine whether or not you must file this form.

Form W-8BEN and W-8BEN-E

Tax withholding is required on any fixed or determinable, annual or periodical (FDAP) payments. These payments could come in the form of interest, rent, royalties, dividends or other payments. The broader withholding requirement is 30% withholding, but the reporting requirements and withholding are different due to income tax treaties with specific countries. These forms help in determining your withholding requirement, and most companies should request a W-8 form from all foreign parties that they are working with.

Form 1042

Form 1042 is used to satisfy reporting requirements for payments of FDAP income to foreign entities or individuals. It’s important to note that you must file this form even if you are subject to a tax treaty and your withholding rate is 0%.

Form 1120-F

This form is used to report your gains, losses, deductions, income and credits as a foreign corporation. All of these will be weighed to determine the tax liability, and it can also be used to calculate and pay branch profits tax liability, claim any applicable tax refund and file a treaty-based position on Form 8833. Recent tax reform initiatives have changed the reporting requirements for foreign-owned subsidiaries, so be sure to work with your accountant to determine what adjustments to the corporate tax rate might apply to you and be utilized on this form.

Don’t Stress About Reporting Requirements for Foreign Owned Subsidiaries with Help from MKS&H

MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to explore the many tax benefits of investment properties and assess your real estate portfolio. Contact us today for a consultation.