Living abroad as a US expat is the adventure of a lifetime, especially when you’re able to live out your professional dreams of becoming an entrepreneur as well (Considering a move abroad? Read this article first.) While this lifestyle typically affords you the flexibility you desire, it does bring with it certain expat tax requirements that you should be aware of. This article will highlight the top questions expats have about a common form for expat business owners, Form 5471, that must be filed along with your expat taxes.
What is Form 5471?
Officially known as Form 5471, Information Return of US Persons with Respect to Certain Foreign Corporations, this form is required along with your expat taxes for US citizens and resident aliens who are considered to be officers, directors or shareholders in certain foreign corporations.
Why Do I Need to File Form 5471?
You may be wondering why you’d need to file this form if you run a business abroad. Well, despite the fact you run your business overseas, you would still need to file a US Tax Return if you own at least 10% of a foreign corporation. There are actually four specific categories of persons who must file this form. They are as follows:
- US persons who are officers or directors of a foreign corporation in which any US person owns or acquires 10% or more of the foreign corporation’s stock
- Persons who become US persons while owning 10% or more of the foreign corporation’s stock
- US persons who had control of a foreign corporation for 30 days or more
- US shareholders who own stock in a foreign corporation that is a controlled foreign corporation (CFC) for an uninterrupted amount of time totaling 30 days or more, and who owned that stock on the last day of the year
It’s important to understand which, if any, of the categories you fall into, so you’ll understand the reporting requirements applicable to your situation.
How Do I Determine My Company Structure?
It may seem simple when it comes to determining your company structure, but not so fast! Just because your resident country doesn’t label your business as a corporation, doesn’t mean it won’t be for US purposes. For the purpose of Form 5471, the IRS classifies international business companies and foreign limited liability companies (LLCs) as corporations.
Also, if the structure is set up so the owners have limited or no liability, the IRS will likely consider it to be a corporation. Though, certain foreign companies have the ability to elect “disregarded identity” status by filing Form 8832 within 75 days of the company’s creation in order to avoid the Form 5471 filing requirement. Click here to learn more about reporting requirements for different company structures.
What Is My Tax Liability?
When it comes to understanding tax liability when filing Form 5471, many owners of foreign corporations will be taxed on dividends in the year of receipt and will defer unpaid earnings and profits until they are distributed or the company is liquidated.
Depending on the type and source of foreign income your business receives, you may have other requirements. Some types of income are labeled as “Subpart F,” which likely means it will be taxable to the US owner (even if its not distributed as dividends).
Also, foreign corporations with US-sourced income are subject to US taxes, not unlike a US domestic company.
What is the Deadline?
If you meet the requirements above, you’ll need to file Form 5471 with your expat taxes. The US expatriate tax deadline is June 15th, as the IRS grants a two-month extension for those living abroad on Tax Day (April 18th). You may also request an additional extension until October 16th. You can find details about all the deadlines right here. Keeping track of the deadlines and filing on time are so important in order to avoid penalties and interest, as you can receive a $10,000 fine for failing to file Form 5471!
The expat tax filing requirements for expat business owners can be quite tricky, so consulting with an expat tax professional is always a recommended step. For more helpful expat tax information, be sure to download a US expat tax guide!
Need Help Filing Expat Taxes for Your Foreign Business?
Our team of expert accountants has particular expertise in helping Americans abroad file their expat taxes with a hassle-free experience. Get started on your expat taxes with us today, so you can get back to what you do best – enjoying your adventure abroad.