Form 5471 and its implications

If you are a citizen or resident of the United States and own a business abroad, you are probably required to file Form 5471 with the IRS.

But what is this statement about? As a way of discouraging Americans and residents from investing their funds abroad rather than here at home, the government requires those who own companies outside the United States with an equity interest of 10% or more to file financial information on their foreign company.

For those who have interests between 10% and 50% the requirement is only declaratory, and no tax is payable if the US partner has not received any profit distribution. However, if the interest is higher than 50%, besides being declaratory, there will be a tax to be paid here in the United States on the profit the company had abroad, called GILTI - Global intangible low-taxed income.

The GILTI on foreign company profits has forced US citizens and residents to reduce their holdings in foreign companies to the 50% limit and no higher, in order to avoid paying tax twice, in the home country and in the US.

If you want to learn more about Form 5471 obligations and the penalties imposed by the IRS for failure to file this obligation, contact us today and schedule a tax consultation with one of our experts.

Source: Tax Cuts and Jobs Act (TCJA) Section 951A

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