As US tax season approaches, many foreign owners of US companies are asking about their tax responsibilities and required filings.

While the US tax system differs from Europe’s, it becomes straightforward once you understand the types of business entities and the tax code structure.

As you may already know (link to an article about the difference between LLC and Inc.), there are two main types of business entities:

• Limited Liability Company (LLC): An LLC can be owned by a single individual, multiple individuals, or even other entities.

• C-Corporation (Inc., Corp., Ltd., etc.): A C-Corporation can issue stock and be owned by individuals or organizations.

Most companies are required to file a tax return, regardless of whether they had income in the previous year. The only exception is an LLC taxed as a partnership (having more than one owner) that does not have a US bank account or has not transferred funds between the entity and its owners in the previous tax year.

For tax purposes, US entities and foreign-owned businesses in the US must comply with the following requirements:

• Corporations (C-Corps): Must file Form 1120 (US Corporation Income Tax Return).

• Multi-Member LLCs (taxed as partnerships): Must file Form 1065 (US Return of Partnership Income).

• Foreign-Owned Entities: Must file Form 5472, which discloses financial transactions between the US company and its foreign owners or affiliated entities.

Form 5472 was introduced in 2017 to enhance transparency regarding foreign ownership and prevent money laundering activities. Any US business that is at least 25% foreign-owned is typically required to file this form along with its tax return.

Penalties for Non-Compliance

Failure to comply with these tax filing requirements can result in severe penalties. The standard penalty for failing to file Form 5472 is $25,000 per every 90 days of non-compliance.

To avoid unnecessary penalties, it’s always best to consult a tax professional regarding your filing obligations. If you’re unsure whether your company needs to file a tax return, feel free to contact us—we’ll be happy to assist you.