Discussion:C Corporation with 100% Foreign Owner
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Discussion Forum Index --> Tax Questions --> C Corporation with 100% Foreign Owner
| 11 November 2007 | |
| I have a new U.S. Corporation client that is owned by a individual in Liechtenstein. 2007 is the first year of U.S. business operations. We are working on setting up a strategy to get profits from the U.S. Corporation back to the individual owner in Liechtenstein or at least to another European country. Owner also has another European Company. (Germany). I have read several posts within Tax Almanac which has been helpful. We will need to file a Form 5472 and I am in the process of getting an ITIN for individual owner. Absent any treaty benefits (I don't see a U.S Liechtenstein tax treaty), I understand that a 30% withholding amount is required to get U.S. Source Income paid out.
Some options that I have thus far: 1. Management Fee paid from U.S. Corporation to German Co. Not sure if this is required to 30% withholding (I see the tax treaty does not address management fees). This might also trigger an 1120-F filing requirement for foreign co. Also transfer pricing issues... 2. Management Fee paid to individual with 30% withholding (since no tax treaty). This would also trigger Form 1040NR filing, I believe. I am sure I am simplifying things here, but this is a complicated area that I am embarking on and I appreciate any help in advance... Any ideas/strategies are much appreciated. | |
| 12 November 2007 | |
| What you are anticipating here is going to be at the very least related party transactions reportable in the US. Transfer pricing is important to research as are related party transactions on any transactions between the 2 companies. If the funds are going to the NR, then indeed he/she will file a 1040NR and as well will most likely file a 1040 NR on dividends paid by the US corporation on profits distributed to them. The 1120F is if the foreign company is actually doing business in the US via a branch or subsidiary but the income is determined to have been earned outside the US. Branch profits taxes are another area you may want to research. If there is no treaty with the foreign country, then it doesn't matter; still will be subject to 30% withholding.
You may not have an 1120F filing if the foreign business does not have nexus in the US. If the nexus has been determined by the US corporation, then the US corporation will pay taxes on it's earnings, the amount paid to the foreign related party will be reported and the individual who receives any compensation will file a 1040NR.... Hope this helps a bit :) How is New England right now btw? | |
| 12 November 2007 | |
| Thanks, Sandy. I had read through some of your international tax posts so I am glad to hear from you. Yes, I believe that the Transfer Pricing may become an issue if I we do the schematic with payments to the Foreign Co. I will be looking into this more early tomorrow morning and have a meeting mid-day tomorrow...I will probably post again at that point.
New England is getting very cold - I know you were in Maine way back last summer or something so I don't know if you've had the pleasure of being here for late fall/early winter! I am sure it is much, much warmer where you are :) | |
| 12 November 2007 | |
| Glad to help...
Yeah, was in Maine last year 2 times, summer and fall. Mt. Washington was very very very very cold!!! So yes, went to NH just to see the top of the mountain and froze my stinking ears off!!! hehe | |
Oldeastsidr (talk|edits) said: | 13 November 2007 |
| Food for thought..... Even though an 1120F may not be required, many companies still file a "bare bones" 1120F just to get the statute running. A foreign corporation can file a "protective" return in which it does not report any gross income, deductions, etc. It attaches a statement to the return indicating that the return is bein filed only to protect its right to claim deductions and credits in the future should it be determined that the corporation was in fact engaged in a US trade or business . Reg 1.882-4(a). This is because in some instances not filing a return would prevent use of some deductions or credits to which the foreign corporation would otherwise be entitled. | |
