American LLCs must report their foreign owners and transactions to the IRS.

Form submission 5472

In order to avoid erosion of the tax base and withholding taxes on certain payments, made by United States Limited Liability Companies (LLCs), those LLCs, whose owners are foreign natural or legal persons with a participation of at least 25%, and that, during the year, they have incurred in any reportable operation with their shareholder or foreign Companies that do business in the United States, will be required to submit form 5472 to the United States Internal Revenue Services (IRS ).

We clarify that the so-called Disregarded Entities that are not taxed in the United States are included, for which, it will also be necessary to complete form 1120.

Said form must be submitted annually, three and a half months after the end of the fiscal year (04/15 for those companies whose exercise ends on 12/31).

As main reportable operations we find the payments or collections of:

  • Income
  • commissions
  • Royalties
  • Technical services
  • Interests
  • Dividend or earnings distributions to LLC partners

These reportable operations will be detailed on the form, along with the identity of the foreign partner.

Although the standard was approved on December 22, 2017, it has undergone some changes from the aforementioned date to the present, its latest version being December 2018. The biggest change from the latest version is that it includes as reportable operations the dividend or profit distributions to LLC partners.

Failure to submit such a form if applicable carries severe fines ranging from $ 10,000 to $ 25,000.

INSIGHT can help them complete the form according to the requirements established in it, and also has legal and accounting advice in the United States for final preparation and filing with the IRS.                                                                                                                           
In order to meet the deadline for submitting the Form, we must receive the complete accounting information in our office, about the foreign person or company that must report, 10 business days before the expiration date. In the event that the information is not received in a timely manner, Insight will not be responsible for possible fines incurred for late filing, but yes, an extension of time may be requested, pending acceptance by the IRS and thus avoid fines.

Companies that must report

The Standard establishes that they will report:

  • Those American LLCs whose owner is at least 25% foreign (natural or legal person);
  • Those foreign companies that do business in the United States.

Regarding the first point, the Standard mentions that an American LLC is considered to be foreign-owned if at least one shareholder owns 25% directly or indirectly.

Reportable Operations

  • Any of the operations listed in section IV of form 5472 will be considered reportable, if the consideration was the only one paid or received during the company’s reportable fiscal year. These include loans, payment or receipt of interest, royalties, sale of products or services, and other payments. The new inclusion of “other payments” includes contributions and the distribution of dividends or earnings to partners.
  • Any transaction or group of transactions listed in section IV of form 5472, i.e. non-monetary transactions, such as a transfer of rights without price if:
    • Some part of the consideration paid or received was not monetary;
    • Less than full was paid or received.
    • Operations with an American related party are not required to be identified.

Who are considered foreigners?

  • Any individual who is not an American citizen or resident;
  • Any individual who is a citizen or resident of a territory not incorporated into the United States as long as they are not an American citizen or resident;
  • Any company, partnership or corporation that was not created or that is not regulated by the United States;
  • Any foreign state or trust;
  • Any foreign government.

However, the term “foreign person” does not include any foreign person who agrees to file a tax return.

Exceptions that should not complete the form

A reportable company should not complete form 5472 as long as any of the following occurs:

  1. It has no reportable operations of the types listed in section IV and VI of form 5472;
  2. An American person who exercises control of the foreign company must complete form 5471 instead;
  3. The related company qualifies as a foreign sales corporation for the fiscal year and completes form 1120-FSC. This exception does not apply to EDs whose owners are foreigners;
  4. A foreign company that does not have a permanent establishment in the United States and applies an income treaty;
  5. A foreign company when all of its income is exempt from tax in the United States;
  6. A reportable company and a related party that are not considered fiscally American persons. Fiscally foreign trusts are included in this classification and therefore do not file form 5472.

Additional Information

  • Another novelty is that DEs were not previously required to file tax returns, from now on they are now required to file along with Form 5472, Form 1120.
  • To file Form 5472, you must have an Employer Identification Number;
  • DEs can request an extension in the deadline to file form 5472 by completing form 7004;
  • The deadline to file Form 5472 as long as it applies is three and a half months after the end of the fiscal year. If no other date is established, the fiscal year will be considered ended on December 31 of each year, therefore, the deadline to file form 5472 will be April 15.
  • It is important to consider that according to the Report of Foreign Bank and Financial Accounts (FBAR) the Disregarded LLCs that have accounts abroad, must report said accounts before April 15 of each year (there is an automatic extension of said period until October 15 of each year).
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