Do I have to report my foreign corporation's income to the IRS?

Question

If I setup a foreign corporation, it will be its own legal tax entity, therefore I would assume that I do not need to report it's income to the IRS. Only the income that I receive from dividends or a salary would have to be reported. Is this correct?

Answer 1

Theoretically the US does not tax the income of a foreign corporation that is not derived from sources within the United States, and is not effectively connected with the conduct of a trade or business in the United States. Practically, there are many exceptions to this principle.

First, if your corporation does have income from the United States, either from engaging in business here or from investments such as the stock or debt of US persons, it may be subject to US tax.

Second, if your corporation derives investment income from foreign sources, you as the controlling US shareholder may be subject to tax on the corporation's net income as if you had received it as a dividend. The rules governing controlled foreign corporations are exceedingly complex and you should consult a qualified professional with experience in international tax before undertaking such a venture.

Even if you are not taxed immediately on the foreign corporation's income, you as a controlling US shareholder must report its operations on Form 5471 attached to your tax return. This includes reporting all its income and expenses, and any transactions with related persons such as yourself.

The corporation may have various reporting and/or tax obligations, such as withholding tax from your salary and paying payroll taxes. You would have to report annually to the Treasury Department if you had signature authority over any of its accounts.

This is not intended to be an exhaustive list of potential tax and compliance obligations. You should consult a qualified international tax professional for full advice.

Answer 2

If you're a citizen or a US resident, you assume wrong - foreign income must be reported, and you'd pay US federal income tax on it. If you also pay foreign income tax, you can take that off your US taxes on your return.

Answer 3

If the corporation receives money for goods or services in the US, it must file a tax return. Period, end of story.

Answer 4

Every money you make anywhere will be reported to the IRS .

Answer 5

If that money is being brought into a U.S.A. bank account, you will have to report it. If you keep that money in an overseas account, it should be I.R.S. exempt.