Form 1120-F. U.S. Income Tax Return Of A Foreign Corporation: Fill & Download for Free

This is an extremely complex area of the tax code. If you are in this situation, I would strongly suggest that you consult with a reputable international tax advisor. You should also check out Publication 515 (2013), Withholding of Tax on Nonresident Aliens and Foreign Entities.The general rule is that a partnership - which is the default tax treatment for an LLC in the US - must withhold tax (at a rate of 35%) on a foreign partner's share of the partnership's income that is effectively connected with the conduct of a US trade or business. A foreign corporation that is a partner in the LLC should provide Form W8-BEN to the partnership and can use that form to claim the benefits of a tax treaty, should the treaty allow the foreign corporation to claim such benefits - many treaties do not exempt a foreign corporation from being taxed on its distributive share of the effectively connected income from a US-based partnership.A foreign corporation files Form 1120-F, U.S. Income Tax Return of a Foreign Corporation to either pay its outstanding liability or to claim a refund of taxes paid. A foreign corporation will also pay taxes to the country in which it is incorporated based on the laws of that country - if the country allows a credit for foreign taxes paid, then the foreign corporation would claim a credit for the taxes paid to the US, again based on the laws of the country in which it is incorporated.

Hi Janet: Every foreign corporation that is engaged in a trade or business in the United States is required to file a U.S. corporate income tax return (Form 1120-F), even if the foreign corporation has no U.S.-source income or all of its income is exempt from tax under the terms of a tax treaty.

Sure, I can address tax issues here. I am assuming a domestic corporation (“DC”) formed in a particular state in the US owns 100% of the shares of a foreign corporation (“FC”). And, I am assuming the FC runs its operations from the foreign country.A FC reports and pays taxes on its effectively connected income coming from a United States Trade or Business (“USTB”) as covered in Section 882(a)).Given the fact the FC has US customers, the FC has a USTB. However, the FC may or may not have effectively connected income. As an example, digital services performed 100% from the FC’s foreign office represents foreign source income (Section 862(a)(3)). And self created inventory produced outside the US of which the FC sells to US customers also represents foreign source income (Sections 863(b)(4)). And, Treasury does not consider either as effectively connected (Section 864(c)(4)(A)). So, no US taxing under these provisions.However, the FC still files a 1120 F corporate tax return reporting $0 taxable income as any FC with a USTB even if it has no effectively connected income files a tax return as required by Treasury Regulation Section 1.6012-2(g)(1)(i)). And, the FC requires a statement as noted in Treasury Regulation Section 1.882-4(a)(3)).If the FC operates in a country with a minimum tax rate and pays at a less than a 13 1/8 tax rate in the foreign country, the DC pays tax on the FC profits as means for equalizing the tax rate to the 13 1/8 level considering both US taxes and foreign taxes paid (Section 250(a)(B) and Section 960(d)). This change happened for 2018 years forward and represents a minimum tax on any FC owned by a DC. If FC were owned by a US individual versus DC the individual will face higher taxes as the DC profits come on the individual’s tax return at the individuals tax rate. So, as a planning strategy, DC represents a more favorable ownership structure for a FC.However, the FC may dividend profits back to DC with no additional tax for any foreign source profits (Section 245A(a)).If the FC has effectively connected income from selling third party product into the US, the FC pays tax in the US on those profits. As these inventory items represent US source income under Section 861(a)(6). And, Treasury considers all US source income coming from a USTB as effectively connected income (Section 864(c)(3)).Possibly, the FC may change the tax results of the last paragraph if the FC home country has tax tax treaty with the US. Here, the FC takes a treaty position by filing a 1120 F tax return which allows for no taxing in the US (Section 6114(a)). Failure to file the return for taking the treaty position may result in a $10,000 penalty.The FC also has Treasury information reporting requirements under Treasury Regulation Section 1.6038A-1(c)). Failure to file this report with the DC return or filing an incomplete report may result in a $25,000 penalty (Section 6038A(d)).The location of the FC ’s money account has no bearing on the taxing detailed above.I have completed the above analysis based on general tax scenarios. As the particulars change, the tax results may change. www.rst.tax