If you are a US Citizen or resident and own a foreign company do you understand the US Foreign Controlled Corporation Rules?

Note there is more exceptions in this space than rules, but I'm going to try to give a basic example.

These rules are very complex so hire a tax pro.
Say you are an Irish citizen and have an Irish company.

A move takes you to the US for a few years.

Assume you become a US tax resident (not hard in this case).

A US tax resident is a tax "US person."

The US taxes the worldwide income of it's citizens and residents.
A foreign company that is owned at least 50% by US shareholders (US persons that own at least 10% of the company), is determined to be a controlled foreign corporation ("CFC").

Historically, a CFC was an exception to the US taxing worldwide income.
The income of a CFC wasn't taxed until distributed to the US.

The exception was certain passive income was taxed immediately (Subpart F income).

Now, there is still Subpart F income taxed immediately, but tax on is no longer tied to repatriation of cash.

Enter the GILTI regime
GILTI or Global Intangible Low-Taxed Income is any income the CFC has after Subpart F income, can be taxed immediately in the US at 10.5% (1/2 of the 21% corporate rate).

You take total income of the CFC, reduce it by Subpart F, and then reduce it by 10% of the tangible assets.

Company has no passive income, $100k of operating income, and $1M of tangible assets.

Profit: $200k
Sub F: <$0>
10% of Assets: <$100k>.
= $100k of GILTI income

Gross GILTI tax of $200k * 10.5% = $10.5k.
Am I double taxed?

In this example the Irish company is paying 12.5% Irish corporate tax or $25K.

When the US taxes a CFC, there is a complex foreign tax credit calculation to mitigate double taxation.
Example Con't

Since $100k of the $200k profit is GILITI, there 1/2 of the Irish tax could be creditable in the US.

GILTI gives an 80% foreign tax credit.

So here:

Irish Tax: $25k
Irish Tax on GILTI: $12.5k
80% GILTI Foeign Tax Credit: $10k
GILTI Tax: $10.5k
Net Tax: $0.5k
End result...

The Irish company continues to pay 12.5% tax in Ireland, but the owner will have a bunch of new US tax forms (From 5471 and related schedules) to file and will pay a nominal amount of tax in the US.

Change the facts and the answers could change dramatically.


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