「report tax returns」Do you meet the exemption conditions of Form 5472, which is the most concerned form of cross-border sellers?
Time： 2023-03-09 09:39
For cross-border sellers, Form 5472 is like "the most familiar stranger": it needs to be filled out every year, but it is a little strange.
Today, IAN unveils the "mystery" of Form 5472——
What is Form 5472? Does the LLC form need to declare 5472? How do I submit this form?
1、 What is Form 5472?
Strictly speaking, Form 5472 is an IRS information return, which is used to count U.S. companies owned by foreign governments, enterprises and individuals.
Its purpose is to supervise foreign entities holding more than 25% shares and require them to fulfill their obligations of tax declaration and payment.
If you meet any of the following conditions, you will need to file Form 5472 as required:
Foreign entities (non US) with 25% or more interests in US companies
Foreign companies engaged in business or trade
In terms of corporate form, the IRS requires all C-corporations and LLCs to submit Form 5472, and all members of the company must also submit copies of Form 5472;
At the same time, each involved overseas or domestic related party needs to submit a separate Form 5472 and report the reportable transactions of the overseas parent company and the domestic US company.
You may wonder, what is a related party and what is a reportable transaction?
Related parties refer to the individuals who have direct or indirect interests in the foreign-funded enterprises reported in Form 5472;
If the related party has the following behaviors, it is easy to be punished:
Asset transfer between related parties
Acquisition of property by related parties
Loans to related parties
Payment to related parties for goods or services
Distribute profits to related parties
Reportable transactions refer to any currency transactions in which foreign enterprises participate.
The following is an example of reportable transactions listed in Part IV of Form 5472:
Sales of inventory, sales of tangible property, sales lease, loan guarantee, purchase of stock, purchase of tangible property, loan amount
Interest paid, premium paid for insurance and reinsurance
If related parties do not submit 5472 and do not report transactions, it is very easy to attract the attention of the DIF system.
2、 Does LLC need to declare 5472?
If it is a non-U.S. owned LLC enterprise, it still needs to submit Forms 5472, 1120 and 1040-NR.
Even if it is recognized as a foreign sales company, or it submits 5471, it cannot exempt the obligation to declare 5472.
At the same time, the IRS will also require LLC members to submit Form 5472 in one of the following cases:
The LLC has a foreign owner, and TA holds at least 25% of the shares of the LLC;
LLC is non-US and engaged in US trade or business (USTOB);
LLC has one or more owners who are not citizens of the United States;
LLC's business activities involve selling goods or services to customers outside the United States.
If a foreign-funded enterprise in the form of non-LLC meets one of the following conditions, it can be exempted from submitting Form 5472 this year:
The company's annual reportable transactions are 0;
The company is a foreign sales company in the current tax year, and has submitted Form 1065-FSC;
(Note: This regulation does not apply to the U.S. subsidiaries of foreign companies, and the U.S. subsidiaries still need to submit Form 5472)
The company declares as a foreign company, but according to the bilateral tax treaty, the company does not constitute a permanent establishment in the United States, and the company has submitted Form 8838;
The Company meets the requirements of Article 883 and fully complies with the requirements of Article 883, 887 and 888, and is exempt from tax on its global income.
3、 Deadline for submission of Form 5472
Non-U.S. shareholders who hold 5% or more of LLC need to submit Form 5472 together with the income tax information of foreign-funded enterprises before April 15 (or October 15 if the approval is granted).
If there are no reportable transactions in the current year, or if it is considered as a foreign sales company, it is required to submit Form 1120-FSC.
Failure to submit Form 5472 will result in a fine of US $5000 and thereafter a fine of US $25000 per month until it is submitted to the IRS.
The IRS has published a guide on its website detailing the tutorial for filing Form 5472.
It is worth noting that if the company is a foreign LLC, Form 5472 cannot be submitted electronically.