US Controlled Foreign Corporations - Rules changed in 2017? Must pay taxes in USA if own 10% or more of company?

[gavin310]

I've been in Thailand around 8 years and a big part of my goal to getting permanently settled in here has always been to start a company in Thailand. I live in Thailand, so I want to pay taxes to Thailand and not the USA. I'm finally in a position where I can start a company, however I talked to my accountant and he told me that the law is that if I own 10% or more of the shares of this company, it's considered a US Controlled Foreign Corporation, and I must pay taxes in the USA. I had no idea and I'm pretty upset over this. Is all this correct? Does every American who owns more than 9% of a company in Thailand have to pay taxes in America? Do they also have to pay Thailand corporate taxes? Sometimes I really hate all this "freedom" I have being a US citizen.

[madmen]

How would they even know?

[woofwoof]

Give up your U.S. Citizenship if you think your having to much freedom and apply for a Venezuelan Citizenship. 

Edited June 13, 2019 by woofwoof

[sencelebi]

That's not true. I own 99.9% of the company as a US citizen ( US citizens can own 99.9% of any Thai company) I don't pay taxes in the states because I already pay here. So no double taxation.

I checked with my CPA In the states before I opened the company here. As long as you have proof that you paid taxes here in Thailand then you don't pay in the States. You can transfer any amount of money to US with no problem . It's been 5 yrs now I have the company in Thailand and I still do my taxes in the states. I show income from Thailand even if I don't transfer all the money I make here and never ever had problem. But work with CPA not with book keeper. CPA knows how to fill the forms and how to show foreign income on the tax filings. But again you have to have proof in your hand that you paid taxes here in Thailand just in case if IRS wants to audit you in the states.

[sencelebi]

18 hours ago, madmen said:

How would they even know?

Thai government has to report to US government any US citizen involves in a bussiness. Matter of fact US citizen has to file W2 or W9 US tax form before even open a bussiness here . Thai revenue service will hand you the US tax form to fill out, Also banks required to have a US tax form filled out by US citizen.

[Pedrogaz]

This makes no sense. For large corporations at least and profit they do not repatriate is not taxed until it is repatriated. You would need to keep records though.

[DrPhibes]

As a US citizen or Green Card holder, you are to file US tax returns for the rest of your life (even if you never touch US soil again) unless you are below a rather low income level that may or may not take into consideration Social Security payments depending on the other income amount in the return.  If you have a business such as a sole proprietorship, you file no matter what the net income is. 

 

For Foreign Corporation ownership:

 

If you have ownership in a foreign corporation, you may be required to file Form 5471 annually with your individual tax return. Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, should be completed for any US person who:

• owns 10% or more (directly or indirectly) in a foreign corporation,
• is an officer or director of a foreign corporation and acquired stock in the company during the year, or
• has any amount of ownership in a controlled foreign corporation (CFC) – generally, this is a foreign corporation that is 50% or more owned by US persons.

Also, US taxpayers who made a transfer to a foreign corporation during the year may be required to complete and attach Form 926 to their individual return. This form is required if the US person owns more than 10% of the foreign corporation’s stock at the end of the year, or if they transferred more than $100,000 USD to the foreign company during the year.

 

If you take money from the corporation to use personally, that is a dividend distribution or wages or both and is considered income to the US.

 

If you pay Thai taxes, you can offset the US tax generated by this income by applying the Foreign Tax Credit for the taxes paid to Thailand.  If the money is coming out of the corporation as wages, you can apply the Foreign Income Exclusion to shelter some or all the income tax as long as within a 12 month period (can span more than 1 calendar year) you were out of the US more than 330 days.   You can only apply the Foreign Income Exclusion to wages or self-employed partnership distributions, not dividends, investment sales, or retirement income. 

 

This is just an overview of Foreign income and the US tax system.  There are other nuances that may affect your particular situation. Best you get a US CPA or Enrolled Agent who is familiar with these particular set of rules.

[losworld]

20 hours ago, madmen said:

How would they even know?

They want to tax you "long time".... 

[utalkin2me]

You wanna stop paying US taxes, and my god who doesn't they start unnecessary wars, kill innocent people and cover it up. That is where your tax money goes. 

 

Anyway, don't work. That is the answer to not paying US taxes. 

[Misty]

Yes, thank the "Tax Cuts and Jobs Act of 2017" for this change.  Congress, in its rush to give big corporations and the wealthy tax cuts, completely screwed over Americans who own and operate foreign companies.  See "Section 965 Transition Tax" and "Global Intangible Low Tax Income (GILTI)" for more details. 

[Misty]

1 hour ago, DrPhibes said:

If you have ownership in a foreign corporation, you may be required to file Form 5471 annually with your individual tax return. Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, should be completed for any US person who:

• owns 10% or more (directly or indirectly) in a foreign corporation,
• is an officer or director of a foreign corporation and acquired stock in the company during the year, or
• has any amount of ownership in a controlled foreign corporation (CFC) – generally, this is a foreign corporation that is 50% or more owned by US persons.

 

This was before the Tax Cuts and Jobs Act of 2017.  It got much worse after that! See my previous post regarding GILTI.

[Misty]

3 hours ago, sencelebi said:

That's not true. I own 99.9% of the company as a US citizen ( US citizens can own 99.9% of any Thai company) I don't pay taxes in the states because I already pay here. So no double taxation.

I checked with my CPA In the states before I opened the company here. As long as you have proof that you paid taxes here in Thailand then you don't pay in the States.

I really wish that were still true. Hopefully your CPA is aware of the changes that occurred with Tax Cuts and Jobs Act of 2017 and has been filing correctly according to current law.  If not, get a new one.  A lot of headaches await....

[gavin310]

On 6/13/2019 at 1:15 PM, Misty said:

I really wish that were still true. Hopefully your CPA is aware of the changes that occurred with Tax Cuts and Jobs Act of 2017 and has been filing correctly according to current law.  If not, get a new one.  A lot of headaches await....

Yep, many people aren't aware of the new laws. But these people also aren't filing their taxes correctly, so does that mean the USA isn't being strict about it right now?

[Misty]

7 hours ago, gavin310 said:

Yep, many people aren't aware of the new laws. But these people also aren't filing their taxes correctly, so does that mean the USA isn't being strict about it right now?

My guess is that it may take time for the system to absorb the changes. But it doesn't seem wise to bet that the current status quo will last forever.