CFC (Controlled Foreign Corporation)

CFC (Controlled Foreign Corporation)

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A CFC (Controlled Foreign Corporation) is a foreign corporation that is more than 50% owned by U.S. shareholders, measured by vote or value, on any day of the foreign corporation’s tax year. A U.S. shareholder is a U.S. person who owns at least 10% of the foreign corporation’s vote or value, directly, indirectly, or through constructive ownership rules.

Why it matters for U.S. expats

CFC rules can turn a foreign business into a U.S. reporting and tax issue. If a U.S. expat owns part or all of a foreign corporation, they may need to file Form 5471, report GILTI or Subpart F income, consider a Section 962 election, and disclose corporate financial details to the IRS. These rules can apply even when the company does not distribute profits.

Common questions

1. How does a foreign company become a CFC?

A foreign company becomes a CFC when U.S. shareholders collectively own more than 50% of its vote or value. Ownership can be direct, indirect, or constructive.

2. Who counts as a U.S. shareholder of a CFC?

A U.S. shareholder is a U.S. person who owns at least 10% of the foreign corporation’s vote or value. This can include U.S. citizens, green card holders, U.S. residents, and certain U.S. entities.

3. Does owning a small foreign company trigger Form 5471?

Yes, it can. Form 5471 can apply even to small foreign companies if the ownership rules are met.

4. Does a CFC have to distribute profits before U.S. tax applies?

No. U.S. shareholders can owe U.S. tax on certain CFC income even when no money is distributed.

5. How does GILTI affect CFC owners?

GILTI can require U.S. shareholders to report and pay U.S. tax on part of a CFC’s business income. It is reported using Form 8992.

6. How does Subpart F income affect CFC owners?

Subpart F can make certain CFC income taxable to U.S. shareholders in the year it is earned. This can include some passive income, related-party income, and other income targeted by anti-deferral rules.

7. Can a Section 962 election help a CFC owner?

Yes, in some cases. A Section 962 election can allow an individual CFC owner to be taxed more like a corporation on certain CFC income, which may reduce the U.S. tax cost.

8. Is a foreign LLC always a CFC?

No. A foreign LLC is not automatically a CFC. Its U.S. tax classification matters: it may be treated as a corporation, partnership, or disregarded entity.

9. Does a dormant foreign corporation still need Form 5471?

Yes, it can. A dormant or inactive foreign corporation may still trigger Form 5471 if the ownership and filing rules apply.

10. What happens if Form 5471 is filed late?

Late or missing Form 5471 filings can trigger penalties starting at $10,000 per form. Penalties can increase if the issue is not corrected.

When to get help

Professional guidance is important when:

  • You own 10% or more of a foreign corporation.
  • You own a foreign company with other U.S. persons.
  • You are unsure whether a foreign entity is a corporation, partnership, or disregarded entity for U.S. tax purposes.
  • You need to file Form 5471 or Form 8992.
  • Your foreign company earned profit but did not distribute it.
  • You are considering a Section 962 election.
  • You missed a prior-year Form 5471 filing.

Bright!Tax can identify whether CFC rules apply, prepare the required forms, and help you plan around GILTI, Subpart F, and Section 962 issues. Get started with Bright!Tax.

Official sources

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

June 2026

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