Form 1120-F for Expats with Foreign Corporations Doing Business in the US
The US tax system requires that all American citizens file Form 1040 every year, reporting their global income. This applied to American citizens (and Green Card holders) living abroad as well as those living in the US.
As well as reporting their global income on Form 1040, converting income received in other currencies into US dollars, Americans living abroad often have to file additional forms due to US reporting requirements relating to foreign registered bank accounts, investments, and businesses.
Foreign business reporting depends on the type of business. For example, expats with a foreign corporation registered abroad that only trades abroad have to file Form 5471, while expats with a US-registered corporation have to file Form 1120, and expats with a foreign registered corporation that does business in the US often have to file Form 1120-F.
Which expats have to file IRS Form 1120-F?
Expats with a foreign registered corporation that meets certain criteria have to file Form 1120-F. These include if:
– the corporation was engaged in a trade or business in the US
– the corporation had income, gains or losses that were ‘effectively connected’ to trade or business in the US
– the corporation had income from a US source that wasn’t subject to withholding tax at source
– the corporation overpaid US tax and needs to claim a refund
– the corporation wants to claim any US credits or benefits
“A foreign corporation files form 1120-F to report their income, gains, losses, deductions, credits, and to figure their U.S. income tax liability.” – the IRS
– the corporation wants to claim the benefit of a US international tax treaty (Form 8833 must also be filed).
The term ‘effectively connected’ generally refers to when a foreign corporation has premises, production, or employees in the US.
If you’re unsure whether your foreign registered business has to file Form 1120-F, always consult a US expat tax specialist.
What are the penalties for not filing Form 1120-F?
Expats with a foreign corporation that should file Form 1120-F but don’t can face IRS penalties starting at 5% of the unpaid corporation tax owed, and rising to 25% after five months.
When is the filing deadline for Form 1120-F?
The due date for filing Form 1120-F depends on whether the corporation has premises in the US. If it does, the filing date is March 15, while if it doesn’t, the deadline is June 15. In either scenario, a six month extension can be requested by filing Form 7004.
Instructions for filing IRS Form 1120-F
Form 1120-F is a complex form to file that the IRS estimates will take over 70 hours to complete. It is not advisable to undertake filing Form 1120-F without the assistance of an expat tax specialist.
The form is eight pages long. It requests information about the business and detailed computations of income from US and non-US sources, and tax paid and due.
Notes and comments
Expats should note that there are provisions available that they can claim to avoid both personal and corporate double taxation. These often include Foreign Tax Credits (both personal and for businesses).
Americans with a foreign registered business should also be mindful of the requirement to file an FBAR (Foreign Bank Account Report) if the business has a foreign registered bank account. Penalties for not filing FBARs are steep.
Americans who have been living abroad but not filing US taxes because they weren’t aware of or didn’t understand the requirement can catch up without facing penalties under an IRS program called the Streamlined Procedures, so long as they do so voluntarily before the IRS contacts them.
If you have any questions about your US tax situation as an expat, always consult an expat tax specialist.