As a foreign company operating in the US, there are several compliances a company might be subjected to. The formal tax requirements of operating a business in the US are subject to various reporting requirements. This includes filling out Form 8992, making a Section 962 election, and also paying the transition tax in Section 965. Complying with these requirements ensures a smooth sailing business without interference from authorities.

What Do These Requirements Exactly Stand For?

It is quite expected for a layman to not be familiar with the details of these requirements. That is exactly why this article will explain it to you for your ease.

Form 8992- The major part of this discussion, which covers Form 8992, explains its characteristics. Form 8992 is used to calculate a foreign company’s global intangible low-taxed income (GILTI) and the US tax liability related to it. This is a brand new category of income tax that was introduced by the Tax Cuts and Jobs Act of 2017. All foreign corporations operating in the US, including the ones classified as C corporations for tax purposes in the US.

Section 962– Section 962 provides for an election that enables a shareholder of a foreign company in the USA to be taxed at an individual tax rate (on their share of the business’s GILTI) instead of the corporate tax rate. The election is also available to US taxpayers who hold at least a 10% share in the foreign corporation.

Section 965- The transition tax in Section 965 is a one-time tax paid on accumulated foreign earnings of certain abroad organizations owned by US taxpayers. This tax was also introduced by the Tax Cuts and Jobs Act of 2017 to encourage US Taxpayers to repatriate their earning. More information in detail can be found online.

The filing of Form 8992 is done as a part of the foreign company’s US tax return. Section 962 is complied with by making a statement along with the tax return and Section 965 transition tax is stated on the taxpayer’s tax return for the year.

Are There Any Penalties For Failing To Comply With These Tax Requirements?

Yes, there are strict and severe penalties for failing to follow these tax directions as per the US government’s mandate. It will land a business in great financial trouble if it is found trying to evade the tax structure. The penalty for failing to file Form 8992 can range up to 10,000 dollars, per year, per shareholder. The penalties for failing to fulfill a Section 962 election or failure at paying the Section 965 tax is, 5% of the unpaid tax for each month, which can go to a maximum of 25%.

It is a cumbersome process to comply with US tax regulations, however, it is also the process that ensures that your business remains protected in a foreign land and that you continue to discharge your tax obligations in good faith. More information about tax compliances and customized consultancy services can be better accessed online.

Leslie Harley