ANCPA Auditing is led by Ashraf Noureldin, a California licensed CPA. The firm prepares USA tax filings for people across the UAE and the GCC: USA citizens and green card holders, non-Americans with any USA income, active or passive, and anyone married to a USA citizen.
Who must file
- You own a USA LLC alone, and you are not American. The IRS calls this a foreign-owned disregarded entity.
- A USA corporation has a foreign owner who holds 25% or more of its votes or value at any time in the year.
What is filed
- An LLC with one non-American owner files Form 5472 attached to a short company return, Form 1120, on which only the company's name and address and two boxes on the first page are filled in.
- A USA corporation that is 25% or more foreign owned attaches Form 5472 to its own Form 1120.
What goes on it
- The owner's details.
- Money that passed between you and the company during the year: payments, loans, money you put in or took out, and amounts paid to set the company up or to close it.
- Any amount of USD 50,000 or less can be shown as "USD 50,000 or less".
Dates
- For a company whose year ends on 31 December, the form is due on 15 April. An extension on Form 7004 moves it to 15 October.
- An LLC with a non-American owner cannot file this form online. It is sent by fax or by post to an IRS address set aside for these filings, and the extension request goes the same way.
Penalty
- USD 25,000 for each Form 5472 not filed on time, or filed with large parts missing. The same penalty applies if the company does not keep the records the IRS requires.
- If the IRS sends a notice and the form is still not filed 90 days later, another USD 25,000 for every 30 days after that.
Your options
- Option A: file every year on time. One Form 5472 a year, with the short company return. No penalty.
- Option B: years were missed and the IRS has not written yet. File the missing years now, in the right order, with the right explanation. Talk to us before you file anything.
- Option C: the IRS has already sent a notice. The 90 days in the notice matter: after them, USD 25,000 more for every 30 days. Act at once.
When your USA LLC owns your GCC company
A common set-up: a Wyoming or Delaware LLC, owned by someone who is not American, that owns a mainland or free zone company in the UAE or elsewhere in the GCC. What the USA taxes depends on how the LLC itself is taxed.
Case A: one owner, and the LLC has not chosen to be taxed as a corporation
This is the usual case. For income tax, the IRS looks through the LLC, as if you owned the GCC company yourself.
- The GCC company's profit: not taxed in the USA.
- Dividends from the GCC company, even if paid into the LLC's bank account: not taxed in the USA. They stay foreign income.
- Form 5472 every year, with the short Form 1120. A separate Form 5472 is filed for each related party the LLC dealt with, and that can include your GCC company: dividends, loans and payments between them.
- No Form 5471. It is filed by USA persons, and an LLC owned by a non-American is not one for this purpose.
- Form 1040-NR only if you have income from the USA, for example when the LLC does business in the USA. Dividends from the GCC company alone do not need it.
Case B: the LLC has chosen to be taxed as a corporation
- The LLC becomes a USA taxpayer: Form 1120 every year, and USA corporate tax of 21% on its own income.
- Form 5471 for the GCC company, and part of the GCC company's profit can be taxed in the USA every year.
- Dividends from the GCC company to the LLC are usually deductible for the LLC once it has held the shares for more than a year.
- Dividends from the LLC to you are USA income: 30% is taken at source, because no GCC country has an income tax treaty with the USA.
- Form 5472 as well, because you own 25% or more of a USA corporation.
Case C: two or more owners
- The LLC is usually taxed as a partnership and files Form 1065 each year.
- Whether the GCC company needs Form 5471, and whether any partner owes USA tax, depends on who the owners are. We check each case.
Not covered here
- Your state's yearly report, which is separate from the IRS.
- Whether you also need a personal USA return. That depends on whether the company earns income from business inside the USA, and we check it when we quote.
Questions to ask yourself
- Do I own a USA LLC or company, alone or with others?
- Am I a USA citizen or green card holder? If not, this form is likely to apply.
- Was Form 5472 filed for every year since the company was formed?
In short
- A USA LLC with one non-American owner files Form 5472 every year, even with no income and no tax.
- It is due on 15 April, or 15 October with an extension, and goes by fax or post, not online.
- If your USA LLC owns your GCC company, it usually adds forms, not tax. Choosing to be taxed as a corporation brings USA tax: 21% in the LLC and 30% on dividends paid to you. Check before choosing it.
- Each missed form can cost USD 25,000, so missed years are best fixed before the IRS writes.
About the author
Ashraf Noureldin is a USA CPA (California) and UAE Tax Agent with more than 25 years in accounting, audit and tax. He founded ANCPA Auditing L.L.C, an audit and tax firm in Emirates Towers, Dubai. USA returns are prepared and signed in Dubai and e-filed through our USA associates in Texas and California. For a question about your own case, email info@cpaauditing.ae, call +971 4 319 7316 or WhatsApp +971 56 620 0575.
This article is general information only. It is not tax, legal or financial advice for any person or company. Take advice on your own facts before you act.