The federal U.S. reporting requirements, for Americans with ownership in a Colombian S.A.S., have nearly tripled since 2017. Existing forms have been expanded upon and new forms have been added to IRS Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations); or CFC, for short.
These changes have significantly increased both the preparation time required and complexity of preparing this portion of a 2018 U.S. Individual Income Tax Return.
An S.A.S is a form of ‘simplified limited company’ and it is the entity type preferred by most U.S. Expats when forming a business in Colombia. For U.S. tax purposes, an S.A.S. is considered a CFC.
As in past years, Form 5471 still requires general information about the S.A.S and its shareholders, the annual income statement, year-end balance sheet, and information related to earnings and profits.
The newly added forms require additional information about the S.A.S. and its shareholders, taxes paid or accrued, transactions between the S.A.S and shareholders, and information on a new provision; GILTI (Global Intangible Low-Taxes Income).
GILTI, or “Guilty” as it is pronounced, is a new category of income that for individuals (including LLCs and S-Corps) must include their portion of “Tested Taxable Income” from the S.A.S. on their personal tax return. This income is taxed at 37%. In prior years, U.S. taxpayers did not pay tax on foreign earned income until it was paid as a dividend.
The rules surrounding GILTI are extensive. In general, many shareholders could see an increase in U.S. taxes related to their S.A.S. ownership. This includes an S.A.S. that was created with the intended purpose of holding Colombian assets (e.g. Real Estate) or for requesting a Colombian visa.
It’s important to understand that U.S. reporting requirements related to an S.A.S. is not common knowledge for many U.S. based tax professionals. It’s a niche in the tax services industry and is best left to those with that particular expertise.
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