U.S. Taxpayers Report S.A.S. Ownership on IRS Form 5471. Creating a Foreign Corporation is one way to start doing business in Colombia and the reporting is included on Form 1040 as part the Individual Income Tax Return.
If you are a U.S. citizen or permanent resident who is an officer or director of an S.A.S (Sociedad por Acciones Simplifiada) in Colombia or a Shareholder in a Colombian Company, you may need to file Form 5471 to report your ownership and voting control.
Controlling a business in Colombia, or having shares in a corporation that gives you ownership rights, requires you to report detailed information about the foreign corporation and your ownership in that business annually. The way in which you will report this is by completing Form 5471: Information Return of U.S. Persons with Respect to Certain Foreign Corporations, or CFC for short.
In general, when you own 10% or more of a foreign corporation by either voting power or total value, you must report your ownership through Form 5471.
This also includes lesser-known reporting requirements called indirect or constructive ownership. Constructive ownership is when a U.S. person owns, in the eyes of the IRS, 10% or more of a foreign corporation through a direct family link. Indirect ownership is when a U.S. person owns 10% of a U.S. company that subsequently owns 10% or more of a Colombian, or foreign, corporation.
IRS Form 5471 is a very lengthy document of up to 25 pages or more, and overall, a very complex process to complete. Most need to start collecting records months before filing Form 5471 and complete monthly bookkeeping with a certified Colombian accountant in an approved style and format: U.S. GAAP.
Once documents are collected, it is necessary to translate both Colombian tax and legal documents and properly convert the currency so your U.S. accountant will actually be able to use the information.
What is a Colombian SAS?
A Colombian SAS is a simplified public limited company and is the primary and most preferred way for expats and entrepreneurs to incorporate businesses in Colombia. A SAS is deemed as simple because it only requires one director and shareholder (individual or legal entity), they can hold any nationality, live in any country, and have a minimum of $1 paid-up or subscribed capital.
Why Is Form 5471 So Complex?
Not only does completing Form 5471 require extensive record-keeping, documentation, and translation, but also there are five categories of filers that will determine your reporting requirements. And additionally, two of the five categories have three additional subcategories each. Filers may fall into one or multiple categories of the filer, and it is crucial or get your category correct or you risk omitting schedules and forms which may result in fines.
Form 5471 is an effort by the IRS to prevent money laundering, the offshoring of money, and overall tax evasion. Foreign companies have found loopholes for decades and stayed under the radar but through the extensive filing requirements of form 5471 that is nearing impossible. Unfortunately for small businesses, there is no 5471-EZ, so all companies are required to abide by the same guidelines no matter if you are Apple or a coffee shop in Medellin.
The penalties for not filing Form 5471 start at $10,000, so this is a form you need to take seriously if you must file. We suggest hiring a top-notch, ethical, Colombian accountant as form 5471 replies heavily on their monthly bookkeeping. Risking saving money on accounting services early on in your company development may end up costing you dearly when it comes time to file.
Colombian SAS Owners: File Form 5471 Confidently with USATax.co
We work with various U.S. SAS business owners. If you need help determining if you need to file Form 5471, or you’re seeking help in filing, reach out to us and schedule an appointment. Our licensed tax professionals have extensive experience assisting business owners in Colombia so you can take the uncertainty out of being a global entrepreneur.
Our licensed tax professionals have extensive experience assisting business owners in Colombia so you can take the uncertainty out of being a global entrepreneur.