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Are there any US tax obligations as the owner of a foreign corporation (LLC) in the UAE?

As a US citizen owning a foreign corporation in the UAE, you’re required to report your ownership and any income from the corporation on Form 5471 and potentially pay US taxes on the corporation’s earnings, depending on your shareholding percentage and the corporation’s structure. 

This includes adhering to the rules for Controlled Foreign Corporations (CFCs) if you own more than 50% of the corporation, which could result in taxation on undistributed earnings.

Table of contents

What is a foreign corporation?

A foreign corporation refers to any business entity that is registered and operates outside of the United States. The degree of ownership in a foreign corporation significantly influences the nature and extent of your tax reporting requirements.

What are the filing requirements?

Ownership percentage is a critical factor in determining what US taxpayers must report:

  • Less than 10% Ownership: If a US person owns less than 10% or combined with immediate family members the total ownership is less than 10% they are not required to file a Foreign Corporation Tax Return (Form 5471).
  • Less than 50% Ownership: If a US person holds less than 50% of a foreign corporation, they need to file Form 5471. This form requires detailed information about the corporation, including its address, share values, and the US person’s ownership percentage.
  • Controlled Foreign Corporation (CFC): Ownership exceeding 50%, either individually or collectively with other US persons, designates the entity as a Controlled Foreign Corporation. This status triggers more stringent reporting obligations and taxes on the corporation’s net income, applicable even if profits are not repatriated to the US

Note that shareholders may be taxed on their proportionate share of the corporation’s net income, regardless of whether those earnings are distributed.

Should I get a professional to help me strategize?

Given the complexities and potential tax liabilities associated with owning shares in a foreign corporation, US individuals contemplating these investments should seek professional advice. Early consultation with tax professionals can provide crucial insights into the tax implications and help in strategic planning to mitigate tax liabilities.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

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