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U.S. Branch Income Tax Returns

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Certain non-U.S. entities are treated as per se corporations for U.S. and most state income tax purposes. The list of entities in different countries that are treated as per se corporations for U.S./state income tax purposes can be found in the instructions to Form 8832. Foreign entities that are not treated as per se corporations are also generally treated as corporations for U.S./state income tax purposes if all owners of the entity have limited legal liability. Foreign entities treated as corporations for U.S. income tax purposes are subject to U.S./state corporate income tax (at the same corporate tax rates as U.S. corporations) on income that is effectively connected to a U.S. trade or business. They are also subject to Federal income tax on U.S. source income that is not effectively connected to a U.S. trade or business (e.g. U.S. dividends or interest) at a 30% Federal income tax rate or lower rate if an income tax treaty is applicable. Foreign entities treated as corporations will generally file Form 1120F on an annual basis. Most states require a foreign entity treated as a corporation to file state corporate income tax returns if the entity has income tax nexus in the applicable state.

 

Foreign entities that are not treated as per se corporations are generally treated as partnerships if the entity has two or more owners and at least one owner has unlimited legal liability. Foreign entities treated as partnerships will generally file Federal Form 1065 and will allocate the entity’s U.S. income effectively connected to a U.S. trade or business to its owners. Most states require a foreign entity treated as a partnership to file a state partnership income tax return if the entity has income tax nexus in the applicable state.

 

Foreign entities that are not treated as per se corporations are generally treated as disregarded entities if the entity has a single owner who has unlimited legal liability. The U.S. operations of disregarded entities are generally reported on the U.S. tax return of the entity’s owner. Most states will also require the operations of disregarded entities in the state to be reported on the owner’s state income tax return.

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Elisa Fay

CPA

Partner-in-Charge Rödl National Tax

+1 404 525 2600

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