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us expat tax guide – france

How should an American report a French LLC to the IRS?

Suppose you are an American with an ownership interest in a French LLC (Limited Liability Company) and own 10% or more of the company. In that case, you must report this on specific forms attached to your US tax return. This is primarily for reporting purposes unless you receive income from the company, such as salaries or dividends.

What changes if you own more than 50% of a French LLC?

Owning more than 50% of a French LLC complicates matters because the IRS may tax you on the net income retained within the company proportionate to your ownership. However, the corporate tax paid in France can often offset this US tax liability, especially since corporate tax rates in France are typically higher than in the US. This usually makes it a non-issue for most Americans operating companies in France.

Why must you file foreign corporation returns even if owning less than 10% of the shares?

Even if Americans own only 5% of a French company, they may still need to file foreign corporation returns due to “constructive ownership.” 

This concept assumes that Americans might indirectly control or benefit from more of the company through relationships, such as a spouse owning most of the shares. The IRS requires disclosure of such interests to ensure transparency and compliance.

What should you do if you haven’t filed foreign corporation returns?

If you haven’t filed the necessary foreign corporation returns, it’s important to address this as soon as possible to avoid penalties. Amending previous filings through the IRS Streamlined Offshore Filing Procedure can help mitigate penalties. This program allows you to catch up on filings and disclose all required information to the IRS without facing the usual consequences for late filing, which include a hefty penalty of US$10,000 per missed filing.

Is there a risk of double taxation for French LLCs owned by Americans?

Generally, Americans running companies in France don’t have to worry too much about their companies paying US tax in addition to French tax. The taxes paid in France typically offset any potential US tax liability due to foreign tax credits. Therefore, the primary concern is ensuring all reporting and filing requirements are met to comply with US tax laws.

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