Form 1120-F
Published on August 15, 2024
by Aya Takriti, EA
Aya Takriti, an IRS Enrolled Agent with 10 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East.
Table of Contents
What does Form 1120-F cover?
Form 1120-F is the document that foreign companies use to report income they earn from US sources.
This form is important because it helps the IRS track the income of foreign corporations that have business activities in the US and ensure they are complying with US tax laws.
Why is it necessary to file Form 1120-F?
Filing Form 1120-F is important for foreign corporations as it allows them to report their US income and claim any deductions or credits they are entitled to. Doing this can also help reduce the tax amount they owe, ensuring they don’t pay more than required.
When must a foreign company file Form 1120-F?
Foreign companies need to file Form 1120-F if they are engaged in business in the US or if they have income connected to a US business. Here are some common reasons why a foreign company would need to file:
- Conducting Business in the US: If the company regularly conducts business activities in the US, they are required to file this form.
- Income Tied to US Operations: Any income that comes from the company’s US operations must be reported on Form 1120-F. This includes earnings from selling products or services, owning US real estate, or having branches in the US
- US Partnership Involvement: If the company is a partner in a US-based partnership that is doing business in the US, they must file the form.
I want to know more about US taxes abroad
How do you fill out Form 1120-F?
Completing Form 1120-F involves several steps, but it can be broken down as follows:
- Basic Information:
- Start by entering the company’s name, address, and employer identification number (EIN).
- Indicate the tax year for which the form is being filed.
- Income Reporting:
- Total Income: Report all income earned from US sources.
- Specific Income Types: Provide details on income from various sources such as sales, dividends, or interest.
- Deductions:
- List all allowable deductions, including business expenses like salaries, rent, and taxes.
- Add up these deductions to determine the total amount.
- Tax Calculation:
- Calculate the tax owed based on the taxable income after deductions.
- Report any credits or prepayments that can reduce the total tax owed.
- Additional Information:
- Answer questions about the company’s US activities and ownership.
- Provide information on any previous US tax returns filed.
- Reconciliation:
- If there are differences between the company’s book income and the income reported on the tax return, reconcile them here.
When is Form 1120-F due?
- For Calendar Year Companies: The form must be filed by April 15 of the year following the end of the tax year.
- For Fiscal Year Companies: The form is due by the 15th day of the fourth month after the end of the fiscal year. For example, if the fiscal year ends on June 30, the deadline is October 15.
Can you get an extension for filing Form 1120-F?
Yes, foreign companies can request a six-month extension by submitting Form 7004.
This gives the company more time to prepare and file Form 1120-F without incurring penalties for late filing.
What are the consequences of filing Form 1120-F late?
The IRS may charge penalties and interest if Form 1120-F is filed late and taxes are due.
Typically, the penalty is 5% of the unpaid tax for each month the return is late, up to a maximum of 25% of the unpaid tax.
Where should you send Form 1120-F?
If you’re mailing Form 1120-F, address it to the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201, USA.
For those using private courier services like FedEx or UPS, the correct address is Internal Revenue Service, 1973 Rulon White Blvd., Ogden, UT 84201, USA.
Can foreign businesses file Form 1120-F online?
Yes, foreign corporations can submit Form 1120-F electronically.
- Choose an IRS-Approved e-file Provider: Start by selecting an e-file provider recognized by the IRS.
- Complete the Form: Use tax software that supports Form 1120-F to fill it out, including any required attachments.
- Consult a Tax Professional: Working with a tax professional can help ensure everything is completed correctly, saving you potential issues later.
- Submit the Form Online: Follow the steps provided by your e-file provider to send the form to the IRS electronically.
What does ECI have to do with Form 1120-F?
Effectively Connected Income (ECI) is income that a foreign corporation earns from its business activities in the US.
ECI is especially important because it’s the type of income that needs to be reported and taxed using Form 1120-F.
How can you tell if a foreign company has ECI?
- Business Activities in the US: If the company is regularly doing business in the US, such as selling products or services, it likely has ECI.
- Types of Income:
- US-Based Income: Income from sales, services, or other sources within the US.
- Passive Income: Income like dividends or interest may also count as ECI if it’s tied to US business operations.
- Asset-Use and Business-Activities Tests: If the income is generated from assets or activities related to the corporation’s US operations, it qualifies as ECI.
What tax deductions and credits can foreign companies claim on Form 1120-F?
What deductions are available?
- Business Expenses: This includes everyday business costs, like:
- Employee Wages: Payments made to workers.
- Office Rent and Utilities: Costs for office space and utility bills.
- Supplies and Equipment: Purchases necessary for running the business.
- Travel and Business Meetings: Expenses related to work travel or meetings.
- Depreciation: Companies can deduct the cost of equipment or property used in the US over time.
- Interest Payments: Interest paid on business loans can be deducted, within certain limits.
- State and Local Taxes: Taxes paid at the state or local level related to US operations can be deducted.
What credits can reduce taxes?
- Foreign Tax Credit: If the corporation pays taxes in another country on income that’s also taxed in the US, this credit can help avoid double taxation.
- General Business Credits: Depending on eligibility, companies can claim credits like those for Research and Development (R&D) or investments.
- Withholding Tax Credit: Any taxes withheld on US-based income can be credited against the company’s US tax liability.
