Owning a Foreign Company as a US Person: Form 5471, CFC Rules and GILTI in Plain English

A foreign company can give you a US reporting problem before it gives you the structure you wanted. Your worldwide income generally remains subject to US income tax as a citizen abroad, and the company's ownership needs a separate review. ¹

This is general information. Your CPA and counsel confirm the details for your case.

The names can make the subject look inaccessible: Form 5471, controlled foreign corporation, GILTI and now net CFC tested income. Start with what each term asks you to establish. Who owns the company? How is that ownership counted? Which information must be filed? Which income calculation applies to this shareholder and this tax year?

Form 5471 is an information return with consequences

Certain US citizens and residents who are officers, directors or shareholders in certain foreign corporations must file it under sections 6038 and 6046. Your role and ownership determine which filing category needs review. Establish that category before choosing the required schedules. ²

The December 2025 instructions say Form 5471 is attached to your income-tax return and filed by that return's due date, including extensions. Put the company's reporting records into the preparation timetable before the personal return is nearly finished. Ask who will supply the information and who will confirm that the required schedules are complete. ³

Those instructions describe a $10,000 penalty for each annual accounting period of each foreign corporation when required section 6038(a) information isn't furnished. Continued non-filing after the stated IRS notice period can bring additional penalties up to $50,000 per failure, and failures can reduce available foreign tax credits by 10%. This isn't a form to leave unassigned between advisers. ³

A CFC test begins with ownership

Under the December 2025 instructions, a US shareholder is a US person owning at least 10% of total combined voting power or value, directly, indirectly or constructively. Map direct, indirect and constructive ownership on a complete chart. One share certificate may not show the relationships that need to be counted. ³

A controlled foreign corporation, or CFC, is a foreign corporation whose US shareholders own more than 50% of total combined voting power or total share value on any day of its tax year. The threshold is not simply whether your individual holding exceeds half. Have the ownership reviewed as a whole. ³

Form 5471 has different filer categories. Identify yours before selecting schedules or assigning preparation work. A foreign partnership or disregarded entity also needs its own classification and reporting review. Choose the entity for a defined business purpose, with its US treatment documented before formation.

Why GILTI now needs a tax-year label

WilmerHale's July 2025 analysis explains changes for tax years beginning after December 31, 2025. It reports that GILTI is renamed net CFC tested income, or NCTI. It also describes elimination of the deemed tangible income return and changes to the deduction and foreign-tax-credit treatment. ⁴

For corporate shareholders, that alert describes a 40% deduction and a 12.6% effective US rate on NCTI, with 90% of relevant foreign taxes creditable following the section 960 change. Those statements are about the specified corporate-shareholder treatment. They aren't a personal tax quote for you as an individual owner. ⁴

Confirm the filing treatment against the 2026 Form 8992 instructions when released. Keep the year and shareholder type beside every rate in your proposal. A rate for a corporate shareholder cannot simply be copied into an individual owner's calculation.

What about a section 962 election?

The December 2025 Form 5471 instructions say an individual US shareholder may elect under section 962 to be taxed at corporate rates on section 951(a) amounts and the GILTI inclusion, allowing a credit for certain foreign taxes paid by the CFC. That establishes an election to discuss. It doesn't establish that making it is right for you. ³

Ask for an explanation of your position with and without the proposed election, using the rules for the relevant year. Bring earlier returns and the company's records. The useful deliverable is a calculation tied to your facts, with open questions identified, rather than a rate copied from a presentation.

What this means for you

Choose the foreign company only after mapping its US reporting and tax consequences. The local licence and local rate are part of the decision, but your ownership percentage and US classification also matter. Put the annual compliance work into the operating plan before incorporation.

What to do this month

• Draw the proposed ownership chart through to the people behind each entity. Include relationships and interests that need an indirect or constructive ownership review.
• Assign responsibility for Form 5471 and company records before incorporation. Agree what the preparer needs and when the company will provide it.
• Label every tax calculation with the shareholder type and tax year. Remove any personal-rate assumption copied from a corporate-shareholder example.
• Keep the business purpose beside the compliance plan. The company should solve a defined ownership or operating need, with the reporting work budgeted and assigned.

Common mistakes to avoid

• Assuming local incorporation completes your US compliance work.
• Checking only direct ownership and ignoring the full ownership chart.
• Treating a corporate-shareholder rate as your personal rate.
• Leaving Form 5471 preparation until nobody has time to gather records.

The FNC angle

An FNC structuring discussion can begin with what the company must accomplish for ownership, banking and your international activities. Your CPA should evaluate the US classification, filings and tax treatment before implementation. The structure needs a clear purpose and an understood reporting burden. A foreign certificate alone doesn't resolve either question.