Tax Filing Requirements for Foreign Trusts & Entities Owned by Foreign Trusts

As all of our clients know, we do not handle or advise on tax filings. Rather, a Certified Public Account with experience dealing with foreign trusts and foreign asset protection entities can add significant value to your strategic planning, and we are always happy to interface with your CPA.

The vast majority of foreign trusts that we form do not pay taxes as a separate entity. Rather, the grantor (i.e. the creator of the trust) pays taxes on behalf of the offshore trust. In other words, the necessary IRS and FinCen filings are largely informational and administrative in nature. It’s very rare that a trust or business entity we form would be required to pay taxes on its own behalf, unless you have a specific reason where separate taxation would be beneficial to you.

You should work with your CPA to obtain a Taxpayer Identification Number (“TIN” or “EIN” for Employer Identification Number) for your trust and business entities and to understand how they work from a tax perspective.

With the idea in mind that we strongly advise you to hire a CPA, these are the basic tax filing and financial disclosure requirements for foreign asset protection trusts (and business entities and/or individuals that hold international assets or offshore accounts). Please note that this list is not exhaustive, and it may change:

  1. IRS Form 3520 and Form 3520-A for Offshore Trusts
  2. IRS Form 1040 NR (with the Trust box checked)
  3. FinCen Report 114 (commonly called FBAR)
  4. FATCA on IRS Form 8938

If you have a business entity (e.g. limited liability company, limited partnership, corporation, etc.) that is owned by a foreign trust or that is considered a foreign corporation or business entity, you may also be required to file IRS Fom 5471. Foreign partnerships are required to file IRS Form 8865, and passive foreign investment companies must file IRS Form 8621.

One other filing requirement that is worthy of mention is IRS Form 5472. This filing require domestic business entities that are wholly-owned by foreign individuals to report its beneficial owners. This applies to you if you have a business entity that was formed in the United States but is owned by a foreign trust.

Again, the best way to minimize risk and make sure that you’re complying with all the financial and tax reporting requirements is to hire a knowledgable Certified Public Accountant. If you’d like for us to refer you to an accountant, please contact us and we will be happy to make recommendations, as we work with many CPAs who are experts in dealing with foreign and offshore asset protection trusts.