When an Immigrant Owns a Foreign Company: CFC, Subpart F, NCTI and Form 5471

The issue

While its owner is a nonresident alien, a foreign operating or holding company is outside US tax and US reporting. Once the owner becomes a US resident, the company may be a CFC, and the owner a US shareholder who includes part of its income on a US return each year and files Form 5471, although nothing in the company itself has changed. For a person who becomes resident under the substantial presence test, residence generally starts with the first day spent in the United States in that calendar year.

Who the guide is for

The guide is written for US advisors to entrepreneurs, families whose wealth sits in a holding company abroad and founders holding shares in a foreign start-up, before or after a move. It also serves advisors reviewing the returns of a client who became resident in an earlier year without filing Form 5471.

CFC status and attribution

A US person holding at least 10 percent of the vote or value is a US shareholder, and the company is a CFC once such shareholders together hold more than 50 percent. Both tests count ownership through family members and through entities, so control may exist although no one person holds it. Family attribution does not reach shares held by relatives who are nonresident aliens (I.R.C. § 958(b)(1)). The guide also addresses the 2025 changes, including the restored limitation in I.R.C. § 958(b)(4) and the new I.R.C. § 951B.

Subpart F and NCTI

Subpart F taxes the shareholder currently on dividends, interest, rents, royalties, gains and similar passive income, and on foreign base company and insurance income, as the CFC earns them. For tax years beginning after December 31, 2025, GILTI became net CFC tested income and the exemption for a 10 percent return on tangible business assets was eliminated, so nearly all remaining active earnings are tested income. A US corporate shareholder computes NCTI with a 40 percent deduction under I.R.C. § 250 and a 90 percent indirect foreign tax credit; an individual receives neither by default.

The section 962 election and the high-tax exception

Under I.R.C. § 962 an individual may elect corporate treatment for the inclusions: the 21 percent rate, the deduction and the indirect credit. The cost is a second tax on later distributions to the extent they exceed the US tax paid under the election, so the election is modeled each year. The high-tax exception allows income taxed abroad at an effective rate above 18.9 percent, 90 percent of the corporate rate, to be excluded from both inclusions by election. For a company taxed at an ordinary rate at home, it is the first question.

Form 5471, previously taxed earnings and PFIC

Continued failure after an IRS notice adds up to USD 50,000 more per form, foreign tax credits are cut, and the open limitations period is confined to the related items only if reasonable cause is established. The guide explains how previously taxed earnings and basis prevent a second tax on distribution if tracked from the first year, and why a CFC is generally removed from the PFIC regime for its US shareholders but not for smaller US holders.

Pre-residency planning

Before the residency starting date, a check-the-box election treating an eligible foreign corporation as a disregarded entity or partnership produces a deemed liquidation that is generally without US consequence for a nonresident and leaves no corporation to be a CFC; after that date the same election is a taxable liquidation. Per se corporations, such as a German AG, cannot elect. Distributing accumulated earnings and simplifying multi-tier structures complement the election. Where the company must remain, the guide sets out the annual compliance routine.

The questions the guide answers

• When does a foreign company owned by a new US resident become a CFC, and from what date?
• How do the 10 percent and more-than-50 percent tests apply to family and entity ownership?
• Which income is included currently under Subpart F and under the 2026 NCTI rules?
• When do the high-tax exception and an election under I.R.C. § 962 reduce the cost, and what does the election cost later?
• What does Form 5471 require, and what follows from a missed filing?
• Which steps must be taken before the residency starting date, and what remains if the company has to stay?

The firm works with the client’s advisors in the United States and the home country: it identifies foreign holdings before the move, determines CFC status and the inclusions, tests the high-tax exception, models the election under I.R.C. § 962, remedies missed Forms 5471 and implements pre-residency restructuring while it is still possible. The company’s home-country tax position is coordinated with counsel there.