All U.S. owners, who own 10% or more of a foreign company, must include their pro-rata share of the accumulated earnings of the foreign company as income in 2017. This is effectively requiring the U.S. owner to pay a transition tax on the untaxed foreign earnings.
Deemed Repatriation for 2017
All U.S. owners, who own 10% or more of a foreign company, must include their pro-rata share of the accumulated earnings of the foreign company as income in 2017. This is effectively requiring the U.S. owner to pay a transition tax on the untaxed foreign earnings.
This deemed repatriation regime applies to all types of U.S. owners, with varying impacts. The income is taxed at a reduced rate. However, an election can be made to pay the tax in installments. The installment payments for years one through five is 8%; year six is 15%; year 7 is 20%; and year eight is 25%. The initial payment is due April 17, 2018.
Special Rule for S Corporations
S corporation owners can elect to defer paying the tax indefinitely until a triggering event occurs. The decision should be analyzed on a case-by-case basis.
All taxpayers owning 10% or more of a foreign company(ies) need to include additional information and disclosures with their 2017 tax return, even if no tax is due.