As the year ends, some of you may be thinking of what you will do in 2014 for business. Maybe you will start a new one. If you do, give careful thought to how to structure things, especially if you are a U.S. citizen in Chile (or anywhere overseas). The U.S. tax code has some difficult to understand sections that can make your life miserable if you don’t plan properly. A number of qualification tests start with the ownership percentage of “10% or more”. If you own 10% or more of a Sociedad de Responsabilidad Limitada (Ltda), for instance, you have special reporting requirements, especially if others like you own “more than 50%” of the Ltda. The IRS (Internal Revenue Service) can and will impute “Controlled Foreign Corporation” (CFC) status to your Ltda, even though it’s not technically a corporation. There are some rather onerous reporting requirements in this case that are avoidable. Even if the Limitada does not pass the CFC test, 10% or more ownership in a foreign partnership has its own problematic filing issues. It doesn't necessarily mean you'll pay more in taxes but the non-filing penalties are draconian. The above does not consider any imputed control based on “constructive ownership” rules, which only adds to the confusion. Consider owning less than 10% right from the start, if it doesn’t interfere with your business purpose. This is a very complicated area of law that should be examined closely before any decisions are made. You can file a form with the IRS to treat the Ltda as a “pass-through” (or invisible) entity but that’s for another entry.
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