What is a controlled foreign corporation (CFC)?

A foreign corporation is a CFC when US shareholders — each owning 10% or more of vote or value — together own more than 50% of the corporation's stock. Once it's a CFC, its 10% US shareholders can be taxed on their share of certain foreign income (Subpart F and GILTI) whether or not the corporation distributes a dime.

Does GILTI mean my foreign profits are taxed every year even if I don't bring the money home?

Generally yes. GILTI (Global Intangible Low-Taxed Income) requires 10% US shareholders of a CFC to include most of the CFC's active earnings in US income each year, above a routine 10% return on tangible assets. C corporations get a deduction and a foreign tax credit that soften it; individuals often pay more unless they plan for it.

Should I set up a foreign branch or a foreign subsidiary?

A branch's profits and losses flow onto your US return immediately — useful early on when the venture is losing money. A subsidiary is a separate foreign corporation that can defer some tax and limit liability, but triggers CFC rules, GILTI, and Form 5471. The right answer depends on whether you expect early losses, the foreign tax rate, and your US entity type.

Who has to file Form 5471, and what happens if I don't?

US persons who are officers, directors, or 10%-or-more shareholders of certain foreign corporations must file Form 5471 with their return. The penalty starts at $10,000 per form per year for late or missing filings, with more for continued failure — and it can keep your whole return's statute of limitations open until you file.

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Outbound Tax

US Outbound Tax: What Businesses Owe When They Expand Abroad

Expanding overseas doesn't defer US tax the way it used to. CFC rules, GILTI, and Form 5471 mean a US owner is often taxed on foreign profits the year they're earned — long before any cash comes home.

SMAART Tax Team

February 10, 2026

8 min read

|Reviewed by Ray Dominguez, EA, USTCP