The SARL in France, U.S. Tax and Entity Reporting Rules

The (SARL) in France, U.S. Tax & Entity Reporting

The (SARL) in France, U.S. Tax & Entity Reporting

When it comes to international tax and reporting, one of the most complicated aspects for individual U.S. taxpayers is accurately reporting foreign businesses and other entities. The reason why this can get so complicated is because there are many different countries and each country has its own set of entities and limited liability structures– and France is no exception. While there are many different types of entity structures that a person can form in France, one of the more common types is the SARL (Société à Responsibilité Limitée).  This type of company is similar to an LLC (Limited Liability Company) or S-corporation in the United States. Let’s walk through the basics of SARL and what types of tax and reporting may be required.

SARL Société à Responsibilité Limitée.

The SARL Is directed at small and medium-sized companies and only requires a minimal capital investment. While technically it is the entity that is taxed in France, the SARL rules are similar to the limited liability company in the United States — so that taxpayers can be taxed on their personal income as opposed to through the company. Some additional factors may impact the ability to transition to personal income tax instead of company income tax for the SARL, but for the most part, most taxpayers in the early stages of creating a SARL will opt for personal income tax. Similar to other types of structures in France, the SARL also requires a Gerant — which is essentially the ‘manager’ of the company.

SARL Reporting on Form 5471

Since the SRL is an entity, U.S. taxpayers who have an ownership or interest in a SARL are required to report it on their tax return. The two main forms the taxpayer may have to file would either be the form 5471 or the form 8938. Form 5471 is the more complicated of the two forms and depending on which category of filer the taxpayer qualifies as would determine whether or not they are required to file Form 5471 if they are required to file it every year (such as if it is a controlled foreign corporation), and/or whether they only be required to file it as a category two (2) or three (3) filer or in a year in which they acquire or relinquish certain ownership.

Form 8858/8832

As an alternative, some taxpayers may consider disregarding the entity for U.S. tax purposes and filing Forms 8832 and then 8858 instead of Form 5471. In general, taxpayers prefer the 8858 and 8832 scenarios because the ongoing reporting would be less comprehensive. Nevertheless, there are still various complications and having to file these two forms along with timing rules, so taxpayers should be aware of this before they make late elections.

SARL is Not a Per Se Corporation

The US government has determined that some companies are not eligible to make an election and instead have to be treated as a foreign corporation, which is referred to as a per se corporation — in other words, this structure cannot be disregarded. Luckily for taxpayers with an essay URL, this type of structure is not listed on the per se corporation list.

Form 8938

In any year that the taxpayer is not required to file Form 5471 because they do not qualify as one of the categories of filers, but the taxpayer is still required to file a Form 8938 because the totality of their foreign assets excludes the threshold requirements, the SARL would also be listed on a Form 8938 as an asset that they own. For example, if a taxpayer has a 4% ownership in a SARL, this ownership would be reported on Form 8938 unless it is a year in which they became below or above the 10% ownership thresholding — in which they would require a Form 5471 for that year.

FBAR Signature Authority or Ownership

Just owning a foreign corporation does not require a person to file an FBAR. However, many taxpayers may have signature authority over accounts owned by the business, which then would require the taxpayer to include the accounts on their FBAR involving the signature authority. The taxpayer may even have ownership of foreign corporations in their name which is used by the corporation but still in their name, so this too would be filed on the FBAR.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.