Form 1120-F – Foreign Corporations With US Business Activities Reporting for Expats

Running a business from overseas gives you freedom and flexibility, but it also adds layers of tax complexity. If you have a foreign corporation that does business in the US, one of the forms you’ll have to file is Form 1120-F. It is used to tell the IRS whether your company owes US tax on income connected to US business activities.

If you’re an expat running a business abroad with activities or income in the US , understanding this form is essential for staying compliant, avoiding penalties, and protecting your profits. In this article, we explore what Form 1120–F is for, common scenarios when expats have to file Form 1120-F, filing deadlines, and when to seek professional advice.

What is Form 1120-F?

Form 1120-F is the US Income Tax Return of a Foreign Corporation. It reports a foreign company’s income, deductions, and tax liability related to any business conducted in the United States.

In simple terms, the IRS uses this form to decide how much of your foreign company’s US income is taxable in the US. For example, this can happen if your foreign corporation earns money from US clients, owns US property, or maintains an office or other presence in the States.

When must expats file Form 1120-F?

An American entrepreneur’s foreign corporation must file Form 1120-F if it meets any of these conditions:

• It has income connected to a US trade or business, such as selling goods, providing services, or performing work in the United States.
• It has US-sourced income subject to withholding, such as interest, dividends, or royalties earned from US sources, and withholding was not taken at source to cover the tax liability.
• It has a physical or legal presence in the US, such as owning property, hiring employees, or maintaining a US-based agent.

Even if your company had no taxable income, it’s often a good idea to file a “protective return.” Doing this preserves your right to claim deductions and credits later if the IRS determines you were engaged in a US trade or business. If you don’t file, on the other hand, the IRS may tax your gross income without allowing any expenses.

The form’s other big benefit is avoiding penalties. The IRS can impose severe fines, even when no tax is due, if it believes your company should have filed but didn’t.

Common scenarios when expats should file Form 1120-F

Here are a few examples of when expats should file Form 1120-F:

• An American in Singapore has a marketing agency that has US clients. Some of that income could be treated as connected to a US trade or business.
• A foreign corporation sells through Amazon FBA with goods stored in US warehouses. Those goods often create a taxable US presence.
• A US citizen in Dubai owns a foreign company that rents out property in Florida. That rental income is US-sourced and must be reported.
• A European firm with a US shareholder hires a US contractor to perform work domestically. That can count as US business activity.

If your company bears any resemblance to any of these scenarios, you may have to file Form 1120-F. If you’re not sure, seek advice from an expat specialist US tax expert.

How the form is structured

Form 1120-F is complex to complete, but it follows a logical structure:

1. Income and deductions – For reporting all income, expenses, and resulting net income from US operations.
2. Tax computation – For calculating the corporation’s US tax after deductions and credits.
3. Balance sheet and schedules – For listing the companies’ assets, liabilities, and shareholder information.
4. Effectively connected income (ECI) – Separates US business income from non-US income.

You may also have to attach several schedules to Form 1120-F, including Schedule M-1 and M-2 for income reconciliation and retained earnings.

Form 1120-F filing deadlines and extensions

Form 1120-F is due on the 15th day of the sixth month after your corporation’s year-end. For calendar-year companies, that means June 15th (which is also the personal tax filing deadline for Americans living abroad).

You can request an extension using Form 7004, which gives you an extra six months to file. Remember, this extends your filing deadline, but not your payment deadline, and any tax owed must still be paid by the original due date.

What happens if you file late?

Failing to file Form 1120-F can be costly. The IRS can disallow all deductions, which means you could be taxed on your gross income, resulting in a far higher tax bill than necessary.

There’s also a standard late-filing penalty of 5% of unpaid tax per month, up to 25% total. Even if you owe nothing, filing late can delay other tax filings and trigger unwanted IRS attention.

Filing a protective form 1120-F

For many expats, the smartest move is to file a protective Form 1120-F. This is a proactive way to protect your right to deductions if the IRS later decides your company engaged in US business activity.

When filing a protective return, you can include a note such as “Protective return filed pursuant to Treas. Reg. §1.882-4(a)(3)(vii).” This signals your intent to comply, even if you believe your corporation isn’t technically required to file.

How to know if you have a US trade or business

The IRS doesn’t provide a single checklist, so each case depends on facts and circumstances. Key indicators include:

• Where contracts are negotiated, signed, and performed
• Whether your company has employees, agents, or offices in the United States
• Whether products or services are delivered in the US
• If business assets are located such as inventory or equipment or located in the US

Even an online e-commerce company can trigger a US tax presence if, for example, it has inventory in US warehouses or uses American contractors. Tracking where your income-generating activities occur is important, and you should seek advice from an expat tax specialist if you’re not sure whether you need to file or not.

Do expats also need to file Form 5471?

This is one of the most common questions among expats who own foreign corporations. While both forms are for foreign corporations, Form 1120-F is for reporting a foreign company’s US-connected income, while Form 5471 is for reporting your ownership in that foreign company.

US persons who are officers, directors, or shareholders in certain foreign corporations have to file Form 5471. It’s an informational form filed with your personal tax return, not the corporation’s return.

You must file Form 5471 if you:

• Own more than 50% of a foreign corporation, either directly or indirectly
• Acquire or dispose of shares that change your ownership percentage and meet the 10% stock ownership requirement
• Serve as an officer or director of a foreign corporation in which US persons own at least 10%

Even if your corporation files Form 1120-F, you may still need to file Form 5471 to report your ownership stake. The two forms serve different purposes and often apply at the same time working together to give the IRS a full picture of both corporate and shareholder-level activity.

Failing to file Form 5471 carries a steep penalty of at least $10,000 per missed form per year.

Tax treaties may be applicable

Many countries have signed international tax treaties with the US that define when and how income can be taxed. Treaties often reduce or eliminate double taxation for businesses, or at least define which country can tax it first.

Seek advice from an expat tax expert who will review both their country’s tax treaty with the US and how local rules treat foreign income to ensure you’re not taxed twice on the same earnings.

If your country of residence has a tax treaty that can alleviate double taxation of business income, you’ll need to file Form 8833 to claim the provision. You may also be able to claim US tax credits on Form 1118.

Avoiding double taxation

Expats often face the challenge of paying tax in two countries on the same income. The right strategy and filing approach can reduce or eliminate that risk.

You can use two main tools:

1. Foreign tax credits – Offset US tax by the amount paid to another country.
2. Tax treaties – Specify which country has the first right to tax specific types of income.

For instance, a US expat living in France who owns a French company that occasionally sells to American customers may qualify for treaty protection that limits US taxation on those sales.

Don’t forget supporting documentation

When submitting Form 1120-F, you should attach supporting information, such as:

• Financial business statements showing income and expenses
• A breakdown of US-sourced versus foreign income
• Any treaty disclosures, usually on Form 8833
• Details of deductions, credits, and taxes paid abroad

Keep organized and accessible records for at least seven years. If the IRS audits your filing, you’ll need documentation to support every figure.

Why professional help matters

Form 1120-F is not a form you should attempt yourself. It’s a complex form, with potentially significant penalties if it’s not filed correctly.

A qualified US expat tax specialist understands how foreign entities interact with US tax law. They can assess whether your company has a taxable US presence, determine treaty benefits, and prepare the form correctly.

At Online Taxman, we have extensive experience helping American international entrepreneurs file Form 1120-F and optimize their taxes. Get in touch to find out how we can help.

Managing international tax obligations is the backbone of a sustainable global business, no matter where in the world you choose to live. Filing Form 1120-F lets you define when your foreign corporation owes US tax and how much. It also safeguards your right to deductions and treaty benefits.