U.S. Shareholders of Korean Companies: How to Avoid a Tax Bomb
Since the 2017 tax reform, profits from your Korean corporation can be included in your U.S. personal income tax, even without a dividend. Understand the complex GILTI rules and learn how to dramatically reduce your tax burden through legal elections.
Step 1: Calculate Your Potential GILTI Tax
First, use your Korean corporation's (CFC) information to calculate your potential GILTI taxable income and understand the scale of the issue.
Your Potential
GILTI Taxable Income
$800,000
Formula:
Tested Income - (QBAI × 10%)
$1,000,000 - ($2,000,000 × 10%)
Step 2: Find Your Optimal Strategy
The best tax-saving strategy depends on your Korean corporation's actual tax rate. Enter your corporation's Effective Tax Rate (ETR) to see your most advantageous option.
Step 3: Compare Tax Burdens by Strategy
Visually compare how your final U.S. tax liability differs when you make no election versus when you choose each strategy.
Core Compliance Duty: Form 5471
The foundation of any tax strategy is diligent reporting. CFC shareholders must report detailed information about the corporation annually on Form 5471, with severe penalties for non-compliance.
View Key Reporting Items on Form 5471
- **Schedule A & B:** Stock of the foreign corporation and its U.S. shareholders.
- **Schedule C & F:** Income statement and balance sheet (per U.S. GAAP).
- **Schedule E & J:** Earnings & Profits (E&P) statements.
- **Schedule I-1:** Information for Global Intangible Low-Taxed Income (GILTI).
- **Schedule P:** Tracking of Previously Taxed E&P (PTEP).
- **Schedule Q:** Calculation of deemed-paid foreign taxes.
Important: Risks of Non-Filing
Penalties start at $10,000, and the statute of limitations for your entire income tax return for that year can be suspended indefinitely. This means the IRS can audit that year at any time in the future.