How FinCEN’s BOI Rules Impact Foreign-Owned U.S. Entities: What You Need to Know

The Corporate Transparency Act (CTA) is a law designed to make business ownership in the United States more transparent. Foreign-owned entities operating in the United States must follow the same transparency rules as domestic companies under the Corporate Transparency Act.

These rules prevent illegal activities like money laundering and tax evasion by requiring detailed BOI reports.

For foreign-owned U.S. entities, understanding these obligations is crucial to staying compliant and avoiding penalties. 

In this blog, we’ve discussed the key reporting requirements for foreign-owned entities, the information they must disclose, and the steps necessary to ensure compliance with FinCEN.

Applicability of the CTA to Foreign-Owned Entities

The CTA applies to nearly all foreign entities created or registered in the U.S., including those owned by foreign individuals or corporations. Specifically, foreign-owned entities covered under the CTA include:

• Foreign Corporations: Companies registered to do business in the U.S. but owned or controlled by foreign individuals or organisations.
  
• Foreign LLCs: Limited liability companies registered in the U.S. with foreign owners or investors.
  
• Other Entities: Partnerships or similar structures formed or registered under U.S. state or tribal laws.

Beneficial Ownership Reporting for Foreign-Owned Entities

Foreign-owned entities are required to submit beneficial ownership reports to FinCEN, providing details about the individuals who qualify as beneficial owners of the company. These individuals should  meet any of the following criteria:

• Individuals who make major decisions for the company.
• People who own or control at least 25% of the company.
• Those who receive significant financial benefits from the company.

This ensures that foreign owners with direct or indirect influence over the business are identified and reported.

Required Information

For each beneficial owner, the following information must be reported:

• Full Legal Name: The complete name of the individual.
  
• Date of Birth: To help confirm their identity.
  
• Residential or Business Address: This must be a current address where the individual resides or conducts business.
  
• Identification Document: A unique identifying number from an acceptable ID, such as a passport, driver’s license, or similar official document.

All this information is kept secure in FinCEN’s database, accessible only to authorised government bodies and institutions for legitimate purposes.

Common Scenarios for Foreign-Owned Entities

Foreign-owned entities can fall into various scenarios that determine how the CTA reporting rules apply. Here are some common examples:

1. Wholly-Owned U.S. Subsidiaries

When a foreign company fully owns a U.S. subsidiary, the details of the foreign company’s beneficial owners must be reported. This includes people or entities with major control or ownership of the parent company.

2. Joint Ventures

When a U.S. entity partners with foreign investors or entities in a joint venture, the beneficial owners of the foreign partners must be reported, provided they meet the ownership or control criteria under the CTA.

3. Multi-Layered Ownership Structures

In cases where ownership passes through multiple companies, foreign or domestic, you must identify and report the ultimate beneficial owners. This process may involve tracing ownership through several layers.

Exemptions and Special Considerations

Not all foreign-owned entities are required to report under the CTA. Some qualify for exemptions, depending on their structure and level of regulation:

1. Publicly Traded Companies

If the foreign parent company is publicly traded in a jurisdiction with strict transparency and reporting requirements, its U.S. entity may be exempt.

2. Large Operating Companies

U.S.-based entities owned by foreign interests may be exempt if they meet all these conditions:

• Employ more than 20 full-time workers in the U.S.
• Generate over $5 million in annual revenue.
• Maintain a physical office within the U.S.

3. Regulated Entities

Financial institutions, insurance companies, and other heavily regulated businesses are generally exempt because their ownership is already transparent to regulators.

Foreign-owned entities should carefully assess their eligibility for these exemptions, as misclassification can lead to legal and financial consequences.

There are 20+ exemptions with the FinCEN, and you can check the complete list of exemptions here.

Reporting Obligations Faced by Foreign-Owned Entities

Handling FinCEN’s BOI rules doesn’t have to be complicated if you take the right steps. Here’s what foreign-owned entities can do:

1. Identify Beneficial Owners

Understand your ownership structure and figure out who the beneficial owners are. As per FinCEN’s act, look for those who own at least 25% or have significant control.

2. Collect and Verify Information

Gather necessary details, such as identification and proof of ownership, for all beneficial owners. Verify the accuracy of this information before submitting your report to ensure compliance.

3. Implement Internal Controls

Create a system to keep ownership records updated. This will help you stay compliant if there are changes in owners or company structure.

4. Get Professional Help

Work with U.S.-based legal or tax advisors who know FinCEN regulations. They can guide you and reduce risks of mistakes.

5. Monitor Reporting Deadlines

Companies formed on or after January 1, 2024, must file BOI reports within 30 days of their formation. For companies formed before January 1, 2024, the deadline to file is January 1, 2025. Companies should stay informed about the BOIR deadline and avoid penalties.

6. Understand Penalties 

Non-compliance with CTA reporting requirements can result in severe penalties. Companies may face fines of up to $591 daily for ongoing violations and potential criminal charges for intentional misreporting. CTA penalties also apply to incorrect or incomplete submissions, making accuracy crucial.

7. Reporting Obligations for Inactive Entities

Even if your company isn’t active, it may still need to comply with BOI reporting under the CTA. For example, foreign-owned shell companies or holding entities often fall within these rules, as they can still be considered reportable unless they meet specific exemptions. Carefully assess the status of your inactive entity and verify if it qualifies for an exemption under FinCEN guidelines.

8. Access to Information for Disclosure

To ensure compliance with anti-money laundering and transparency requirements, authorised parties, such as U.S. law enforcement, regulatory bodies, or financial institutions, may access the BOI information you report. For foreign-owned entities, this means greater scrutiny of ownership structures.

9. Use Technology

Consider using software that automates BOI reporting. It can make collecting, storing, and submitting information much easier.

ComplyCTA: Easy BOI Filing for Your Business

To comply with the Corporate Transparency Act (CTA) and avoid penalties, rely on ComplyCTA for a hassle-free filing experience. This secure and user-friendly platform lets you file or update your Beneficial Ownership Information (BOI) quickly and confidently.

With features like quick filing in just minutes, real-time updates to align you with CTA rules, and built-in security checks that meet AML standards, ComplyCTA ensures a seamless process every time. Whether you’re filing for the first time or updating details, ComplyCTA simplifies compliance so you can focus on your business.

Conclusion

Foreign-owned U.S. entities must navigate the Corporate Transparency Act to ensure compliance with FinCEN’s beneficial ownership rules. By understanding the applicability of the law, the information required, and the available exemptions, businesses can avoid penalties and maintain a good reputation.

While compliance may seem challenging, it offers an opportunity to build trust with stakeholders and demonstrate commitment to transparent operations. For businesses unsure about their obligations, seeking professional guidance is a smart first step toward effectively meeting the CTA’s requirements.