Does my US company file Form 1120 if it had no activity?
Yes. The return belongs to the corporation because of what it is, not because of what it earned, so a dormant year is a nil return rather than no return. This is the commonest reason a foreign group ends up with a stack of unfiled years: the US subsidiary was incorporated ahead of a plan that changed, nobody traded through it, and everybody assumed the obligation began with the first invoice. A nil return filed on time is a small piece of work and it keeps the company's filing history intact. An unfiled year is a gap that has to be explained later, usually at the worst possible moment.
My foreign company owns a US subsidiary — which one files Form 1120?
The US subsidiary, in its own name. It is a US corporation and therefore a US taxpayer on its own account, and the foreign parent does not become a filer of that return by virtue of owning it. What the ownership changes is the content rather than the identity of the filer: the payments between the two companies, the terms they are on, and the disclosure of the relationship all belong on the subsidiary's return. That is where a foreign group's real work sits. The parent's own US position, if it has one, is a separate question from this return and turns on the parent's own activity.
Can a tax treaty stop my US corporation paying US tax?
No, and it is worth being clear about that before a structure is chosen. A US corporation is a US resident, and the treaty does not reduce a resident's own tax on its own profits. Where the treaty bears on this return is the payments going into and out of the company — what is withheld on a dividend, interest or royalty paid to a foreign shareholder or affiliate, and how the other country treats what it receives. So a treaty question here is almost always about a payment crossing the border, not about the corporation's rate. The consequence is practical: the useful conversation happens before incorporation, not at filing.
Do I report the company's profit on Form 1120 or on my own return?
The corporation files and pays on its own profit. It is a separate taxpayer, so its income is not your income simply because you own the shares. What reaches you is what the company pays you, and that is reported by you when it is paid. Owners of small US corporations often run one set of books for both and are then surprised that the two returns tell different stories. Keeping the company's transactions in the company, and documenting anything that moves between the two of you — salary, dividends, loans, expenses met personally — is what makes both returns defensible.
We incorporated in Delaware but trade entirely outside the US — do we file?
Yes. Where the company was formed is what makes it a US corporation, and a US corporation files on its worldwide profit, so trading abroad does not take the return away. It adds to it, because foreign operations bring foreign tax, currency and disclosure questions onto a US return. Founders who incorporated in the United States for investors and then built the business elsewhere are the usual version of this. The return is unavoidable. What deserves attention is whether the structure that produced it is the one the business actually needs, and that is a question about the group rather than about the form.
Should we take advice before incorporating or at the first filing?
Before. Almost everything that makes a cross-border US corporation expensive is fixed when the entity is set up and the flows between it and its affiliates are agreed: who owns the shares, which company employs the people, what the US company pays for and on what terms. By the time the first return is being prepared those facts are history, and the return can only report them. The pre-incorporation conversation is short and concrete, and it is about the payments in and out of the company rather than about the form itself. Our fee for it is agreed in writing before work starts.
Why are corporations double taxed?
Corporate double taxation happens because the company and its owners are separate taxpayers. The company pays tax on its profit; when the after-tax profit is distributed, the shareholder pays tax on the dividend. Canada softens this with the dividend gross-up and credit, which is meant to leave a shareholder roughly where they would have been earning the income directly. The United States taxes the C corporation and then the dividend, with no equivalent integration. See dividends to a foreign parent.
Can I set up a trust that works in two countries?
You can, but the two systems classify and tax trusts differently enough that a structure which is efficient in one is often a reporting problem in the other — a Canadian family trust with a US beneficiary, or a US revocable trust holding Canadian property, are the classic pairs. Canada's twenty-one-year deemed disposition, the US grantor rules and each country's reporting have to be read together, before drafting rather than after. See cross-border wills and trusts.
