Do I file Form 1120-F even if no tax is owed?
Annual return obligations of this kind are generally required on the facts rather than on the tax result, so a nil position does not remove one. Foreign corporations with a US permanent establishment, US business activity, or US income where the treaty position needs to be claimed on a return.
What happens if I have missed Form 1120-F for several years?
Missed years are dealt with as a package rather than one at a time, because the route chosen for the first year affects the relief available for the rest. We map the years and the obligations before anything is filed.
Is Form 1120-F the same as the other reports I already file?
No. The foreign corporation's US return, reporting income effectively connected with a US trade or business and US-source income not fully withheld. Satisfying a different obligation, even one covering the same accounts or entity, does nothing for this one.
Do we file a US return if the treaty says we have no permanent establishment?
Often yes, and the reason is protective rather than about tax owed. The return is where the treaty position is claimed. Filing on time keeps the deductions and the position available even where the conclusion is that no US tax is due, while filing nothing leaves the corporation relying on an assertion it has never put in front of the IRS. If the analysis is later challenged, the difference between a filed protective return and silence is the difference between arguing about the analysis and arguing about whether relief is available at all.
What is a protective return and when should a foreign company file one?
It is the return filed by a foreign corporation that believes it owes no US tax, in order to preserve its position. The corporation reports the position rather than a liability, claims the treaty article it relies on, and puts the facts on record. It is the sensible course wherever US activity is real but the conclusion is that it falls short of a taxable presence: sales staff visiting customers, a short project, an agent acting in the United States. The judgement is about facts, and the filing preserves the deductions if that judgement turns out to be wrong.
We filed Form 1120-F late, so can we still claim our deductions?
This is the risk that makes timing matter more here than on most returns. Deductions and credits against effectively connected income depend on a return being filed, and filing late can put them out of reach, leaving tax computed on gross receipts rather than on profit. The remedy is fact specific and has to be argued rather than assumed. Get the outstanding years prepared and filed, with the reasons for the delay recorded as they actually were, and treat the deduction position as something to be established rather than taken for granted.
Our US income already had tax withheld at source, so must we file?
It depends on what the income is. Where US-source income is fully satisfied by withholding at the correct rate, a return may not be required for that income. Where the withholding was applied at the wrong rate, where a treaty rate was available and not used, or where the income is connected with a US trade or business rather than passive, the return is how the correct position is claimed and any excess recovered. Withholding is applied to gross receipts rather than to profit, so the amount collected routinely exceeds the tax actually due.
What makes income effectively connected with a US trade or business?
It turns on activity, not on where the customer happens to be. The question is whether the corporation is carrying on business in the United States, through its own people, an office, or someone acting for it, and whether the income arises from that activity. Selling to US customers from abroad is not the same as operating in the United States. Where there is activity on the ground, a treaty may still confine taxation to profits attributable to a permanent establishment. Both questions have to be answered, and the second does not remove the filing question.
Our sales staff visit US customers, so does that create a filing obligation?
It can, and the answer depends on what they do rather than on how long they stay. People who solicit and take orders, an agent habitually playing the principal role leading to the conclusion of contracts, a fixed place kept at the corporation's disposal: these are the facts that decide it. Keep travel records, contracts and correspondence, because the analysis is built out of them. Where the conclusion is that there is no taxable presence, a protective return is how that conclusion is recorded rather than merely held in someone's head.
Why should a Canadian rarely own a US LLC?
Because the two systems classify it differently. The United States generally treats a single-member LLC as transparent while Canada treats it as a corporation, so the income is taxed in different hands in each country and the foreign tax credit does not line up. The result is tax paid twice with no relief to claim. Other structures reach the same commercial outcome without the mismatch. See why a Canadian should rarely own an LLC.
What is a foreign trust for US tax purposes?
A trust that is not a domestic trust — broadly, one that fails the tests looking at whether a US court can exercise primary supervision and whether US persons control the substantial decisions. The classification decides everything downstream: whether the settlor is taxed on the income as owner, how distributions to US beneficiaries are taxed, and which annual information returns are due. Many ordinary foreign arrangements, including some pension and education savings vehicles, land inside the definition. See Form 3520-A.
