sole proprietorship in foreign country

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ketanco
Posts: 130
Joined: Wed Jul 24, 2013 7:09 pm

sole proprietorship in foreign country

Post by ketanco » Mon Aug 13, 2018 4:09 am

As a US citizen in foreign country, when I open a sole proprietorship here, I know that when doing US taxes I report this on schedule C as usual. Do i need to also file form 8858? Or that form doesnt apply to a sole proprietorship, and it would only apply if I would establish a company?

Any any other forms? ( I already know about still having to pay SE taxes, or foreign income exclusion, or foreign taxes paid form. )

Cuzz35
Posts: 429
Joined: Mon Jun 28, 2010 11:14 pm
Location: Marietta, GA

Re: sole proprietorship in foreign country

Post by Cuzz35 » Mon Aug 13, 2018 5:43 am

When you say you are going to open a sole proprietorship do you mean you are creating a specific leg entity in the foreign country? If so, you will need to check and see how that entity type is treated for U.S. tax purposes. Many foreign single member entities are treated as corporations under U.S. law. If that is the case then you would probably have to file form 5471. However, you can usually make an election to have the entity taxed as something other than a corporation such as a disregarded entitiy. In that specific case you woould file the 8858 form. You might also have to file form 8938.

Here is a decent article that explains it some as well. I think most of this is relatively unchanged. https://www.thetaxadviser.com/issues/20 ... poses.html

Topic Author
ketanco
Posts: 130
Joined: Wed Jul 24, 2013 7:09 pm

Re: sole proprietorship in foreign country

Post by ketanco » Mon Aug 13, 2018 9:20 am

What do you mean by leg entity? This is not going to be a company. It is treated the same as its owner, as in the US sole proprietorship, with unlimited liability for the owner. It is not subject to entity tax here for example. It can have any name you choose or your personal name.

Cuzz35
Posts: 429
Joined: Mon Jun 28, 2010 11:14 pm
Location: Marietta, GA

Re: sole proprietorship in foreign country

Post by Cuzz35 » Mon Aug 13, 2018 6:19 pm

ketanco wrote:
Mon Aug 13, 2018 9:20 am
What do you mean by leg entity? This is not going to be a company. It is treated the same as its owner, as in the US sole proprietorship, with unlimited liability for the owner. It is not subject to entity tax here for example. It can have any name you choose or your personal name.
I mean creating a legal entity in another country to conduct business. If you're simply being paid personally for selling products and services than you aren't "opening a sole proprietorship." You're just doing business as a individual and you seem to have a handle in the forms you need to file. No 8858.

Generally though if you have unlimited liability and one owner, then the default classification is to treat the company as a disregarded entity and file form 8858. I don't see very many foreign companies set up that give the owner unlimited liability though which is why I raised by previous points.

Topic Author
ketanco
Posts: 130
Joined: Wed Jul 24, 2013 7:09 pm

Re: sole proprietorship in foreign country

Post by ketanco » Tue Aug 14, 2018 12:28 am

You described exactly what i will do: " simply being paid for selling products and services". When you do like this here, you must register yourself with tax department, and an accountant must keep a notebook where he writes your plusses and minuses every month, and submit to tax department. That is how you pay taxes here, as individual, working for himself. Then they call you a tax registered person, and by default, it is called a sole proprietorship. I guess the keyword is "entity" here. I think there is not a separate entity in the first place, it is just a personal tax id number they assign to you, and no entity tax.

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