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Mail Bag 6 – German Corp, Australian SMSF, French Capital Gains, Foreign Owned LLC, and Unreported ISAs

1. German GmbH, UG

I am a US Citizen living in Germany. I am an owner in a GmbH (80% owner), as well as a UG entity (100%) in Germany.

Am I required to file a US Form 5471 in both scenarios? Would the US consider my UG a disregarded entity for tax purposes and therefore I can reported my UG net income on a Schedule C? Or must I file a 5471 instead? I look forward to hearing back from you.

The GmbH is a corporation set up in a foreign country. It would require form 5471 – please review our guide to foreign corporations.

The UG (haftungsbeschränkt) is a simplified version of GmbH that can be founded with a minimum share capital of one Euro. It is still a company with limited liability. Limited Liability means it is not a disregarded entity. UG also required form 5471, however since you only own 20% filing will be simpler and include fewer schedules.

2. Australian SMSF

I’m an AUS/US dual citizen that just moved to Australia. I’ve never worked here before and I need to set up a super account in the next few days for my employer to contribute to. It seems I should avoid PFICs (ie non US mutual funds)? I’m looking urgently for a super fund that will have the least amount of US implications?

Australian SMSF (Self Managed Super Fund) is not treated as a foreign pension by the IRS. It is a foreign grantor trust. SMSF owner must annually file form 3520-a, whether they receive distributions from the fund or not.
If you want to avoid complicated tax filing in the US it is better to stay away from SMSF. Whereas employer-sponsored Superannuation is recognized as foreign pension plan. You will not be required to report PFIC holdings inside the plan. However, employer contributions to the plan need to be added to your annual taxable earnings in the US. From the IRS prospective this is a part of your compensation not allowed for deferral. When you start drawing money from the fund the distributions will be virtually non-taxable to you because your own contributions and employer contributions have been taxed while you earned. Annual growth in the plan may be taxable too if you meet certain income criteria.

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