Form 5472 for Foreign-Owned Startups: The 25% Test and the $25,000 Penalty
Written by Aparna Devalla
Curated by Rubric Financial
Last updated
1 / 5
Who Must File
- A US corporation that is 25% or more foreign-owned: at least one foreign person holding 25% of vote or value, directly or indirectly, at any time during the tax year. Five unrelated foreign angels at 6% each do not trigger it.
- A foreign-owned US disregarded entity: a single-member LLC wholly owned by a foreign person is treated as a corporation for this one purpose. This category generates the most startup casualties.
- A foreign corporation engaged in a US trade or business, mainly relevant for foreign parents operating directly in the US.
- Rerun the test every year: a foreign fund taking 28% in your Series A, or a co-founder's residency change, can pull you into the regime after a clean start.
Go deeper on this topic: Form 5472 for Startups: Who Files, What Counts, and the $25,000 Penalty→
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About the author
Aparna DevallaCPAHead of Tax & Accounting
CPA and Head of Tax & Accounting at StartupCFO. Specializes in multi-state tax compliance, R&D credits, and GAAP-compliant books for venture-backed startups.
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