A U.S. taxpayer or U.S. company can own 100 percent of the stock of a “qualified” foreign corporation and not be required to pay any U.S. income taxes on any profits of that foreign corporation. To be a qualified foreign corporation, it must be incorporated in a U.S. possession or be domiciled in a country that has a comprehensive income tax treaty with the United States. A qualified foreign corporation may not have any passive investment income or any income from dealing on favorable terms with any U.S. shareholders or related persons. You can avoid these rules if five or fewer unrelated U.S. persons own no more than 50 percent of the corporation. Nonresident family members or foreign corporations who are shareholders are not included in this calculation. You must ensure that you organize the foreign corporation correctly to avoid the 50 percent rule and that the entity is not managed at all from within the United States. When constructed by a legal and tax professional, the foreign corporation may provide tax-deferral opportunities.
An international business company (IBC) is a corporation formed outside the United States that is usually exempt from tax in the country where it is formed, but it may not conduct any business in that country. For U.S. tax purposes, an international business company is treated the same as a foreign corporation. U.S. persons who form and own a foreign corporation or an IBC may elect to be treated as a partnership by filing Form 8832, Entity Classification.
A single-owner international business company (IBC) may elect to be taxed as a disregarded entity. If an IBC receives more than 75 percent of its gross income from passive investment sources (interest, dividends, capital gains), it is deemed to be a passive foreign investment company (PFIC) and shareholders are required to pay current taxes on their share of the investment company income.