Form 1120-F — When a Foreign Company Files a U.S. Return
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Form 1120-F is the U.S. income tax return for a foreign corporation — a company organized under another country's laws — that is engaged in a U.S. trade or business, earns income effectively connected with one, or receives certain U.S.-source income. It is the mirror image of the expat's problem: a foreign company with U.S. activity, and the U.S. taxing its share.
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When does a foreign company have to file?
- It is engaged in a trade or business in the United States at any time during the year — regardless of whether it had income from it.
- It has effectively connected income (ECI) — income from that U.S. business, taxed at regular corporate rates on a net basis.
- It has U.S.-source fixed or determinable income — dividends, interest, royalties, certain rents — on which U.S. tax wasn't fully withheld at source.
- It wants to claim a treaty position, a refund, or preserve deductions.
A foreign company selling into the U.S. from abroad with no U.S. presence may have no filing obligation. A foreign company with U.S. employees, an office, a warehouse, or a dependent agent concluding contracts in the U.S. very likely does.
What is effectively connected income?
Income from the active conduct of a U.S. trade or business — sales made through a U.S. office, services performed in the U.S., and certain income attributable to U.S. assets. It is taxed like a domestic corporation's income: gross income less allocable deductions, at the corporate rate — but deductions are allowed only if a return is filed. A foreign company that skips the return and is later assessed is taxed on gross income with no deductions, which is the single most expensive outcome in this area.
What is the branch profits tax?
A second-layer tax on a foreign corporation's U.S. earnings that are not reinvested in the U.S. business — designed to mirror the dividend withholding a U.S. subsidiary's parent would face. The statutory rate is 30%; treaties commonly reduce it to the dividend withholding rate or eliminate it. It is computed on Form 1120-F alongside the regular tax.
How does a treaty change the picture?
Most U.S. treaties tax a foreign company's business profits only if it has a permanent establishment in the U.S. — a fixed place of business, or a dependent agent habitually concluding contracts. A treaty-country company with U.S. sales but no permanent establishment may owe no U.S. tax on business profits even if it technically has a U.S. trade or business. Claiming that position requires filing Form 1120-F with a treaty disclosure (Form 8833), not simply not filing.
Why file a protective return?
A protective Form 1120-F is filed by a company that believes it has no U.S. tax liability — no ECI, or treaty protection — but wants to preserve the right to deductions and credits if the IRS later disagrees. It costs little and prevents the gross-basis assessment described above. Any foreign company with meaningful U.S. activity and a defensible no-tax position should consider it.
When is Form 1120-F due?
For a foreign corporation with a U.S. office, the 15th day of the fourth month after year-end (April 15 for calendar years). Without a U.S. office, the 15th day of the sixth month (June 15). Extensions are available with Form 7004. The deduction-preservation rule has its own timing: deductions are lost if the return is filed too long after the due date, so "file late" has a hard limit here that it doesn't elsewhere.
How does this relate to a foreign-owned U.S. company?
Differently. A U.S. LLC or corporation owned by a foreign person files its own domestic return (and Form 5472 for related-party transactions); Form 1120-F is for the foreign parent or affiliate if that entity itself has U.S. activity. Groups with both file both.
Frequently asked questions
My foreign company sells to U.S. customers online with no U.S. staff. Do I file?
Possibly not, if there's no U.S. trade or business and no untaxed U.S.-source income. Inventory in a U.S. warehouse or U.S. sales agents change the analysis.
What if my foreign company only has U.S. investment income?
Withholding at source (30% or the treaty rate) usually satisfies the tax; a return is needed only if withholding was insufficient or a refund is claimed.
Can a foreign company claim the foreign tax credit on Form 1120-F?
Only against tax on effectively connected income, for foreign taxes paid on that same income. It's narrow.
Is there a penalty for not filing when required?
Yes — the standard failure-to-file and failure-to-pay penalties on any tax due, plus the loss of deductions, which is usually the larger cost.
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. If your company abroad has U.S. customers, staff, or assets, our team can determine whether Form 1120-F applies, whether a treaty protects you, and whether a protective return is worth filing. See pricing or book a free fit call.
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