A US corporation owned by a UK company files its own federal return on Form 1120 (opens the official IRS page in a new tab) every year. Because a foreign company holds a quarter or more of it, it also files Form 5472 for each related party it dealt with, the UK parent included. Dividends to the parent bear US withholding that the treaty can reduce, and most then reach the UK free of corporation tax.
This post is for founders whose UK limited company owns, or is about to form, a US corporation, usually a Delaware C corporation set up to sell into the US. It adds to the company sections of our guide to US-UK tax for founders, fund managers and executives. A UK individual who owns a US LLC directly is a different case, covered in our posts on Form 5472 for a single-member LLC and the British owner of a Delaware LLC. This post adds the treaty dividend tests and the case of a US citizen founder.
Which federal return does a US subsidiary of a UK company file
Form 1120. A corporation formed in Delaware or any other state is a domestic corporation whoever owns it, so it files the same return as any American company. The Form 1120 instructions require every domestic corporation that is not exempt to file whether or not it has taxable income, so a loss-making first year still needs a return.
The return is generally due by the fifteenth day of the fourth month after the tax year ends, and Form 7004 gives an automatic extension of time to file. Question 7 on Schedule K asks whether one foreign person owned at least a quarter of the voting power or value of the stock at any time in the year. A subsidiary of a UK company answers yes and gives the percentage and the owner's country.
Federal tax is one layer. Some states tax corporate income, some charge a franchise tax or annual fee on companies formed or registered there, and a Delaware company with staff, property or sales elsewhere may have to register and file in those states too. Our business tax returns and multi-state tax filing services keep the federal and state calendars together.
When does the subsidiary file Form 5472 for its UK parent
In any year it has a reportable transaction with a related party. The Instructions for Form 5472 (opens the official IRS page in a new tab) treat a US corporation owned at least a quarter, by vote or value, by a foreign person as a reporting corporation. The UK parent is that foreign shareholder. A separate form is filed for each related party and attached to the Form 1120.
Related parties include the parent, anyone who owns a quarter of the subsidiary indirectly through it, and other companies in the same group. Part IV covers transactions paid wholly in money, such as sales, rents, amounts borrowed or lent, and interest. Part VI covers non-monetary transactions and those for less than full consideration, where uncharged services from the parent's staff belong.
The penalty is $25,000 for each form not filed on time and in the prescribed manner. A substantially incomplete form counts as a failure to file, and so does failing to keep the records the regulations require. If the failure continues more than ninety days after the IRS writes, a further penalty of the same amount runs for each related party for each thirty-day period.
How does a UK-owned US subsidiary get its EIN
By applying on Form SS-4. The corporation needs its own employer identification number before it can file Form 1120 or Form 5472 or run payroll. The Form SS-4 instructions require the responsible party to be an individual, so the UK parent company cannot be named, even though it owns every share.
The responsible party is usually the founder or a director who controls the subsidiary. If that person has no SSN or ITIN and is not eligible for one, the instructions say to enter foreign on line 7b. Telephone applications are reserved for international applicants, and fax and post are also available. Our business incorporation service arranges formation and the application together.
Two other identifying numbers follow from the structure. On Form 5472, a foreign related party with no US identifying number is given a reference ID that the corporation chooses and keeps the same every year. And the parent's treaty claim on Form W-8BEN-E needs either a US taxpayer identification number or a foreign one issued by its country of residence.
- EIN issued, with an individual named as responsible party
- A loan agreement or board minute for each sum the parent advances
- A written intercompany agreement pricing services, goods or software
- A fixed reference ID for the UK parent on Form 5472
- A signed Form W-8BEN-E from the parent before any dividend is paid
- State registrations checked wherever staff, property or sales sit
How are dividends from the US subsidiary to its UK parent taxed
The US withholds at source and the treaty caps the rate. Without a valid claim, a US dividend paid to a foreign person bears withholding at 30%. Under Article 10 of the US-UK income tax treaty (opens the official IRS page in a new tab), a UK company owning at least ten per cent of the payer's voting power pays a direct investment rate below the 15% portfolio rate.
The zero rate is where founder-owned groups are often caught out. Article 10(3) removes US tax only if the parent has held at least eighty per cent of the voting power for the twelve months ending on the date the dividend is declared, and also qualifies through a narrow route: a listed parent or one owned by listed companies, the derivative benefits or competent authority paragraphs of Article 23, or ownership dating from before October 1998. The ownership and base erosion test, which many private UK companies use for the treaty in general, is not one of them.
The claim goes on Form W-8BEN-E (opens the official IRS page in a new tab), which the parent gives to the subsidiary as withholding agent and which is not sent to the IRS. Part III certifies UK residence and names the limitation on benefits test relied on, so the box ticked has to support the rate claimed. A form is generally valid until the end of the third calendar year after signing after signing. The subsidiary reports the payment on Forms 1042 and 1042-S after the calendar year ends, whether or not tax was withheld, and our Form W-8BEN-E page explains each part.
How the UK treats the dividend and the pricing between companies
Usually as exempt. HMRC's manual describes Part 9A of the Corporation Tax Act 2009 as designed so that the great majority of dividends received by UK companies, from UK and foreign payers alike, are exempt from corporation tax (opens the official GOV.UK page in a new tab). Small companies and other companies meet separate conditions, and a company may elect that a dividend is not exempt.
An exempt dividend leaves no UK tax for the US withholding to be credited against, so whatever the US keeps under Article 10 is generally a final cost to the group. The parent's own UK profit is still charged at up to 25%, and the US subsidiary's profit stays in the US tax net. So the treaty rate is the figure to plan around.
Pricing between the companies is what both authorities watch. Article 9 of the treaty lets either country adjust profit where associated enterprises trade on terms independent companies would not agree, and the US applies its own section 482 rules. Interest and royalties beneficially owned by a UK resident are taxable only in the UK under Articles 11 and 12, subject to the limitation on benefits article. The UK also has controlled foreign company rules of its own, which the parent's accountant should test the subsidiary against.
What changes when a US citizen owns the UK parent
The subsidiary's own filings stay the same. It is a domestic corporation, not a controlled foreign corporation, and Form 5471 is a return about foreign corporations, so the US subsidiary never appears on one as a lower-tier company. For a British founder with no US status, the earlier sections are the whole company-level picture.
A US citizen in London who owns more than half of the UK parent makes it a controlled foreign corporation and files Form 5471 for it each year under the Instructions for Form 5471 (opens the official IRS page in a new tab). The Form 5472 instructions excuse the subsidiary where a US person who controls the foreign related corporation files Form 5471 for the year with Schedule M showing every reportable transaction. Coordinating the two returns can remove one form, provided Schedule M is complete.
Two further tests reach the parent. Its shares in the subsidiary can be US property under section 956, because the exception for stock of a domestic corporation does not apply where the parent's US shareholders own a quarter or more of the subsidiary's voting power, directly or by attribution. Our post on Section 956 covers the measurement. Dividends the parent receives are tested under Subpart F and the net CFC tested income rules, formerly GILTI and amended by 2025 legislation for tax years beginning after 31 December 2025. Section 962 elections and the high-tax exception are options to review.
- British founder, no US status: subsidiary files Form 1120 and Form 5472
- US citizen controlling the parent: Form 5471 for the parent each year
- Complete Schedule M on Form 5471: may replace the subsidiary's Form 5472
- Subsidiary shares held by a US-controlled parent: test under section 956
A worked example: a London software company opens in New York
A US citizen living in London owns all the shares in a UK software company. It forms a Delaware C corporation to employ a sales team in New York, lends it money to cover the first year of salaries and charges it a fee for the software and for support from London staff, under a written agreement.
The subsidiary obtains an EIN with the founder as responsible party, files Form 1120 answering yes to question 7, and registers in New York, where its staff work. The loan, the interest and the fees are reportable transactions with the parent. Because the founder controls the parent and files Form 5471 with a Schedule M covering all of them, the subsidiary can rely on the exception. An incomplete Schedule M would put the Form 5472 penalty back in play.
In its third year the subsidiary declares a dividend. The parent has held every share for over twelve months but is a private company owned by an individual, so it claims the direct investment rate on Form W-8BEN-E unless another Article 10(3) route can be shown. The dividend is exempt from UK corporation tax, and the founder's Form 5471 tests it under the CFC rules and checks the subsidiary's shares against section 956. Our international tax service prepares that set, and the guide to US-UK tax for founders, fund managers and executives places it beside the founder's own return.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
