You Own 10%, 25%, 50%, or 100% of a Foreign Company—Why the Percentage Matters

Imagine four people own shares in foreign companies. One owns 10%. Another owns 25%. Another owns 50%. The last owns 100%. They are all U.S. taxpayers—but their international tax situations may look very different.

Imagine this.

You live in Texas and own part of a successful company in Mexico.

When your CPA asks how much you own, you respond: “Not that much. Only 20%.”

To you, 20% means you are a minority shareholder. You do not control the company, cannot make major decisions by yourself, and cannot decide when dividends are paid.

So naturally, you assume: “If I don't control the company, why would the IRS care?”

But in U.S. international tax, the percentage of a foreign company you own can be extremely important—even when you are nowhere near 100%.

Ownership percentages can affect whether certain international information returns are required, whether a foreign corporation is considered a Controlled Foreign Corporation, whether GILTI or Subpart F rules may apply, and how income and other tax attributes are allocated among shareholders.

And the percentage printed next to your name on the shareholder list may not always tell the entire story.

Let's look at four hypothetical business owners: Daniel owns 10%, Maria owns 25%, Carlos owns 50%, and Sofia owns 100%. Each is a U.S. citizen or U.S. tax resident and each owns shares in a corporation organized outside the United States.

What changes as their ownership increases? Quite a bit.

Before We Compare Them, What Does “Ownership” Actually Mean?

This sounds like an easy question. If a company has 1,000 shares and you own 250 shares, you own 25%. Usually, that's where we start.

But international tax rules can look at ownership in several ways.

Direct ownership means you personally own the shares. Indirect ownership can arise when you own an entity that owns another entity. Constructive ownership can arise when tax rules attribute ownership held by another person or entity to you for particular purposes.

There can also be differences between ownership measured by voting power and ownership measured by value.

Before your CPA determines whether a particular percentage creates a reporting requirement, we need to understand exactly what the percentage represents.

Meet Daniel: The 10% Shareholder

Daniel lives in Texas. His uncle owns a manufacturing company in Mexico. Several years ago, Daniel purchased exactly 10% of the company's stock. The remaining 90% is owned by foreign persons.

Daniel does not manage the company. He attends an annual shareholder meeting and occasionally receives a dividend.

His first thought might be: “I only own 10%. Surely that isn't enough to matter.”

But 10% is an important number in U.S. international tax. For various foreign corporation rules, a 10% interest—depending on whether measured by vote or value and the particular provision—can be significant.

Form 5471 has multiple filing categories, and certain categories can involve U.S. persons who acquire, own, or dispose of specified levels of foreign corporate stock.

That does not mean every 10% shareholder automatically files every Form 5471 schedule. It means 10% should get your attention.

Daniel's CPA should ask when the shares were acquired, whether he owned anything before, whether ownership changed, whether other shareholders are U.S. persons, whether he is related to them, whether there is indirect ownership, and what percentage of voting power and value he owns.

9% and 10% Can Be Very Different Numbers

Imagine Daniel owns 9%. Then he buys another 2% and now owns 11%.

From a business perspective, very little changed. He was a minority shareholder before and remains a minority shareholder. He still cannot control the company.

But from an international reporting perspective, crossing an ownership threshold can matter.

This is why your CPA should know about stock acquisitions and dispositions when they happen. Do not wait until year-end and simply say, “I own around 10%.” We need the actual percentage and dates.

Meet Maria: The 25% Shareholder

Maria owns 25% of a Mexican corporation. Her two brothers and mother own the remaining shares. Maria lives in San Antonio and is a U.S. citizen.

The business operates completely in Mexico. Maria does not work for the company and receives a dividend occasionally.

Is 25% enough to create Form 5471 reporting? Potentially, depending on the applicable filing category and complete facts.

But now another issue becomes especially important: Who owns the other 75%?

If all of the other shareholders are foreign persons, the analysis can look one way. If Maria's brothers are also U.S. citizens, it can look very different.

The company's total U.S. ownership matters when determining whether it is a CFC.

The IRS Doesn't Only Care About Your Percentage

Suppose Maria owns 25% and tells her CPA, “I only own one-fourth.” That's true.

But suppose Maria is a U.S. person and owns 25%, Brother #1 is a U.S. person and owns 25%, Brother #2 is a U.S. person and owns 25%, and their mother is a foreign person and owns 25%.

Now qualifying U.S. shareholders collectively own 75%.

That can create a very different CFC analysis than if Maria were the only U.S. shareholder.

Your percentage matters. The other shareholders' percentages and U.S. tax status can matter too.

Meet Carlos: The 50% Shareholder

Carlos owns exactly 50% of a foreign corporation. His longtime Mexican business partner owns the other 50%. Carlos is a U.S. permanent resident living in Texas.

He looks at the ownership chart and says, “I don't own more than half, so I don't control it.”

From a business perspective, that may be correct. But for U.S. international tax purposes, we need more information.

Is the other shareholder a U.S. person? Are Carlos and the other shareholder related? Does Carlos have indirect ownership through another entity? Are there different classes of stock? Does Carlos have different voting rights than his economic ownership percentage suggests?

Certain CFC rules generally look for more than 50% ownership by qualifying U.S. shareholders under applicable vote, value, and attribution rules.

Exactly 50% can therefore create an important line—but the analysis cannot stop with the number printed next to Carlos's name.

Now Give Carlos a U.S. Business Partner

Change one fact.

Carlos owns 50%. His business partner owns the other 50%. But now the partner is also a U.S. person.

The foreign corporation is 100% owned by U.S. persons.

That creates a completely different international tax picture than Carlos owning 50% with a foreign partner.

This is why asking, “How much do you own?” is not enough.

The next question should be: “Who owns the rest?”

Meet Sofia: The 100% Owner

Sofia owns 100% of a Mexican corporation and is a U.S. citizen living in Texas. There are no other shareholders.

This is the easiest ownership structure to visualize.

Assuming the entity is treated as a corporation for U.S. tax purposes, the company will generally need to be analyzed as a CFC. Form 5471 reporting can become extensive.

The company's income may need to be analyzed for GILTI, Subpart F, foreign tax considerations, previously taxed earnings, distributions, related-party transactions, and other CFC rules.

Sofia may also have FBAR or Form 8938 considerations depending on the foreign financial accounts and assets involved.

Owning 100% makes the ownership question simple. It does not make the tax return simple.

“So Is 50% the Magic Number?”

Not exactly.

People love simple tax rules: under 50% equals no problem, over 50% equals a problem.

Unfortunately, international tax does not work that neatly.

There are different rules with different thresholds. A 10% threshold can matter for one provision. A more-than-50% threshold can matter for CFC status. Control can matter for certain Form 5471 categories. Acquisitions and dispositions can matter. Attribution can change ownership calculations. Vote and value can produce different results.

The better question is not simply, “What's your percentage?” It is: “What is the entire ownership structure?”

What If You Own 49% and Your Wife Owns 2%?

Imagine you directly own 49%, your wife directly owns 2%, and a foreign partner owns 49%.

You look at the shareholder register and say, “I'm under 50%.”

True.

But family attribution rules may need to be considered depending on the provision. Your CPA needs to analyze ownership under the applicable international tax rules rather than simply looking at your direct 49%.

The same issue can arise when shares are owned by a spouse, children, parents, partnerships, trusts, corporations, or other related entities.

What If You Own the Foreign Company Through Another Company?

Imagine you personally own 100% of a U.S. corporation, and that U.S. corporation owns 30% of a Mexican corporation. You personally do not appear on the Mexican company's shareholder list.

Does that mean the Mexican company has nothing to do with you? Not necessarily.

Indirect ownership can matter.

International ownership can move through multiple layers, such as You → U.S. Company → Mexican Company, You → Mexican Holding Company → Mexican Operating Company, or You → Partnership → Foreign Corporation.

This is why organizational charts are one of the first things we like to create when analyzing complicated cross-border structures.

Ownership Can Change Without You Buying More Shares

Suppose you own 40% of a foreign corporation and your business partner owns 60%.

You do not purchase another share. Then the company redeems half of your partner's shares.

Your number of shares stays exactly the same, but your percentage ownership increases because fewer shares are outstanding.

Now you may have crossed an important U.S. tax threshold without writing a check or signing a stock purchase agreement.

This is why redemptions, capital restructurings, and changes in outstanding shares need to be communicated to your U.S. CPA.

What If Someone Gifts You Shares?

Imagine your mother owns 60% of a Mexican family company and you own 5%. She gives you another 10%. Now you own 15%.

That gift can create several questions.

Did you cross an important Form 5471 ownership threshold? Does the foreign gift itself create a reporting requirement? What is your basis in the shares? Did CFC status change? Did anyone else's ownership percentage change?

One family transfer can affect several international tax rules at the same time.

What If You Inherit the Shares?

The same concept applies to inherited ownership.

You might go from 0% to 25%, 10% to 40%, 40% to 70%, or even 0% to 100%.

You did not buy anything, but your U.S. international tax position changed dramatically.

The year of inheritance can therefore require careful analysis. Do not wait until the inherited company pays you money. Tell your CPA when the ownership changes.

What If You Sell Part of Your Ownership?

Ownership thresholds matter in both directions.

Imagine you own 60% of a foreign corporation and sell 20%. Now you own 40%.

The company may have been a CFC before the sale. What happens afterward? Who bought the shares? Is the buyer a U.S. person? Did total U.S. ownership actually change? Does your Form 5471 filing category change? Are there tax consequences from selling the foreign shares? What happens to previously taxed earnings?

Selling shares is not simply a capital-gain calculation when a CFC is involved. Historical international tax attributes can matter.

Ownership Percentage Can Affect GILTI

Suppose a foreign corporation is a CFC and you are a qualifying U.S. shareholder.

Your ownership percentage can affect the amount of foreign corporate income allocated to you under applicable rules.

This becomes especially important when several U.S. family members own the same company.

If ownership records say Father 40%, Mother 20%, Son 20%, and Daughter 20%, U.S. tax reporting needs to reflect the actual structure and applicable ownership rules.

We should not simply say, “The family owns 100%.” For certain calculations, we need to know who owns what.

Your Percentage Can Affect More Than Form 5471

Foreign-company ownership can interact with several U.S. international tax concepts.

Depending on the circumstances, we may need to consider Form 5471, GILTI, Subpart F, Section 962, foreign tax credits, Form 8938, FBAR, foreign partnership reporting, foreign trust reporting, related-party transactions, distributions, sales of foreign stock, and estate and gift planning.

The ownership percentage helps determine which questions need to be asked.

Don't Forget Voting Power Versus Value

Imagine a foreign company has two classes of stock.

You own only 30% of the economic value, but your shares give you 60% of the voting power.

What percentage do you own?

From a business valuation perspective, someone might say 30%. From a control perspective, someone might say 60%.

For certain international tax provisions, vote and value can both be relevant.

That is why simply asking, “What percentage of the company is yours?” may not be enough when multiple classes of shares exist. Your CPA may need the actual corporate documents.

Why We Ask for the Shareholder Register Every Year

Clients sometimes say, “You already have the ownership from last year.”

That's true, but ownership can change.

Someone dies. Someone gifts shares. A new investor comes in. A shareholder sells. The company redeems stock. A spouse becomes an owner. A shareholder becomes a U.S. resident. A trust is created. A holding company is inserted.

The percentages may look similar while the tax consequences change significantly.

That is why international compliance should include an annual ownership review.

Your U.S. Tax Residency Can Be Just as Important as the Percentage

Imagine you have owned 60% of a Mexican company for 20 years.

For the first 18 years, you lived in Mexico and were not a U.S. person. Then you become a U.S. permanent resident.

Your ownership did not change. The company, employees, and bank accounts did not change. But your U.S. tax status changed.

Now that same 60% ownership can create a completely different set of U.S. reporting and tax considerations.

This is why pre-immigration tax planning can be so valuable for foreign business owners. The best time to analyze the company may be before you become subject to the U.S. worldwide tax system.

The Same Company Can Produce Four Different Tax Situations

Let's return to our four shareholders.

Daniel owns 10%. Maria owns 25%. Carlos owns 50%. Sofia owns 100%.

They all say, “I own a foreign company.” But that sentence tells us very little.

We need to know who the other shareholders are, which shareholders are U.S. persons, whether shareholders are related, how ownership was acquired, whether percentages changed, whether there are different voting rights, whether ownership is indirect, whether the company is a CFC, whether it earned income, whether dividends were paid, whether there were related-party transactions, and what foreign taxes were paid.

Only after answering those questions can we determine the actual U.S. tax and reporting consequences.

Don't Guess Based on Your Percentage

Do not assume: “I own less than half, so I'm fine.”

Do not assume: “I only own 10%, so it doesn't matter.”

Do not assume: “My wife owns the rest, so we're basically one owner.”

Do not assume: “I don't receive dividends, so there is nothing to report.”

And do not assume: “The company pays taxes in Mexico, so the United States doesn't need to know.”

International tax is extremely dependent on the complete facts.