CORPORATE TRANSPARENCY ACT KNOWLEDGE HUB

What non-U.S. companies should know about the U.S. Corporate Transparency Act (CTA)

OVERVIEW OF THE CTA

The Corporate Transparency Act (“CTA”) is a U.S. federal statute, which, among other things, requires many companies to provide information about their beneficial owners to the federal government, specifically the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury.

The CTA is a landmark statute, aimed at combatting money laundering, the financing of terrorism, violations of sanctions laws, and tax fraud, among other things.

Yes. Foreign entities registered to do business in the United States are subject to the CTA, as are domestic U.S. entities. Accordingly, the following two broad categories are reporting companies:

Domestic Reporting Companies: Corporations, limited liability companies and other similar entities created in the United States by the filing of a document with a secretary of state of a U.S. state or any similar office (e.g., U.S. territories, tribal territories).

Foreign Reporting Companies: Corporations, limited liability companies and other similar entities formed under the laws of a foreign jurisdiction and registered to do business in the United States by the filing of a document with a secretary of state of a U.S. state or any similar office (e.g., U.S. territories, tribal territories).

Likewise, non-U.S. citizens and residents who are beneficial owners of entities subject to reporting obligations also fall within the scope of the CTA. Certain exceptions apply; for example minors, nominees, custodians, agents, certain employees and creditors, among others, fall outside the definition of “beneficial owner”.

Information on persons who form or register a reporting company on or after January 1, 2024 must also be reported.

Yes. There are 23 types of exempt entities, as summarized below. Each category includes certain criteria that an entity must meet in order to qualify as an exempt entity. Accordingly, professional advice should be sought to determine whether an entity is exempt from reporting requirements.

That said, for many foreign-owned companies that are not regulated entities, the “large company” exemption may be applicable. In order to qualify for that exemption, the company must (a) employ more than 20 full-time employees in the United States, (b) have a physical office in the United States and (c) have reported over than $5 million in gross receipts or sales in its federal income tax return for the previous year.

Exempt Entities

  1. Large Operating Companies
  2. Securities Reporting Issuers
  3. Securities Brokers or Dealers
  4. Securities Exchanges or Clearing Agencies
  5. Entities Registered under the Exchange Act of 1934
  6. Registered Investment Companies or Investment Advisers
  7. Banks
  8. Credit Unions
  9. Depository Institution Holding Companies
  10. Money Services and Money Transmitting Businesses
  11. Insurance Companies
  12. State-Licensed Insurance Producers
  13. Pooled Investment Vehicles
  14. Venture Capital Fund Advisers
  15. Entities Registered Under the Commodity Exchange Act
  16. Public Accounting Firms
  17. Public Utilities
  18. Financial Market Utilities
  19. Tax-Exempt Entities
  20. Entities That Assist Tax-Exempt Entities
  21. Governmental Entities
  22. Subsidiaries of Certain Exempt Entities
  23. Inactive Entities

Because the scope of the CTA is limited to domestic U.S. entities and foreign entities registered in the United States, companies that otherwise carry out business with U.S. entities would not normally fall within the CTA’s scope absent formation or registration in the United States. For example, a non-U.S. entity exporting goods to a U.S. company or providing services to U.S. resident persons would not be subject to the CTA unless that entity obtained registration to do business in a U.S. state or other U.S. jurisdiction. On the other hand, if a non-U.S. company incorporates a subsidiary in the United States, that subsidiary will normally be subject to the CTA.

BENEFICIAL OWNERSHIP INFORMATION (BOI) REPORTING REQUIREMENTS

Information that must be reported to FinCEN falls into three categories: (1) information about the reporting company, (2) information about beneficial owners and (3) information about “applicants”, i.e., persons who formed or registered the reporting company.

Information About the Reporting Company

  1. Legal name of the reporting company.
  2. Trade names, ‘‘doing business as’’ names, and ‘‘trading as’’ names of the reporting company (whether such names are registered or not).
  3. Address of the reporting company.
  4. The U.S. State or other jurisdiction of formation or registration of the reporting company.
  5. The IRS Taxpayer Identification Number (TIN) of the reporting company. For foreign reporting companies that do not have a TIN, a foreign tax identification number and the name of the issuing jurisdiction.

Information About the Beneficial Owners

  1. Name.
  2. Residential address.
  3. Date of birth.
  4. An acceptable identity document and corresponding identification number.

A “beneficial owner” is any individual who, directly or indirectly, (a) owns or controls 25% or more of the reporting company’s ownership interests or (b) has substantial control over the reporting company.

“Substantial control” in turn means any one of the following:

– The individual in question is a senior officer of the reporting company (e.g., president, CEO, CFO, COO).

– The individual has authority to appoint/remove certain officers or a majority of directors (or similar governing body) of the reporting company.

– The individual holds an an important decision-maker role for the reporting company.

– The individual possesses any other form of substantial control over the reporting company.

Because the scope of “beneficial owner” extends beyond shareholders, companies need to assess carefully which individuals are subject to reporting obligations. This analysis can be difficult to make and professional advice may need to be sought.

Information About the Applicants

  1. Name.
  2. Residential address.
  3. Date of birth.
  4. An acceptable identity document and corresponding identification number.

Entities formed or registered prior to 2024 are exempt from reporting information on applicants.

The BOI reporting obligations became effective as of January 1, 2024. Non-exempt entities are subject to different reporting deadlines, depending on when they were created:

– Entities created or registered prior to 2024: Until the end of 2024.

– Entities created or registered during 2024: 90 days.

– Entities created or registered in or after 2025: 30 days.

– Entities that lose their exempt status: Within 30 days of losing their exempt status

– Entities that become exempt: Within 30 days of becoming exempt (an updated report need to be filed, indicating that the entity is no longer a BOI reporting entity)

Reporting companies are responsible for identifying their reporting status and beneficial owners, and to correct/update the beneficial ownership information on a regular basis.

Reporting must be done electronically on the FinCEN website.

OTHER QUESTIONS

Both individuals and companies may be held liable for failing to fulfill their BOI reporting obligations, including failing to report, reporting false information, or failing to correct or update previously filed information.

Civil and criminal penalties may apply for violations of BOI reporting obligations. A person who willfully violates reporting obligations may face civil penalties of up to $500 for each day that the violation continues. The person may also face up to two years imprisonment and a criminal fine of up to $10,000.

Our U.S. Desk would be happy to answer your questions about the CTA and help you fulfill your BOI reporting obligations.

More information is also available on FinCEN’s website.

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Corporate Transparency Act

Reporting requirements under the U.S. Corporate Transparency Act (CTA) commenced on January 1, 2024. Subject to certain exemptions, the CTA requires companies incorporated in the United States or have obtained registration to do business in the United States to provide information about their beneficial owners (i.e., significant shareholders and persons who have substantial control) to…

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