How the CTA May Impact Your International Business
In an effort to reduce illegal business activities, financial crime and money laundering through U.S. businesses, the United States Department of the Treasury recently introduced the Corporate Transparency Act (CTA). The Financial Crimes Enforcement Network (FinCEN) is the bureau within the U.S. Treasury that has been tasked with implementing new reporting requirements to increase business entity transparency. The requirements are effective as of January 1, 2024.
If you’re an international business owner, here’s what you need to know about the CTA and its potential impact on your business.
#1 – Certain types of entities are required to comply.
The CTA applies to “reporting entities,” which are defined as a corporation, limited liability company or other business entity created with a filing document or formed under a foreign country’s laws and registered to conduct business within the United States.
CTA requirements also apply to the following types of business owners:
- Individuals who are the “beneficial owners” of a company. A beneficial owner is defined as any individual who directly or indirectly exercises substantial control over an entity or controls at least 25% of the company’s ownership interests.
- Individuals who filed documents to create a reporting company or register a reporting company to do business in the United States on or after January 1, 2024.
- Any domestic or foreign entity that’s a reporting company under FinCEN’s final CTA rule.
#2 – The CTA includes new reporting requirements.
Under the CTA, reporting companies must provide the following information about their business:
- Legal and trade names
- Full address of the company’s primary place of business
- Location of formation
- Tax Identification Number
- Identifying documents from the issuing jurisdiction, such as a certificate of incorporation
The CTA also requires that reporting companies provide the following information about each beneficial owner:
- Full name
- Date of birth
- Residential address
- A unique identifying number from an official state-issued document, such as a passport, driver’s license or a FinCEN identification number
#3 – Deadlines for BOI reporting vary.
Compliance with the beneficial ownership information (BOI) reporting requirements under the CTA means adhering to strict filing deadlines:
- For entities formed before January 1, 2024, the deadline to file a BOI report is January 1, 2025.
- Entities established in 2024 have a 90-day window after their formation date to submit a BOI report.
- Entities formed on or after January 1, 2025, are required to submit a BOI report within 30 days of their formation date.
#4 – FinCEN allows exceptions to CTA reporting requirements in certain situations.
Some business entities are exempt from CTA reporting requirements, assuming they already disclose beneficial owner information through other federal laws or regulations.
Common exemptions include:
- Publicly traded companies
- Dormant companies that existed prior to January 1, 2024, aren’t owned by a non-U.S. citizen and aren’t actively conducting business
- Certain financial institutions, pooled investment vehicles, public utilities, insurance companies and tax-exempt organizations that are subject to separate reporting requirements
- Companies that employ more than 20 full-time U.S. citizen employees that operate from a physical location within the United States and have filed a tax return of more than $5 million in gross sales
#5 – There can be severe penalties for failing to comply with CTA requirements.
Failing to comply with CTA reporting requirements can result in civil fines of up to $591 per day (2024) per non-compliant individual. Anyone who willfully provides fraudulent information or seeks to withhold information may face criminal fines up to $10,000 and/or be sentenced to up to two years in prison.
UPDATE: On March 1, 2024, a federal district court declared the CTA to be unconstitutional. However, FinCEN has announced that the CTA is currently enforceable against those not a party to the lawsuit.
Could you use some help navigating the new CTA reporting requirements for your international business? Creative Planning Legal is here for you. Our legal team can help U.S. expat and international business owners comply with a wide range of reporting requirements. To learn more, request a meeting with a member of our team.
