BOI Reporting for Foreign Entities
FinCEN’s new reporting requirements can be difficult for American born and based business owners to navigate, so if you are a non-American business owner the situation could be even more confusing! This article will present some background information to help unpack the requirements for foreign entities as it relates to FinCEN’s Beneficial Ownership Information reporting requirements.
The Issues can be Complicated and Confusing for Foreign Entities
FinCEN is a department under federal law, specifically a department within the United States Treasury Department. Federal law encompasses the entire United States and its territories. However, each individual state (and territory) has state laws that apply within the proper jurisdiction of each state. This means that a federal law will encompass Connecticut and Texas, but state laws in Texas and state laws in Connecticut will vary to some extent. No two states are exactly alike. To add an additional layer of consideration, some federal laws may differ in application based on state laws. FinCEN’s reporting requirements as outlined in the new federal regulatory rule is one such law.
Foreign entities who are registered in one or more of the states, territories or Indian tribe, are considered “reporting entities” by FinCEN, but the requirements for reporting warrant closer consideration. To determine if a foreign entity needs to report Beneficial Ownership Information (or BOI), we must consider applicable state and federal law to avoid fines, penalties, and other liabilities. These federal and state level laws often overlap with one another, but a foreign entity must understand the differences between the two to avoid problems. The reporting requirements for foreign entities is colored by state law in addition to the new FinCEN beneficial ownership reporting rules. In other words, compliance with deferral law regarding the reporting of BOI depends entirely on the status with the foreign entity and the state laws under which it is operating within a particular state.
If any state requires a foreign entity to register with that particular state by filing any document with the state’s Secretary of State or a similar state agency in order to do business in that state, your entity must report BOI to FinCEN. It should be noted that this BOI is NOT being collected by the state government with which you are registered, but the federal government (i.e. FinCEN). Do not fall into the trap of disclosing the BOI to the wrong government entity. Doing so will not only compromise the security of such information, but also expose the entity and persons involved to civil and criminal liability for failing to follow the reporting rules. However, other exclusions may apply to the foreign entity and foreign entities are able to take advantage of those exclusions.
Let us pause to consider a hypothetical situation where a Swedish corporation sets up a physical location and begins doing business in the State of Texas. The Swedish corporation was formed in Sweden and is governed by Swedish law. In order to do business in the State of Texas, Texas state law requires the Swedish company to register with the Texas secretary of state. There may or may not have been certain exemptions for this requirement under the state law, but for purposes of this hypothetical, no exemptions apply. So, the Swedish Corporation has registered with Texas and may operate in Texas without running foul of any Texas state laws. You might think this is all the Swedish corporation has to do, but that is incorrect. Just because the Swedish corporation has done everything it needed to do with regards to the state laws in Texas, that does not necessarily mean it has complied with all applicable federal laws.
Do not let the simplicity of this hypothetical situation lull you into any false sense of security – there are numerous factors that will play in compliance with state and federal law including the type of entity, how it was organized, where it was organized, and where and how it is conducting business.
Now that the Swedish Corporation has been registered to do business in the State of Texas, the company needs to ensure it is following applicable federal laws as well. Our consideration here is simple. As noted in the discussion above, FinCEN requires any company required to register with the secretary of state’s office in a state in which it is doing business, to report BOI to FinCEN. In other words, the application of the federal law in this case is conditioned entirely on the requirements of the state law. Consequently, the requirement to BOI to FinCEN for a foreign entity will take on many different dimensions for consideration. The foreign corporation must apply the requirements under the state law against the conditions for reporting with FinCEN to determine if it must report BOI.
If your foreign entity qualifies as a reporting company, it may also have to report company applicants. If the foreign entity first registered to do business in the United States on or after January 1, 2024, it must report company applicants. This means that any foreign entity planning to do business in the United States should first determine whether or not it will be a reporting entity because any foreign entity registering to do business will be required to report company applicants. This is but one of many examples of the nuanced rules particularly for foreign entities. Generally speaking, the net is cast wide enough that most foreign entities will probably have to report BOI if doing business in the United States.
Chances are good that if your foreign entity is a reporting company, and no exemptions apply, the company will also have beneficial owners who will need to report their BOI in addition to the company report. These two reports are separate things, and both may be requirements depending upon your entity’s situation. The new FinCEN reporting requirements also provide the opportunity for the foreign entity to reassess and ensure that it is complying with all applicable state laws as well. Civil and criminal penalties for not complying with state law can be just as bad, or worse, than the penalties imposed by FinCEN.
Consult with a Licensed Attorney as the Last Word
Given all of these issues, we strongly encourage foreign entities doing business in the United States to consult with a validly licensed attorney. DO NOT RELY ON INTERNET COMPANIES purporting to be able to help with FinCEN rules and regulations — make sure you foreign entity is working with an actual, licensed attorney. Preferably in the state (or states) where the foreign entity is registered. Ask whomever you talk to, whether they are an attorney — and verify it by looking up that individual (or individuals) within the state’s bar. For example, if you’re talking to an individual claiming to be a New Mexico based attorney, you can google “New Mexico bar attorney lookup” to find the “New Mexico Bar” (which regulates attorneys in New Mexico), and look up whether the individual you are talking to, is an actual, licensed attorney.
