What is a Per Se Corporation?
A per se corporation is a business that is organized as a corporation or incorporated, under either a state or federal statute.3 min read
A per se corporation is a business that is organized as a corporation or incorporated, under either a state or federal statute. The IRS keeps a list of these corporations. A per se foreign corporation is when the corporation is treated as a foreign entity regardless of the position of the taxpayer. Once a business is on the list of per se corporations, "check the box" rules will not apply.
A new addition was published in December 2005 adding a European public limited liability company to the list of per se companies. The IRS indicated that their intent is to make sure that every jurisdiction that a per se corporation can be registered should be included on the list.
Once it has been determined that a business is a foreign entity, you can check with the Treasury Regulation to determine if they qualify as a foreign corporation. A list of per se corporations is listed by country with designations such as S.A, N.V, P.I.C, and A.G.
As with any regulation, there are exceptions, complications, and inclusions. For instance, a corporation or company where the owners have unlimited liability under federal or provincial law would not be treated as a corporation. Another example would be "Sociedad Anonima" entities, which are considered a corporation by the IRS, regardless of their capital provisions.
Within the regulations there are also guides for defining terms such as "public limited company". In some locales, such as Cyprus, Hong Kong, and Jamaica, a public limited company is any limited company that is not defined as private. In most cases, a public limited company is any limited company that is also defined as a public company under the laws of the jurisdiction it is under. A limited company is a company limited by shares or limited by guarantee.
When a business is formed in such a way that it falls under the laws of more than one jurisdiction, it can cause complications. There are complex rules in place that will ultimately decide if that business should be considered a corporation for business income tax purposes. A business is domestic if it is established under US law, and foreign if it is not.
"Check the Box" Elections
- This is a way to classify an entity that is found on IRS tax form 8832, Entity Classification Election.
- All that is needed is to check the box, pick a date that it will go into effect, sign and submit the form.
- Only entities that are eligible can make this selection. The regulations contain a list of non-eligible entities, also called "per se" corporations.
- Even though it is an easy election to make and file, there can be heavy tax implications to doing this.
- It is recommended to speak with a tax professional before making a decision like this for your business.
US Tax classifications for business entities include:
- Disregarded entity
A corporation is responsible for paying its' taxes. With a partnership or disregarded entity, the owner or shareholder is responsible for the taxes.
For non per se corporations that do not make check-the-box elections, regulations provide rules for classification. An eligible entity in the US is treated as a partnership if it has more than one owner and a disregarded entity if is has only one owner. A disregarded entity is similar to a sole-proprietorship. A foreign entity will be treated as a corporation if all owners have limited liability, a partnership if at least one of the partners does not have limited liability, and a disregarded entity if the owner does not have limited liability. A foreign entity will almost always default to be treated as a corporation.
If a business changes classification to a partnership or a disregarded entity, there will typically be a taxable liquidation, and all owners or shareholders would share in the loss or gain. Changing a business classification has enormous tax consequences, and it is always recommended to speak with a tax expert before doing so.
When a business is first formed, it will have an "initial classification" either using the default regulations or a check the box election. If no election is made, the default election will be set based on classification. Check the box elections can be made up to 75 days retroactively.
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