US Tax Filings for a Finnish Asunto-osakeyhtiö (AOY)
Today I was asked what the US tax filing obligations are if you own an AOY in Finland. Let’s go step by step and figure it out.
Step 1: Is the AOY Considered a Foreign Corporation?
Since an AOY is a housing company (real estate holding entity) formed under Finnish law, it is likely treated as a foreign corporation under U.S. tax rules. This means Form 5471 may be required if you meet certain ownership thresholds.
Step 2: What Percentage of AOY Do You Own?
• Less than 10% → Likely no Form 5471 required.
• 10% or more → You likely fall into one of the filer categories.
• More than 50% (alone or with other U.S. persons) → The AOY is considered a Controlled Foreign Corporation (CFC), and stricter reporting rules apply.
Step 3: Which Filer Category Applies to You?
Check which of these apply to your situation:
Category Ownership / Involvement 5471 Filing Required?
Category 2 You became an officer or director of the AOY AND a U.S. person acquired 10%+ of the stock ✅ Yes
Category 3 You acquired or sold 10% or more of the AOY stock ✅ Yes
Category 4 The AOY is a Controlled Foreign Corporation (CFC) (U.S. shareholders own 50%+) ✅ Yes
Category 5 The AOY is a CFC AND you are subject to GILTI tax ✅ Yes
If you own 10% or more, Form 5471 is likely required. If the AOY is a CFC (50%+ U.S. ownership), you must file even if you don’t receive income from it.
Step 4: Does the AOY Generate Passive Income?
If the AOY mainly earns passive income (such as rental income from units it owns), it might also be a Passive Foreign Investment Company (PFIC).
• If the AOY is a PFIC, Form 8621 (in addition to Form 5471) might be required.
• The PFIC rules can trigger higher U.S. taxes on any profits.
Step 5: Are There Any Other Reporting Requirements?
• If the AOY has a bank account with over $10,000, you may need to file FBAR (FinCEN Form 114).
• If the AOY generates income that is taxed in Finland, you might qualify for a foreign tax credit (Form 1116).
Conclusion: Do You Need to File Form 5471?
• If you own less than 10% → No 5471 required.
• If you own 10% or more → 5471 likely required under Categories 2, 3, or 4.
• If the AOY is a CFC (50%+ U.S. ownership) → 5471 required (Category 4 or 5), and GILTI tax may apply.
The Foreign Earned Income Exclusion: How to Avoid Paying Uncle Sam for your Tan Lines
So, you’ve decided to live the dream—working from a beach in Bali, a café in Paris, or maybe just somewhere with better weather than your hometown. The problem is, just because you’ve escaped to a foreign land doesn’t mean Uncle Sam is going to let you off the hook. Nope… the IRS doesn’t care if you’re enjoying a sunset cocktail in Mexico or getting lost in the hustle of Tokyo. They want their cut of your money. But don't worry, there's a little something called the Foreign Earned Income Exclusion (FEIE) that could save your little bacon—if you know how to work it.
What is the FEIE, and Why Should You Care?
In plain English, the Foreign Earned Income Exclusion (FEIE) is a magical little loophole that allows U.S. citizens or residents working abroad to exclude up to $130,000 (for 2025) of earned income from U.S. taxation. Yes, you read that right. Up to $130,000! That’s nearly enough to pay for a nice vacation home in the country you’ve been living in—or, let’s be real, enough for several trips to the beach (and maybe a few margaritas).
But how does it work? Well, the FEIE is designed to prevent you from being taxed twice: once by the country where you live, and once by Uncle Sam. Since the U.S. is one of the very few countries that taxes its citizens on worldwide income, this little gem can be a lifesaver for expats.
Do You Qualify?
Now, before you get too excited and start imagining yourself as a tax-free nomad, there are some hoops to jump through. Here’s what you need:
Your Tax Home Must Be Abroad
This means you can't just take a vacation and claim to live in Paris while working remotely from your living room in Ohio. You need to actually be residing in another country (and working there, not just sightseeing).The Physical Presence Test
If you thought you could just waltz into your new country and call it a day, think again. To qualify for the FEIE, you must be in a foreign country for at least 330 full days out of any 12-month period. Yep, no slacking off. It's basically a long vacation… with a lot of work.Earned Income Only
This is not a loophole to get out of paying taxes on your investment income, dividends, or that sweet, sweet inheritance your great aunt left you. Only earned income qualifies. So, if you’ve got a side hustle that’s generating income in your new country, it counts—just not your passive income from those sweet dividend stocks.
How Much Can You Exclude?
Let’s talk numbers. For 2025, you can exclude up to $130,000 of your foreign earned income. If you’re married and your spouse also works abroad, they can claim the exclusion too, potentially doubling the amount. You’re welcome!
But, hold your horses—this isn’t a “free ride” to never file U.S. taxes again. If you’re making more than $130,000, you’ll still be taxed on the excess amount. And remember, you can’t just forget about U.S. tax filing altogether. You’ll still need to submit your taxes, including the necessary forms like Form 2555, which sounds like the name of a robot from a 1980s sci-fi movie, but it’s actually the one that gets you your tax-free money.
What’s the Catch?
Like anything in life, there’s always a catch. Here are a couple of things to keep in mind:
Self-Employment Tax
If you’re self-employed, don’t start celebrating just yet. The FEIE doesn’t exempt you from self-employment tax (currently 15.3%). So, if you're running your own show and earning that sweet foreign cash, you're still on the hook for Social Security and Medicare contributions. But hey, at least you’re getting those sweet benefits, right? (Like when you’re old and need a walker, or... whenever that is.)State Taxes
Some states (looking at you, California) aren’t so keen on letting you off the hook just because you’ve gone abroad. They might still want a piece of the action, so don’t forget to check what your state has to say about it. You don’t want to find out the hard way that you're on the hook for some extra state taxes.
Final Thoughts: Don’t Let Taxes Ruin Your Fun
So, there you have it! The Foreign Earned Income Exclusion is a fantastic way to save on U.S. taxes while you’re living your best life abroad. But remember, you’ve still got to play by the rules—keep good records, file the right forms, and, for goodness’ sake, don’t try to pass off a vacation as "work" just because you’re on Zoom from a beach chair (the IRS is way smarter than that).
If you’re going to work abroad, you might as well keep more of your hard-earned cash for that sweet second home or just for more piña coladas. And if you can manage to do all that without Uncle Sam noticing, well... now that’s the dream.
The FBAR - Because Who Doesn’t Like Extra Paperwork
What Is FBAR? (And Why You Should Care)
Ah, FBAR. Foreign Bank Account Reporting. Doesn’t that sound like a great time. It’s the government’s little way of making sure that you’re not hiding money under your mattress or, heaven forbid, in a foreign bank account somewhere. Because clearly, the IRS has nothing better to do than to track every U.S. citizen who dares to have a bank account outside of the United States. But if you’re one of the lucky few that have foreign bank accounts, then buckle up for a wild ride through the world of FBARs.
FBAR isn’t just some random IRS form—it’s a requirement. You’re required to file it if you have any foreign bank accounts totaling more than $10,000 at any point during the year. So, if you’re that person with the Cayman Islands account or that overseas savings account (because who doesn’t have one?), congrats! You’re about to join the illustrious club of “People Who Have to Deal with FBAR.”
But here’s the kicker: you don’t get to just pop it onto your regular tax return. Nope, this is its own separate form that you have to file with the Financial Crimes Enforcement Network (FinCEN), which sounds super official, right? The IRS likes to make sure they keep it extra special for you.
Let’s Talk Penalties (Because Who Doesn’t Love Them?)
Now, let’s get to the best part: the penalties. Oh, you thought you could just forget about FBAR? Maybe just slip under the radar, right? Wrong. If you forget to file, or if you make a mistake, the IRS will kindly remind you with penalties up to $10,000 per year. And if you’re really unlucky and they decide you were “willfully” negligent? Buckle up, because the penalties could go as high as $100,000—or 50% of your highest account balance. It’s like playing Russian roulette with your finances, except the gun is pointed at your bank account.
Filling Out FBAR: It’s Like a Puzzle, But With Your Money
If you’ve ever filled out a form and thought, “Hey, this seems straightforward,” prepare to be disappointed. FBAR is a whole different beast. First, you’ll need to list all your foreign bank accounts. Easy enough, right? But then you’ll need to report the maximum balance of each account for the year, down to the last penny. Don’t round, don’t guess. If you’re wrong, guess what? Penalties. It’s like the IRS is daring you to mess up. “Go ahead,” they say, “try to get this right without wanting to throw your computer out the window.”
And if you have more than one account? Well, now you get the honor of entering the details for each account. Sounds fun, right? It’s almost like they want you to become best friends with your financial statements.
Why Do You Have to Do This?
But why, you might ask, should you even bother? It’s not like you’re hiding your money for nefarious purposes, right? Sure, maybe you just have a little savings in a foreign account because you can. But no, no, no. The government’s going to make sure that you’re not doing anything sneaky. Because nothing says “patriot” like reporting your foreign savings to Uncle Sam. Who wouldn’t want to share that extra little bit of personal financial information?
The End Goal: More Paperwork for You
So, why does FBAR exist? Because the government has nothing better to do than make sure every penny in every foreign bank account is accounted for. Sure, you could try to “forget” about it, but if you do, the IRS will find you. They’ll catch you. And when they do, they’ll shower you with penalties that will make you wish you had spent the 15 minutes filling out the form in the first place.
In conclusion, FBAR is basically the gift that keeps on giving. More paperwork, more stress, and a whole lot of fun in navigating government bureaucracy. So, if you have foreign bank accounts, congratulations! You get to file FBAR every year, because who wouldn’t want to take the time to report their overseas funds to the IRS? It’s not like you have anything else you’d rather do with your time.