Most people don’t feel the complexity at the beginning.
Setting up a company abroad often feels refreshingly simple. You register locally. Open a bank account. Start trading. Compared to the paperwork you remember from the US, it can feel almost… civilized.
The complication shows up later. Usually at tax time. Usually when someone casually mentions that owning a foreign company means “extra U.S. reporting.” That’s when the questions start. Why is this harder than owning a US company? Why does the IRS care so much about something that’s already taxed locally?
The U.S. starting point is global, not local
The first thing to understand is the lens the US uses.
Unlike most countries, the US doesn’t stop caring once you leave. Citizenship and certain residency statuses keep you inside the system, even if your business, customers, and daily life are somewhere else entirely. That worldwide approach sets the stage for everything that follows.
From there, a foreign company is automatically different. It sits outside the IRS’s home turf. Different laws. Different regulators. Different accounting norms. Less built-in visibility. Complexity isn’t a judgment here. It’s a response.
Why foreign companies trigger more reporting than U.S. ones
A US company operates in a system the IRS understands deeply. If it needs information, there are familiar levers to pull.
A foreign company doesn’t come with those assurances.
So instead of relying on proximity, the IRS relies on disclosure. More forms. More questions. More structure around ownership and activity. This is why you can end up with substantial reporting obligations even in years where the company barely turns a profit, or none at all.
From the IRS’s perspective, reporting fills the visibility gap. From the owner’s perspective, it often feels like overkill. Both views can exist at the same time.
Why “small” doesn’t mean “simple”
This is where expectations really start to break down.
Many expats assume complexity scales with revenue. Big companies deal with complex rules. Small ones shouldn’t. That logic works in some tax systems. It doesn’t work particularly well in the U.S. international space.
What matters more than size is structure. Who owns the company. Who controls decisions. Who benefits from retained earnings. A modest consulting company abroad can raise more U.S. reporting questions than a larger domestic business simply because of where it sits and who’s involved.
The system isn’t designed to reward simplicity. It’s designed to track exposure.
Ownership and control: where things quietly get complicated
Ownership, in IRS terms, isn’t just a percentage on a shareholder register. It’s an economic reality.
If you benefit from profits, absorb losses, or have a value claim that stays offshore, that matters. Even if the money never comes back to the US. Even if the business feels dormant.
Control adds another layer. You don’t need majority ownership to control a company. Decision-making authority, veto power, or the ability to decide when money moves can be enough to change how the IRS views your role.
This is often surprising. Control feels informal in real life. To the IRS, it’s a signal.
Why expats feel blindsided by all of this
Most expats don’t misunderstand the rules because they’re careless. They misunderstand them because no one explains them early.
When you move abroad, there’s no official onboarding. No moment where someone says, “By the way, owning a company here will be treated very differently by the U.S.” Instead, the acronyms arrive later. Usually without context. Usually, when deadlines are already looming.
Add to that the fact that local advisors often focus only on local rules, and it’s easy to see how people end up frustrated, or worse, frozen.
What honest expectation-setting would look like
An honest framing would sound something like this: owning a foreign company under U.S. tax rules is manageable, but it’s rarely lightweight.
The complexity isn’t a sign you’ve done something wrong. It’s the default. The sooner that’s understood, the easier it becomes to make informed choices. Sometimes that means adjusting structure. Sometimes it just means being prepared for the reporting that comes with it.
Either way, surprises tend to be more expensive than planning.
Getting clarity before complexity compounds
Many business owners only discover the full scope of U.S. reporting after years have passed. By then, the uncertainty feels heavier than it needed to be.
Expat US Tax works with Americans abroad to set expectations early and interpret how U.S. rules apply to foreign companies in the real world. Not in theory. Not in panic mode. Just clearly, and with context.
Understanding why the system is complicated doesn’t remove the rules. But it does make them easier to live with. And that, for most expats running businesses abroad, is a meaningful step forward.
