Reports Now Required for Foreign Investors in the USA

Reports Now Required for Foreign Investors in the USA

By Garrett Sutton, Esq.

If you are a foreign citizen or business investing in the U.S. this article is important to you.

All U.S. business enterprises with a new foreign investment totaling 10% or more must file the BE-13 Survey within 45 days of the transaction, or risk fines of $25,000 and possible jail time.

The BE-13 Survey, the Survey of New Foreign Direct Investments in the United States, is a report required by the Commerce Department’s Bureau of Economic Analysis (BEA). It measures foreign direct investment coming into the United States. The BE-13 Survey collects data on the acquisition or establishment of U.S. business enterprises by foreign investors, and the expansion of existing U.S. affiliates of foreign companies that establish new production facilities. The data collected on the Survey are used to measure the level of new foreign direct investments in the United States, and to assess the impacts on the U.S. economy.

Response is Mandatory

This report is required (PDF version) of all new direct foreign investments that meet the reporting requirements, even if the BEA does not contact you. Response is mandatory. Specifically, a report is required the first time a transaction occurs that results in ten percent or more of the voting interest in a U.S. business enterprise now being held by a foreign entity. This can be through direct ownership or indirect ownership through a U.S. affiliate. And an existing U.S. affiliate of a foreign parent would also be required to report when it expands its operations to include a new facility.

Would This Apply to You?

Direct Ownership Example

According to the BEA, an example of direct ownership would be a Canadian company that establishes a business in the U.S. and who holds 10% or more of the voting rights of a new U.S. affiliate. This is direct ownership and this transaction must be reported on a BE-13.

Indirect Ownership Example

According to the BEA, an example of indirect ownership would be a Mexican company that establishes a business in the U.S. through a pre-existing U.S. affiliate, where the Mexican company now owns indirectly ten percent or more of the new business. To get the indirect ownership percentage, you can multiply the foreign entity’s indirect ownership of the affiliate of X% by the affiliate’s ownership of the new business of Y%. If this product of X times Y is greater than or equal to ten percent, then this is indirect ownership and must also be reported. (You may want your tax professional to help you with this calculation.)

It is important to know that these reports are due no later than 45 days after a transaction occurs.

Downloadable PDF Versions

There are several different forms for reporting various types of investments (Links below are to specific PDF for mail or fax filing):

1. Form BE-13A (Report for Acquisition of a U.S. Business Enterprise That Remains a Separate Entity).

A Form BE-13A report must be filed by a U.S. business enterprise (no later than 45 days after the acquisition is completed) when a foreign entity acquires a voting interest (directly, or indirectly through an existing U.S. affiliate) in that U.S. enterprise, segment, or operating unit and (1) the total cost of the acquisition is greater than $3 million, (2) the U.S. business enterprise will operate as a separate legal entity, and (3) by this acquisition, at least ten percent of the voting interest in the acquired entity is now held (directly or indirectly) by the foreign entity.

Form BE-13A includes the purchase of U.S. real estate (including land) that is intended for lease or sale without significant added construction.

Form BE-13A does not include: (1) the purchase of U.S. real estate, including land on which you intend to perform construction (report either as part of the establishment of a new U.S. affiliate (Form BE-13B) or as the expansion of an existing U.S. affiliate (Form BE-13D), whichever is applicable); (2) the acquisition of voting interest in an existing U.S. affiliate in which a foreign entity already has a ten percent voting interest (report on Form BE-13 Claim for Exemption); and (3) U.S. real estate to be held exclusively for personal use and not for profit-making purposes (report on Form BE-13 Claim for Exemption).

2. Form BE-13B (Report for Establishment of a New U.S. Business Enterprise).

A Form BE-13B report must be filed (no later than 45 days after the new legal entity is established) by a U.S. business enterprise when a foreign entity, or an existing U.S. affiliate of a foreign entity, establishes a new legal entity in the United States and (1) the projected total cost to establish the new legal entity is greater than $3 million, and (2) the foreign entity owns ten percent or more of the new business enterprise’s voting interest (directly or indirectly).

Form BE-13B includes: (1) the creation of a new legal entity, whether incorporated or unincorporated, including a branch; (2) the construction of real estate intended for lease or sale (however, if the construction is for purposes of an expansion, report as an expansion on Form BE-13D); and (3) the creation of a new legal entity, even if it does not have physical operations.

Form BE-13B does not include: (1) the purchase of U.S. real estate that is intended for lease or sale without significant added construction (this is deemed to be an acquisition of a U.S. business enterprise and should be reported on Form BE-13A); and (2) the creation of a holding company that is being set up with less than $60 million, solely to acquire at least one target company within 180 days, and then will be dissolved.

3. Form BE-13C (Report for Acquisition of a U.S. Business Enterprise That is Merged With an Existing U.S. Affiliate).

A Form BE-13C report must be filed by an existing U.S. affiliate of a foreign parent (no later than 45 days after the completion of the acquisition) when it acquires a U.S. business enterprise or segment that it then merges into its operations and the total cost to acquire the business enterprise is greater than $3 million.

A Form BE-13C includes the acquisition of a U.S. business enterprise or segment made directly by a foreign parent and then merged into an existing U.S. affiliate of that foreign parent.

A Form BE-13C does not include the acquisition of voting interest in an existing U.S. affiliate in which a foreign entity already has a ten percent voting interest (this should be reported on Form BE-13 Claim for Exemption).

4. Form BE-13D (Report for the Expansion of an Existing U.S. Affiliate).

A Form BE-13D report must be filed by an existing U.S. affiliate of a foreign parent (no later than 45 days after the expansion is initiated)       when it expands its operations to include a new facility where business is conducted and the projected total cost of the expansion is greater than $3 million.

A Form BE-13D includes: (1) the construction or lease of a new facility by an existing U.S. affiliate; and (2) the construction of a facility that is intended for lease or sale by an existing U.S. affiliate.

A Form BE-13D does not include: (1) the transfer of existing operations from one location to another; (2) the replacement of equipment or the upgrade of an existing facility; and (3) the expansion of an existing facility it does not involve a separate facility where business is conducted.

5. Form BE-13E. (Coming in 2015).

This form will collect updated cost information and will be collected annually until construction is complete, if the U.S. business enterprise previously filed a BE-13B or BE-13D, indicating that the established or expanded entity is still under construction.

6. Form BE-13 Claim for Exemption.

A Form BE-13 Claim for Exemption must be filed if a U.S. business enterprise (1) was contacted by BEA but does not meet the requirements for filing forms BE-13A, BE-13B, BE-13C, or BE-13D; or (2) whether or not contacted by BEA, met all requirements for fling on forms BE-13A, BE-13B, BE-13C, or BE-13D, except the $3 million reporting threshold.

It should be noted that, separate from the initial filing requirement, the BEA regulations also impose quarterly, annual, and five-year benchmark filing requirements after the initial Form BE-13 is filed. Failure to supply the information required in the BE-13 carries both civil and criminal penalties. Specifically, a person who fails to file may face civil penalties of up to $25,000, and the BEA is authorized to seek injunctive relief compelling a response. Willful violations can carry criminal penalties of up to $10,000, and, for individuals, imprisonment of up to one year, or both.

Work with your U.S. based CPA or other accounting professional to make certain these reports are filed in a timely manner.

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