Thousands of Indian founders incorporate US C-Corps — often a Delaware entity — to access US investors, establish US presence, and simplify fundraising. But the tax compliance requirements that come with this structure are frequently misunderstood, and the penalties for non-compliance are steep.
The Basic Structure
The typical setup: an Indian founder holds shares in a US Delaware C-Corp. The C-Corp may have wholly-owned Indian subsidiary (or work with Indian contractors). Understanding the tax obligations at each level is essential.
US C-Corp Corporate Tax
The C-Corp pays US federal corporate income tax (21% flat rate) on its US-source income. If it has global operations, transfer pricing rules apply to intercompany transactions with the Indian entity.
Form 5472 — The Most Commonly Missed Filing
If your US C-Corp has a foreign shareholder (that's you, as an Indian resident), it must file Form 5472 annually. This form reports "reportable transactions" between the US Corp and its foreign owner. The penalty for failure to file: $25,000 per form per year. This applies even if the company had zero revenue.
Advisory Monks Consulting estimates that over 60% of Indian-founded US C-Corps are out of compliance on Form 5472. If you haven't filed, you can often file late returns and request penalty abatement.
FBAR — Foreign Bank Account Reporting
If you are a US person (green card holder or substantial presence test) with foreign financial accounts exceeding $10,000 in aggregate at any point during the year, you must file FinCEN Form 114 (FBAR) by April 15 (extended to October 15). Willful non-filing penalties: up to $100,000 or 50% of account value per violation.
India-US Tax Treaty (DTAA)
The India-US Double Taxation Avoidance Agreement provides relief on certain types of income. Key provisions include reduced withholding tax rates on dividends (15%), interest (10–15%), and royalties (10–15%). Treaty benefits must be actively claimed — they don't apply automatically.
Transfer Pricing
If your US C-Corp pays your Indian entity (or you personally) for services, these must be priced at arm's length — what an unrelated third party would pay. Documentation requirements kick in once intercompany transactions exceed certain thresholds.
The Practical Checklist for Indian Founders
- File Form 1120 (US C-Corp return) annually by April 15 (extend to October 15)
- File Form 5472 with Form 1120 if you're a foreign shareholder
- File FBAR if you have foreign accounts over $10,000
- File Form 8938 (FATCA) if foreign assets exceed reporting thresholds
- Document all intercompany transactions with a transfer pricing memo
- Apply DTAA treaty positions where beneficial