US Corporate Transparency Act: Beneficial Ownership Information Reporting
01 February 2024
Understanding the US Corporate Transparency Act’s Beneficial Ownership Information reporting requirement is crucial for both American and international companies operating in the United States.
The US Corporate Transparency Act (CTA) law requires certain US and foreign entities doing business in the United States to disclose personal information about their beneficial owners, namely the people who ultimately own or control the company.
This obligation is known as the Beneficial Ownership Information (BOI) reporting requirement.
Non-compliance poses severe consequences, and yet many business owners affected by this mandate are not aware of it.
ZEDRA’s Sebastian Cartelle shares his high-level overview of the requirement to help you clarify whether you qualify, how to meet the reporting obligation, and its effective dates.
What is the Beneficial Ownership Information (BOI) reporting requirement?
The BOI reporting requirement was created under the Corporate Transparency Act, to help US law enforcement combat money laundering, terrorism financing and other illicit activities.
While the CTA was enacted into law by the US congress in 2021, the BOI requirement only became effective on January 1, 2024. Compliance with the BOI reporting requirement is far reaching: approximately 32.6 million businesses will have to comply according to FinCEN.
The CTA is not part of the Internal Revenue Service (IRS) tax code, but falls under the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on specific financial transactions. Therefore, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the US Department of Treasury.
Which companies are required to comply with the CTA’s BOI reporting requirement?
Domestic companies, such as corporations, limited liability companies (LLCs) or any similar entity, created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe will need to comply with the requirements.
Non-US companies created under foreign law and registered to do business in the US will also need to comply with the requirements.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Categories of exemptions include publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Many of these entities are heavily regulated by the US government and thus already disclose their BOI to a government authority.
In addition, large companies that meet the following criteria qualify for exemption:
- Employ more than 20 people in the US;
- Have reported gross revenue (or sales) of over $5M on the prior tax year; and
- Have a physical office in the US where they conduct business.
Who is considered a beneficial owner?
The CTA defines the beneficial owner as any individual who, directly or indirectly:
- Exercises “substantial control” over a reporting company; or
- Owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important organisational decisions.
This includes any senior officers of the company, regardless of formal title or ownership interest in the reporting entity.
When must ‘reporting companies’ file their BOI?
Filing timeframes for BOI depend on when an entity was registered or formed:
- Existing entities created before 1 January 2024 must file by 1 January 2025
- New entities created in 2024 must file within 90 days
- New entities created after 31 December 2024 must file within 30 days
Additionally, any changes or corrections to the beneficial owner’s information previously reported must be filed for companies to remain compliant with the CTA.
What information must be reported under the CTA?
To comply with the CTA, reporting companies must submit the following:
- Company information — Full legal name, any trade name or doing business as (DBA) name, US business address, state or tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
- Beneficial owners information (or company applicants information for newly created entities) — Full legal name, birthdate, address, an acceptable identification document (e.g., a driver’s license or passport) with issuing jurisdiction, and an image of such document.
What are the penalties for non-compliance with the CTA?
Penalties for willfully not complying with the CTA’s BOI reporting requirement can result in criminal and civil penalties from $500 per day, as well as fines of up to $10,000 with up to two years in jail.
How ZEDRA can help
Understanding the Corporate Transparency Act and its Beneficial Ownership Information reporting requirements is crucial for foreign companies registered to do business in the US. Our expert team in the US can help you plan ahead, assess your filing obligations under the new CTA’s mandate, and guide you through the filing process to ensure your company remains compliant with US law.
Disclaimer: The information in this Insight is provided for general information purposes and should not be taken as professional advice. You should not act on the information provided without seeking appropriate professional guidance.