Is US branch income of a CFC included in Subpart F or tested income on Form 5471?

Generally not. IRC section 952(b) excludes US-source effectively connected income from Subpart F income unless it is treaty-exempt or taxed at a reduced treaty rate, and section 951A(c)(2)(A)(i)(I) excludes the same income from tested income. It is removed on Schedule I-1, line 2a of Form 5471.

Do I need Form 8858 for my UK company's US branch?

Not automatically. The Form 8858 instructions define a foreign branch by reference to an operation carried on outside the United States, extended to a qualified business unit that is foreign. A US office of a UK company does not fit that wording neatly, but any non-US branch or foreign disregarded entity the UK company owns should be reviewed for Form 8858.

What is the branch profits tax rate for a UK company?

The statutory rate under IRC section 884 is 30% of the dividend equivalent amount. Under Article 10 of the US-UK income tax treaty, the additional tax is capped at 5% for a company entitled to treaty benefits, and certain qualifying companies are outside it entirely. Eligibility depends on the Limitation on Benefits article, Article 23.

Can the UK company exempt its US branch profits from UK corporation tax?

Yes, by electing under section 18A of the Corporation Tax Act 2009. HMRC guidance confirms the election is optional, applies to all of the company's permanent establishments, must be received before the first period it covers, and becomes irrevocable once that period starts. Without it, the branch profits are taxed in the UK with double tax relief for US tax.

What if I never filed Form 5471 for my UK company with a US branch?

Each missed Form 5471 can attract a $10,000 penalty under IRC section 6038(b), and IRC section 6501(c)(8) keeps the related return open until the form is filed. Depending on your facts, the Streamlined Filing Compliance Procedures or the Delinquent International Information Return Submission Procedures may apply. The company's missing Form 1120-F returns need to be addressed at the same time.

Form 5471 for a UK Company With a US Branch

Q: Does a UK company with a US office have to file Form 1120-F?

Yes, in most cases. The IRS states that a foreign corporation engaged in a US trade or business must file Form 1120-F even if it had no effectively connected income or its income is exempt under a treaty. With a US office, the return is due by the 15th day of the 4th month after year end.

Form 5471 is the information return a US founder or investor files each year for a foreign corporation they control, and when that corporation is a UK company running a US branch, the return has to be read alongside a second filing made by the company itself. The short answer is this: the UK company files Form 1120-F for the profits of its US branch, and those branch profits are generally carved out of Subpart F income and out of tested income on the shareholder's Form 5471, because the US already taxes them directly at the company level. Getting that carve-out right, and showing it on the correct schedules, is what separates a clean filing from a return that double counts income or leaves penalties exposed.

What Is Form 5471 Reporting When a UK Company Opens a US Branch?

Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is filed with the owner's own US return, usually Form 1040 for an individual. A UK company is a CFC when US shareholders who each own at least 10% together hold more than 50% of its vote or value. A US founder who owns the whole company is typically a Category 4 filer (control) and a Category 5 filer (US shareholder of a CFC), which brings the full set of schedules into play.

A US branch is the UK company doing business in the United States in its own name, through an office, staff or other fixed place of business. No new legal entity exists, so the branch's income, assets and expenses belong to the UK company and sit inside the same Form 5471 financial statements. What changes is that part of the company's income is now taxed by the US at the company level, and the Internal Revenue Code removes that slice from the shareholder-level anti-deferral rules.

Why Is a US Branch Treated Differently From a US Subsidiary?

A US subsidiary is a domestic corporation that files its own Form 1120. A branch is the reverse: the foreign corporation itself is engaged in a US trade or business. The IRS describes a foreign corporation as generally engaged in a US trade or business if it conducts considerable, continuous and regular profit-seeking activities in the United States. Once that threshold is crossed, the UK company is a US taxpayer on its effectively connected income, and its Form 1120-F must reconcile with the founder's Form 5471.

What Does the UK Company File With the IRS for Its US Branch?

Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, is the company-level return for the branch. According to the IRS page Foreign Corporation Form 1120-F Filing Responsibilities, a foreign corporation engaged in a US trade or business must file even if it had no effectively connected income or its income is exempt under a treaty. The key points from that guidance are:

Due date: with an office or place of business in the United States, the return is due by the 15th day of the 4th month after year end; without one, the 15th day of the 6th month. Extensions are requested on Form 7004.
Deductions at stake: a Form 1120-F is treated as timely for claiming deductions and credits only if filed within 18 months of its due date. Beyond that, deductions and credits may be disallowed.
Treaty positions: where the company relies on the US-UK income tax treaty, Form 8833 discloses the treaty-based position.
Protective returns: a company that believes it has no US trade or business can file a protective Form 1120-F to preserve deductions if the IRS later disagrees.

The branch's effectively connected taxable income is taxed at the regular corporate rate through section 882, the same rate a domestic corporation pays. On top of that sits a second layer that surprises many founders: the branch profits tax.

How Does the Branch Profits Tax Apply, and Does the US-UK Treaty Reduce It?

The branch profits tax is a tax under IRC section 884 that treats a US branch as though it had paid a dividend to its foreign owner. The IRS practice unit on Branch Profits Tax Concepts explains that it is 30% of the dividend equivalent amount: the branch's effectively connected earnings and profits adjusted for the change in its US net equity. Profits reinvested in US assets reduce the amount; profits pulled back to London increase it. A separate branch-level interest tax can also apply. Both are computed on Form 1120-F.

The US-UK income tax treaty changes the rate for a qualifying UK company. Article 10, paragraph 7 of the treaty allows the US to impose this additional tax only on the dividend equivalent amount of profits attributable to the permanent establishment, and paragraph 8 caps it at the rate in paragraph 2(a) of Article 10, which is 5%. Paragraph 7 does not apply at all to certain companies, including one that is a qualified person under Article 23, paragraph 2(c), and one entitled to benefits under paragraph 3 or 6 of Article 23.

That makes Article 23, the Limitation on Benefits article, the real gatekeeper. A listed UK group may pass easily; a privately held fintech owned by a US founder often has to work through the ownership and base erosion or derivative benefits tests. We document that analysis before any reduced rate is claimed on the Form 1120-F.

The treaty also frames when the US may tax the branch at all. Article 5 defines a permanent establishment as a fixed place of business, listing a branch and an office as examples, and Article 7 lets the US tax only the business profits attributable to that permanent establishment.

How Is Effectively Connected Income Treated on Form 5471?

Effectively connected income, often shortened to ECI, is income connected with the conduct of a trade or business within the United States. For a CFC, ECI is excluded from both of the main shareholder-level inclusion regimes. This is the core point competitors tend to skip, and it is the one that most often goes wrong on self-prepared returns.

Subpart F: IRC section 952(b) provides that Subpart F income does not include any item of US-source income effectively connected with the CFC's US trade or business, unless that item is exempt from tax or subject to a reduced rate under a treaty obligation of the United States. Worksheet A in the Form 5471 instructions carries this exclusion into the Subpart F calculation.
Tested income: IRC section 951A(c)(2)(A)(i)(I) computes tested income without regard to any item of income described in section 952(b). The same branch ECI is therefore kept out of the regime formerly called GILTI.
Schedule I-1: the Form 5471 instructions (Rev. December 2025) direct the filer to enter on line 2a of Schedule I-1 the CFC's income or loss described in section 952(b), which is generally US-source ECI not reduced or exempt under a treaty.
Terminology update: Public Law 119-21 renamed section 951A 'Net CFC tested income' for tax years beginning after December 31, 2025, so newer forms and commentary will use that label rather than GILTI.

Two cautions apply. Only income that is genuinely US-source and effectively connected qualifies, so revenue earned by a London team does not become ECI because it is booked to a New York cost centre. And under the treaty proviso in section 952(b), an item exempt or taxed at a reduced rate under a treaty is not carved out by that subsection. The Form 1120-F attribution and the Schedule I-1 figure should come from the same working papers.

Is Form 8858 Required for the US Branch of a CFC?

Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), is attached to Form 5471 when the CFC is the tax owner of an FDE or operates an FB. The Form 5471 instructions for Schedule G, Question 3a say Category 4, 5a and 5c filers in that position attach Form 8858, and that amounts on Form 8858 Schedules C, F, H, J and M feed the equivalent Form 5471 schedules. Other categories attach a statement in lieu of Form 8858.

The Form 8858 instructions define an FB by reference to Regulations section 1.367(a)-6T(g), which describes an integral business operation carried on by a US person outside the United States, and extend it to a qualified business unit (QBU) that is foreign. Both halves are framed around operations outside the United States, so a US office of a UK CFC does not sit neatly inside that wording and should not be assumed to need a Form 8858 because of the word 'branch' alone.

Where the UK company also runs a branch in, say, Ireland or Germany, that non-US operation is squarely the kind of FB the instructions describe, and Form 8858 reporting should be reviewed for it.
Where the UK company owns a foreign entity that is disregarded for US purposes, that entity is an FDE and Form 8858 applies regardless of the US branch.
Where the only operation outside the UK is the US office, we review Schedule G Question 3a and Question 3b (which asks about qualified business units) against the literal definitions and record the position taken in the file.

The penalty for failing to file Form 8858 when it is required mirrors Form 5471: the Form 8858 instructions describe a $10,000 penalty for each annual accounting period of each CFC, an additional $10,000 for each 30-day period of continued failure after IRS notice, up to a $50,000 maximum for each failure.

Which Form 5471 Schedules Change When There Is a US Branch?

The branch does not add a new form for the founder, but it touches most of the schedules already being prepared. The list below is where the branch figures usually show up:

Schedule C (income statement) and Schedule F (balance sheet): the UK company's books include the branch, so its revenue, costs and assets appear here in functional currency, normally sterling.
Schedule H (current E&P): branch profits form part of E&P, and US tax paid on Form 1120-F is an adjustment in arriving at it.
Schedule I-1: line 2a removes the branch ECI before tested income is computed.
Schedule J (accumulated E&P): E&P from branch ECI stays in the non-previously taxed pool, because it was never included in the founder's income.
Schedule P (previously taxed E&P): branch ECI creates no PTEP, so a later dividend to the founder out of branch-generated E&P is generally a taxable dividend.
Schedule E (foreign taxes): UK corporation tax is allocated between tested income, Subpart F income and the excluded branch income.
Schedule G: the instructions state that section 267A disallowed deductions attributable to a US taxable branch are reported on Form 1120-F, not on line 5b.

How Does the UK Tax the Profits of the US Branch?

A UK-resident company is chargeable to corporation tax on its worldwide profits. Without any election, the US branch profits are therefore taxed in the UK as part of the company's trading profits, and double tax relief is given for US tax paid on those profits, generally as a credit limited to the UK tax on the same income.

The alternative is the foreign permanent establishment exemption in section 18A of the Corporation Tax Act 2009. HMRC's International Manual at INTM281010 explains that section 18A excludes profits attributable to a foreign permanent establishment from the corporation tax computation, and cancels losses attributable to it in the same way. The key features, as set out in INTM281010 and INTM281020, are:

Optional: section 18A has no effect unless the company elects for it to apply.
All or nothing: an election affects all of the company's permanent establishments, not just the US one.
Permanent: the election can be withdrawn only until the start of the first accounting period to which it relates, after which it becomes irrevocable.
Timing: the election must be received by HMRC before the start of the first period it relates to.
Treaty-based attribution: profits and losses are attributed to the permanent establishment in accordance with treaty principles, so the US and UK attribution should broadly align.

For a founder, this is a genuine fork in the road. An early-stage branch running at a loss is often better left inside the UK computation; a mature, profitable branch may be better exempt. Because the election is permanent and covers every permanent establishment, it should be modelled over several years.

Where Do Foreign Tax Credits Land When the Branch Pays Tax in Both Countries?

Foreign tax credits work at two levels here. At the company level, IRC section 906(a) allows a foreign corporation engaged in a US trade or business a credit under section 901 for foreign income taxes paid or accrued with respect to its effectively connected income. Where the UK taxes the branch profits, that UK tax is potentially creditable on Form 1120-F, subject to the normal limitations.

At the shareholder level, deemed-paid credits follow income actually included in the founder's return. Because branch ECI is excluded from Subpart F income and tested income, UK tax attributable to it has no inclusion to attach to. Schedule E should allocate UK tax carefully so nothing is claimed twice or understated.

Worked Scenario: A US Founder, a London Fintech and a New York Branch

The following figures are hypothetical and simplified for illustration. Maya is a US citizen living in London. She owns 100% of Ledgerline Ltd, a UK payments company, which makes it a CFC and makes Maya a Category 4 and Category 5 filer. In 2026 Ledgerline opens an office in New York with four employees who sign and service US merchant contracts. There is no US subsidiary.

For the year, Ledgerline earns the equivalent of $2,000,000 of pre-tax profit. Of that, $600,000 is attributable to the New York office under treaty and section 864 principles, and $1,400,000 comes from UK and European operations. Ledgerline has not made a section 18A election. Here is how the filings fit together:

Form 1120-F: Ledgerline reports $600,000 of effectively connected taxable income and pays US federal corporate tax on it, filing by the 15th day of the 4th month after year end. It retains $400,000 after tax in New York to fund growth, which increases US net equity and reduces the dividend equivalent amount. Its Limitation on Benefits position is documented and Form 8833 discloses any treaty rate claimed.
UK CT600: worldwide profits of $2,000,000 equivalent, including the branch, are in the UK computation, with double tax relief for US tax on the branch profit.
Maya's Form 5471: Schedules C and F include the New York office. Schedule I-1 line 2a removes the $600,000 of section 952(b) income, so tested income is built from the $1,400,000 side less allocable deductions. Schedule J tracks the branch E&P as non-previously taxed.
Maya's Form 1040: her inclusions flow from the $1,400,000 side only. A later dividend out of branch-generated E&P is reported as a dividend, not as PTEP.

If the $600,000 were left inside tested income, Maya would be taxed on income Ledgerline already paid US tax on. If it were excluded on Form 5471 but no Form 1120-F were filed, the company would have untaxed ECI and a growing risk of losing its deductions.

What Happens if Form 5471 or Form 8858 Was Missed in Earlier Years?

Missed filings are common where the US office was opened quickly and the founder's US preparer only saw the Form 1040. The exposure is significant. IRC section 6038(b) imposes a $10,000 penalty for each annual accounting period of each foreign corporation for failure to furnish the Form 5471 information, with further penalties after IRS notice. Under IRC section 6501(c)(8), the statute of limitations on the founder's return does not start to run for the relevant items until the required information return is filed, which can keep a whole year open to adjustment.

The route to fix it depends on the facts:

Streamlined Filing Compliance Procedures: the IRS page is live and limited to individuals who can certify non-willful conduct. It is the route to consider where unreported foreign income or FBAR failures sit alongside the missing Form 5471.
Delinquent International Information Return Submission Procedures: the IRS page was live when last reviewed on 19 April 2026. It is open to taxpayers not under examination or investigation and not already contacted by the IRS about the returns. Returns go with an amended income tax return and a reasonable cause statement, and penalties may still be assessed.
Form 1120-F catch-up: the company's own late returns are a separate project, with the 18-month deduction window as the pressure point.
FBAR: the IRS withdrew the Delinquent FBAR Submission Procedures page around July 2026, so late FBARs are handled within whichever current route fits.

The order of work matters. We normally rebuild the company's books by jurisdiction first, then prepare the Form 1120-F branch figures, then the Form 5471 schedules, so that every year tells the same story to the IRS.

How We Prepare and File Form 5471 for UK Companies With US Branches

Our team handles tax preparation and compliance for US founders, investors and business owners with UK companies. We prepare and file the founder's Form 5471 with every required schedule, the UK company's Form 1120-F and Form 8833, any Form 8858 or statement in lieu, and the related Form 1040 schedules from one reconciled set of branch figures. For late years, we assemble the delinquent returns and reasonable cause statements under the appropriate IRS procedure. See our Form 5471 filing service and US-UK business tax compliance pages, or contact us to have your filings prepared.