Check the Box Regulations

The so-called check the box regulations could profoundly impact the outbound tax planning of U.S. businesses conducting business offshore. The check the box regulations permits U.S. investors to incorporate business entities in foreign countries, particularly civil law countries, to create limited liability companies (for example foreign entities such as GmbH or a limitada), in which all members would enjoy limited liability and which would be treated as a corporation under the foreign limited liability and which could be treated as a partnership or disregarded entity under U.S. tax law. One consequence of the check the box regulations has been to facilitate the creation of entities, such as civil law limited liability companies, that are treated as separately taxable corporations under foreign law but as flow-through entities (either as partnerships or wholly owned entities that are disregarded) for U.S. tax purpose. Such dual character entities are often referred to as “hybrid entities” or, if wholly owned by a single member, as “hybrid branches.”
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