If your freelance business has foreign ownership and an individual who is a foreign national as part of its ownership, starting January 1, 2024, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is requiring that such businesses be registered with them within 30 calendar days after the creation or registration of the business entity. If your company was created before this date, you will have until January 1, 2025, to file the report.

This new Federal regulation applies to many corporations, limited liability companies, and other entities created in or registered to do business in the United States. It also means that you will need to report information about any beneficial owners (the individuals who ultimately own or control the company) to FinCEN. You can find additional information here: BOI Reporting Filing Dates (fincen.gov).

The types of information that must be provided (and kept current) for beneficial owners under this new reporting requirement include: the owner’s legal name, residential address, date of birth, and unique identifier number from a current passport, driver’s license, or state identification card. Please note that the forms necessary to file this information are not yet available.

The purpose of these new reporting requirements is to strengthen the U.S. financial system by deterring illicit actors from using shell companies to launder money or hide other assets. Those individuals affected are those who directly or indirectly own more than 25% of a company’s ownership interests or exercise substantial control over the reporting company (even if they don’t actually have an ownership interest).

According to FinCen, the regulations may “encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members). Given the severity of the fines, it may be safer to err on the side of overinclusion rather than underinclusion.”

The new FinCEN regulation supports the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. The willful failure to report this information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

After the 2023 tax year, information will also have to be provided about a company’s applicants (the person who actually files the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents).

There may be additional guidance requiring these changes to FinCEN reporting requirements in the future, so please contact a tax professional with expertise in handling foreign entity ownership taxes to ensure you and your business stay in compliance with these fluid reporting requirements.