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Old 09-30-2015, 01:19 PM
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interest on loan

Dear Sir,

Shareholders (* foreign corporations filed form 1120F )* give loan to US corporation.Promissory note stated interest plus principal due and payable on 12/31/2020 . Yearly interest at 5%.

Questions:
In US corporation book /BORROWER:
Interest on loan accrued yearly as* expense in Profit and Loss account.
Actual Interest is not yet paid but will be payable on 12/31/2020.
Does the US corporation need to issue form 1099 to Lender even though there is* no ACTUAL interest* paid.? Need to withhold tax ?

In Foreign corporation / Lender :
Is it correct t say that : no tax to be paid* on the loan interest revenue unless ACTUAL interest on loan is received 12/30/2020.

Appreciate your advice, thanks



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Old 09-30-2015, 06:29 PM
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Join Date: Oct 2010
Posts: 5,227
Shareholders (* foreign corporations filed form 1120F )* give loan to US corporation.Promissory note stated interest plus principal due and payable on 12/31/2020 . Yearly interest at 5%.===========>in general , the foreign corp( Engaged in a trade or business in the US.) having taxable income needs to obtain a federal EIN, file a US tax return and either pay tax on the income, receive credit for taxes paid in the native country, or be exempt for several reasons ;one of which has to do with the tax treaty between the US and the native country

Questions:
In US corporation book /BORROWER:
Interest on loan accrued yearly as* expense in Profit and Loss account.
Actual Interest is not yet paid but will be payable on 12/31/2020.
Does the US corporation need to issue form 1099 to Lender even though there is* no ACTUAL interest* paid.? =======>No;I do not think so; basically in common sense, the foreign lenders do not need a US 1099s. However, you may issue 1099s as there is no penalty in issuing 1099s to the foreign lenders.

Need to withhold tax ?==========> Tax is imposed on income of foreign corps not connected with US business; a tax of 30 percent of the amount of interest (other than original issue discount).however,NO tax is imposed on interest of foreign corps received from certain portfolio debt investments,i.e., a sale or exchange of an original issue discount obligation, the amount of the original issue discount accruing while such obligation was held by the foreign corporation. I guess it is a complex issue. you may contact he IRS formore info.

In Foreign corporation / Lender :
Is it correct t say that : no tax to be paid* on the loan interest revenue unless ACTUAL interest on loan is received 12/30/2020====>as mentioned above.
I guess it depends on the foreign corp’s accounting method.



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