The bad news — if you are a foreign entity and you own, acquire, expand or establish a business in the U.S., or if you are a U.S. entity and you do the same abroad, you may have federal reporting obligations with the Bureau of Economic Analysis (BEA), an agency that operates under the U.S. Department of Commerce. While the BEA is not well known, failure to comply with its reporting requirements may result in a violation of U.S. federal law.

The good news — compliance is not burdensome. Additionally, any information reported to the BEA will be kept confidential and will only be used to produce aggregated data about the U.S. economy.

Reporting Requirements

The BEA requires reporting from all U.S. businesses in which a foreign entity owns, directly or indirectly, 10% or more of the voting securities. For the fiscal year ending in 2022, the BEA is conducting the mandatory Benchmark Survey of Foreign Direct Investment in the U.S., which is conducted once every five years. U.S. businesses with foreign parents that meet the ownership threshold at the end of their fiscal year must report information relating to net income, number of employees, assets, liabilities and percent voting and equity interest held by the foreign parent. Additionally, foreign entities should be aware that the acquisition or establishment of a U.S. business and the expansion of an existing U.S. business may trigger BEA reporting requirements within 45 days of the transaction if the ownership threshold is met and the transaction costs exceed $3 million.

Reporting is also required for all U.S. entities that own, directly or indirectly, 10% or more of the voting securities of an incorporated foreign business or an equivalent interest in an unincorporated foreign business. The Benchmark Survey for outbound investment is conducted every five years and will be conducted next for the fiscal year ending in 2024.

With regard to either inbound or outbound investment, the BEA may also ask U.S. businesses with foreign parents or U.S. businesses that invest overseas to complete annual or quarterly surveys. Those filers, however, will be contacted directly by the BEA.

Certain Exemptions

Private funds may be exempted from reporting on inbound or outbound investment if they meet certain requirements intended to exclude companies that solely serve as investment vehicles and only make portfolio investments. Further information on those exemptions may be found on the BEA’s website.

Confidentiality

The BEA keeps all submissions confidential. Reports submitted to the BEA are not subject to FOIA requests, and the BEA may not grant another agency access to the data for tax, regulatory or investigative purposes. The BEA may not publish the information in an identifiable form without the permission of the reporter.

Penalties

The penalties for failure to report include civil penalties of between $5,580 and $55,808, injunctive action to compel a report and criminal penalties of up to $10,000 or one-year imprisonment for individuals who willfully violate the statute.

Best Practices

The Benchmark Survey of Foreign Direct Investment in the U.S. is due May 31, 2023 for reports submitted by mail or fax and June 30, 2023 for reports submitted through eFile. This report is required if a foreign entity owned at least 10% of the voting interest of a U.S. business at the end of its 2022 fiscal year. Going forward, a determination of whether reporting to the BEA is required in connection with a particular transaction should be included as a post-closing item in transaction checklists to ensure compliance.