FinCEN BOI Reporting: Filing Obligations for Subsidiaries

The Corporate Transparency Act (CTA) has introduced sweeping changes to how businesses report their ownership structures in the United States.

From January 1, 2024, millions of entities are now required to file Beneficial Ownership Information (BOI) reports with the The Financial Crimes Enforcement Network (FinCEN). If you’re unsure whether this applies to your business, take our quick BOI reporting exemption quiz to find out in just a few minutes.

BOI reports must include specific details about the company, including its principal place of business. But what happens when a company doesn't have a physical presence in the U.S.?

In this article, we'll unpack FinCEN's guidelines on this issue—a question that we’re commonly asked during our monthly BOI Reporting webinars. We’ll also discuss how businesses can leverage registered agent services to meet these new reporting requirements.

Overview: BOI Reporting Exemptions

The CTA defines 23 categories of entities exempt from BOI reporting. These exemptions are specific and limited, covering entities like banks, credit unions, and certain tax-exempt organizations. Each category has precise qualifying criteria.

Despite the number of exemptions, they only exclude entities that are already heavily regulated or pose minimal financial crime risks. Therefore, most businesses, including many subsidiaries, will still need to file BOI reports.

Here are the 23 types of legal entities that aren’t subject to BOI reporting:

1. Securities reporting issuers
2. Governmental authorities
3. Banks
4. Credit unions
5. Depository institution holding companies
6. Money services businesses
7. Brokers or dealers in securities
8. Securities exchange or clearing agencies
9. Other Exchange Act registered entities
10. Investment companies or investment advisers
11. Venture capital fund advisers
12. Insurance companies—Including any company whose “primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies,” as per 15 U.S.C. 80a-2
13. State-licensed insurance producers
14. Commodity Exchange Act registered entities
15. Accounting firms
16. Public utilities
17. Financial market utilities
18. Pooled investment vehicles
19. Tax-exempt entities—Under Sections 501(a), 501(c), 527(a), 527(e)1, and 4947(a) of the Internal Revenue Code of 1986
20. Entities assisting a tax-exempt entity—Any entity that exclusively governs or financially assists the above tax-exempt entities
21. Large operating companies—Companies with over 20 full-time employees and over $5 million in annual sales
22. Subsidiaries of certain exempt entities—Exemptions 1–21, excluding #6 and #18
23. Inactive entities—Entities that existed on or before January 1, 2020, which currently aren’t engaged in any business activity or hold any assets, and haven’t had any ownership changes or received over $1,000 in the previous 12 months

What Is the Large Operating Company Exemption?

The Large Operating Company Exemption applies to entities that simultaneously meet three criteria:

1. Employ 20 or more full-time employees (working at least 30 hours per week) in the United States
2. Maintain a physical office in the United States that is not shared with non-affiliated entities
3. Have reported $5 million or more in gross receipts or sales from U.S. sources on its previous year's federal tax return

These criteria must be met concurrently and cannot be aggregated across multiple entities. While this exemption primarily applies to large companies, it can also impact their subsidiaries. However, the application to subsidiaries is not automatic and depends on several factors:

• If a large operating company qualifies for this exemption, it does not automatically exempt its subsidiaries. Each subsidiary must be evaluated independently against the exemption criteria.
• A subsidiary of a large operating company may qualify for this exemption on its own if it meets all three criteria listed above. For instance, a subsidiary with its own substantial U.S. operations, employees, and revenue could potentially qualify.
• It's important to note that employee counts and revenue figures cannot be consolidated across related entities to meet the exemption thresholds. Each entity must meet these criteria individually.
• If a subsidiary fluctuates above and below the thresholds for this exemption, it may need to file BOI reports during periods when it doesn't meet all criteria. Companies in this situation should be prepared to file updated reports as their status changes.

Understanding this exemption is crucial for large companies and their subsidiaries when determining their BOI reporting obligations. However, given the complexity of these rules and the potential for status changes, many companies find it beneficial to seek expert assistance in managing their compliance obligations.

FAQs About BOI Reporting for Complex Entity Structures

Navigating BOI reporting for complex entity structures can be challenging. Let's break down the key considerations for subsidiaries and multi-layered ownership arrangements.

Or, for more information, check out our BOI reporting exemption quiz.

Streamlined BOI Reporting with Harbor Compliance

Managing BOI reporting can be a complex and time-consuming task. The alternative? To work with an outsourced reporting solution—but even then, you need to understand what to look for in a provider.

Here at Harbor Compliance, we've developed a comprehensive BOI Reporting Servicer designed to simplify compliance for businesses of all sizes: corporations and LLCs, small businesses, multi-entity organizations, multinational companies, and non-exempt nonprofits

Our service includes:

• Initial report preparation and submission
• Ongoing support for report updates at no additional cost
• Periodic reminders to check for necessary BOI updates
• Optional Record Manager add-on for centralized tracking of leadership and ownership details

By entrusting your BOI reporting to our team of experts, you can focus on your core business operations while ensuring accurate and timely compliance with FinCEN requirements.

Comprehensive Compliance Solutions from Harbor Compliance

BOI reporting is just one piece of the regulatory puzzle. Harbor Compliance offers a suite of services to support your organization's compliance needs throughout its lifecycle:

1. Entity Management: From name reservation and EIN obtainment to annual report filings and amendments, we provide end-to-end support for your entity's administrative needs.
2. Registered Agent Services: As your point of contact with state authorities, we manage service of process and official notices, ensuring you never miss critical communications.
3. Licensing Support: Navigate the complex world of business licensing with our assistance in obtaining and managing both general and industry-specific licenses.
4. Document Services: Expedite important filings and retrieve crucial documents such as certificates of good standing, certified copies, and more.
5. Nonprofit Solutions: For charitable organizations, we offer specialized services including nonprofit incorporation, 501(c) tax exemption applications, and charitable registration management.

By partnering with Harbor Compliance, you gain access to a team of experts dedicated to keeping your business compliant across all jurisdictions. Our comprehensive approach ensures that you can confidently meet all statutory obligations, allowing you to focus on growing your organization.

Conclusion

As the CTA ushers in a new era of financial transparency, understanding BOI reporting obligations for subsidiaries is crucial for businesses with complex structures.

Navigating these requirements can be challenging—unless you work with outsourced experts. By partnering with experienced professionals like Harbor Compliance, organizations can streamline their reporting processes, minimize risk, and focus on their core business objectives.

Ready to get started? Get in touch today.

About Harbor Compliance

• Recognized by Inc. 5000 five times and by Deloitte twice.
• Serving the industry for 12 years.
• Trusted by over 40,000 clients.