Proposed Section 899 of the Big Beautiful Bill Threatens Financial Risks for Worldwide Investors
The United States continues to be a popular spot for foreign direct investment, with a staggering $177 billion invested in 2022. But in May 2025, things took a turn with the passage of the One Big Beautiful Bill Tax Act (OBB) by the U.S. House of Representatives. This legislation, specifically Section 899, could have a significant impact on foreign investment strategies, especially those related to common asset protection and wealth planning.
Why? Well, Section 899 is all about retaliation. It's a response to digital taxes imposed by so-called discriminatory foreign countries. If you're a foreign investor, you might face increased rates on withholding, investments, corporate holdings, and more. But that's not all – the broader application of Section 899 would create additional reporting obligations, complicate foreign asset protection trust holdings, and subject investors to penalties and taxes they didn't see coming.
Now, let's talk about Form 5472. Foreign individuals or entities owning at least 25% of a U.S. corporation or foreign corporations engaged in a trade or business in the U.S. are subject to its reporting requirements under Internal Revenue Code (IRC) Section 6038A.failing to file Form 5472 accurately and on time could lead to hefty penalties of $25,000 per instance, not to mention potential headaches.
Foreign asset protection trusts (FAPTs) often hold U.S. entities with U.S. investments. This structure presents additional challenges with compliance and reporting. If a U.S. person transfers assets to a foreign trust, they're taxed on the trust's income, and distributions to U.S. beneficiaries also trigger taxes – not to mention additional foreign trust reporting requirements, including Forms 3520 and 3520-A. Noncompliance can lead to substantial penalties.
In essence, global families with U.S. investments and connections need to ensure comprehensive reviews of their existing investment and asset protection structures and full compliance with U.S. tax reporting requirements. Proactively filing any delayed or omitted returns could start statutes of limitations on audits and potentially provide relief from some penalties where a reasonable cause of noncompliance exists. Preparing for legislative changes, including the implementation of proposed Section 899, by restructuring investments, ownerships, and transfers can prevent additional tax exposure. It's all about staying ahead of the game and ensuring compliance.
- In light of Section 899 in the One Big Beautiful Bill Tax Act, foreign investors may find investing in the United States more challenging, due to increased withholding rates and additional reporting obligations, especially for foreign trusts and controlled corporations.
- The passage of the controversial OBB legislation has highlighted the significance of wealth-management strategies for foreign investors, as the expanded tax rates and penalties could potentially affect their personal-finance and business interests in the U.S.
- In order to avoid additional tax exposure and ensure compliance with the new OBB regulations, global families with U.S. investments and connections should consider proactively reviewing their existing investment structures and filing any overdue tax returns, as well as preparing for legislative changes by rearranging investments, ownerships, and transfers.
