Taxes are one of the most confusing aspects of running a US LLC as a non-US resident. The good news? If structured correctly, your US LLC can be extremely tax-efficient.
This comprehensive guide will walk you through everything you need to know about US LLC taxation for international founders.
Important Disclaimer
This guide provides general information. Tax situations vary significantly based on your country of residence, business activities, and revenue sources. Always consult a qualified tax professional for your specific situation.
š Table of Contents
US LLC Tax Basics for Foreign Owners
Understanding LLC Tax Classification
By default, the IRS treats LLCs as:
- Single-Member LLC: Disregarded entity (transparent for tax purposes)
- Multi-Member LLC: Partnership
This means the LLC itself doesn't pay federal income tax. Instead, income "passes through" to the owners.
The Foreign Owner Advantage
Here's where it gets interesting for international founders:
Key Tax Benefit
If you're a non-US resident with a US LLC that earns income from outside the United States, you typically pay zero US federal income tax on that income.
The Good News: Pass-Through Taxation
How It Works
As a foreign-owned US LLC:
- Your LLC is typically a "disregarded entity" (single-member) or "partnership" (multi-member)
- The LLC doesn't pay US corporate tax
- Income passes through to you personally
- You're taxed in your home country (per your local tax laws)
- If your income isn't US-sourced, you owe no US federal income tax
What Counts as "US-Sourced Income"?
US-Sourced (taxable in US):
- Income from services performed in the US
- Rental income from US real estate
- US partnership income
- Certain US investment income
Non-US-Sourced (typically not taxable in US):
- Services performed outside the US
- Digital products sold to customers worldwide
- Consulting work done from your home country
- E-commerce sales (if you have no US physical presence)
- SaaS products sold globally
Form 5472: The Critical Requirement
This is THE Most Important Section
Even if you owe $0 in US taxes, you MUST file Form 5472. Failure to file results in automatic $25,000 penalties per year.
What is Form 5472?
Form 5472 is an information return (not a tax return) that reports transactions between your LLC and foreign persons (you, the owner).
Who must file Form 5472?
- Single-member LLCs with a foreign owner
- Must file even if you had $0 revenue
- Must file even if you conducted no transactions
- Filed annually with a pro forma Form 1120
What Information Does Form 5472 Require?
- LLC details (name, address, EIN)
- Foreign owner information (name, address, country)
- Types of transactions between LLC and owner
- Monetary amounts of transactions
- Beginning and ending balances
Form 1120 (Pro Forma)
Form 5472 must be attached to Form 1120, even though as a disregarded entity, you don't file a regular 1120. You file a "pro forma" version that shows:
- Basic LLC information
- No tax liability
- Form 5472 attached
Different Tax Scenarios
Scenario 1: E-Commerce Business (Non-US Customers)
Business: Selling products online to international customers via Shopify
US Tax Obligation: $0 federal income tax (non-US sourced income)
Required Filing: Form 5472 + Pro Forma 1120
Home Country: Pay taxes in your country of residence
Scenario 2: SaaS Product (Global Customers)
Business: Software-as-a-Service sold worldwide
US Tax Obligation: $0 federal income tax (services performed outside US)
Required Filing: Form 5472 + Pro Forma 1120
Note: Even if some customers are in the US, if you perform work outside the US, typically non-US sourced
Scenario 3: US Consulting Services
Business: Providing consulting to US clients, work done from your home country
US Tax Obligation: $0 federal income tax (services performed outside US)
Required Filing: Form 5472 + Pro Forma 1120
Scenario 4: Amazon FBA with US Inventory
Business: Selling on Amazon with inventory stored in US warehouses
US Tax Obligation: Potentially taxable (physical presence in US)
Required Filing: Form 5472 + potentially full tax return
Warning: This creates "nexus" and may trigger US tax obligations
Critical Tax Deadlines
š Important Dates
For Calendar Year Filers (Jan 1 - Dec 31):
April 15: Form 5472 + Pro Forma 1120 due
October 15: Extended deadline (if you file extension request)
For Fiscal Year Filers:
15th day of 4th month after fiscal year end
Extension Requests:
File Form 7004 before original deadline for automatic 6-month extension
Important: Extension to file is NOT extension to pay. If you owe tax, payment is still due by original deadline.
Penalties for Non-Compliance
Severe Penalties
Form 5472 Not Filed: $25,000 automatic penalty per form per year
Late Filing: $25,000 penalty
Inaccurate Information: $25,000 penalty
Continued Failure: Additional $25,000 every 30 days
Criminal Penalties: Possible for willful violations
The IRS is extremely serious about Form 5472 compliance. These aren't negotiable penalties ā they're automatic.
How to File Your Taxes
Option 1: Hire a CPA (Recommended)
Cost: $500-$1,500 per year
Best For: Anyone who values peace of mind
What to look for in a CPA:
- Experience with foreign-owned LLCs
- Familiar with Form 5472 requirements
- Understands international tax issues
- Responsive communication
Option 2: Use Online Services
Services like:
- TaxAct (for simpler returns)
- 1800Accountant
- Bench
Cost: $300-$800
Option 3: DIY (Not Recommended)
Only attempt if:
- You have accounting/tax background
- Your situation is very simple
- You've thoroughly researched requirements
- You're comfortable with IRS forms
Risk: Mistakes can be very expensive
What Documents to Provide Your CPA
- LLC formation documents
- EIN confirmation letter
- Bank statements for the year
- Profit & loss statement
- Balance sheet
- Details of all transactions with owners
- Ownership percentages
- Your passport copy
Common Tax Questions
Do I need an ITIN to file taxes?
For Form 5472: Not usually required if you use your foreign ID number. However, some CPAs prefer you have an ITIN for cleaner filing.
What if I had no revenue this year?
You still must file Form 5472. Even $0 revenue requires filing. This is an information return, not based on income.
Do I pay state taxes?
It depends. If you have no physical presence in your formation state (Delaware, Wyoming), you typically owe no state income tax. However, you may owe:
- Annual franchise tax (Delaware: $300, Wyoming: $60)
- State taxes if you have nexus in other states
What about sales tax?
Sales tax is separate from income tax. If you exceed economic nexus thresholds ($100,000+ in sales) in certain states, you may need to:
- Register for sales tax permits
- Collect sales tax from customers
- File sales tax returns
Can I deduct business expenses?
Yes, but since you're not paying US income tax (if non-US sourced), deductions matter more for your home country tax filing. Keep good records for your local tax authority.
What if I move to the US?
If you become a US tax resident (green card, substantial presence test), your worldwide income becomes taxable in the US. This changes everything. Consult a CPA immediately.
Tax Treaties
The US has tax treaties with many countries that can:
- Prevent double taxation
- Reduce withholding tax rates
- Provide clarity on which country has taxing rights
Check if your country has a tax treaty with the US and how it affects your situation.
Record Keeping Best Practices
What to Keep
- All bank statements: Every month
- Receipts and invoices: All business expenses
- Income records: All customer payments
- Contracts: With clients and vendors
- Previous tax returns: Keep forever
How Long to Keep Records
- Tax returns: Forever
- Supporting documents: 7 years minimum
- Formation documents: Forever
Use Accounting Software
Make your life easier:
- QuickBooks Online: Industry standard ($30-90/month)
- Wave: Free option with paid features
- Xero: Popular international choice
The Bottom Line
US LLC taxation for non-residents is actually quite favorable IF you:
- Have non-US sourced income
- File Form 5472 on time every year
- Keep good records
- Work with a qualified CPA
The biggest mistake international founders make is not filing Form 5472. Don't let this be you. Set calendar reminders, hire a CPA, and stay compliant.
Pro Tip
Set up a separate savings account and automatically transfer 25-30% of your LLC income for taxes in your home country. While you may not owe US taxes, you'll likely owe taxes at home.
Need Help with LLC Formation & Tax Compliance?
We'll form your US LLC and connect you with CPAs who specialize in foreign-owned businesses. Get expert guidance from day one.