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What are the Tax Implications for Foreign Taxpayers Opening Single-Member US LLCs?

  • Writer: Marcus Shimotsu
    Marcus Shimotsu
  • Mar 18
  • 3 min read

Updated: Mar 18

Opening a U.S. single-member LLC as a foreign taxpayer can be an attractive way to do business in the United States. However, it comes with special tax compliance requirements and considerations that differ from those for U.S. residents.


For U.S. federal tax purposes, an LLC with one owner is by default treated as a “disregarded entity,” meaning it is not recognized as separate from its owner for income tax filing​. In other words, the IRS “looks through” the LLC and taxes the owner directly on the LLC’s income and the LLC itself is not taxed. When a foreign person is the sole owner of a U.S. LLC, the LLC is considered a foreign-owned disregarded entity for IRS purposes. This setup can be useful for limited liability and access to U.S. markets, but it triggers unique tax filing obligations.


Federal Tax Filing Requirements for a Foreign-Owned Single-Member LLC


Even if no separate business tax return is required for the LLC itself, several federal filings and compliance steps are typically required when a non-resident alien owns a U.S. single-member LLC. Key obligations include:

  1. EIN: Obtain an EIN (Employer Identification Number): The foreign-owned LLC must get a federal tax ID (EIN) from the IRS. An EIN is needed to file the required forms and to identify the company in IRS records. (Non-resident owners can obtain an EIN even without a U.S. Social Security Number or ITIN.) The process is quick and often done by the LLC's registering agent.

  2. Tax Returns: Annual Form 5472 + Pro Forma 1120: Almost all foreign-owned single-member LLCs must file Form 5472 each year with the IRS​. Form 5472 is an information return used to disclose certain transactions between the LLC and its foreign owner or other related parties. The IRS requires this form whenever there are any “reportable transactions” (for example, the owner contributing money to the LLC, the LLC paying expenses on the owner’s behalf, loans or advances between owner and LLC, etc.)​. In practice, this requirement is very broad – even an LLC with no active business that has an owner who pays annual franchise fees on behalf of the company is required to file. Form 5472 is filed together with a pro forma Form 1120 (a U.S. corporate tax return) as a cover page. The pro forma 1120 is not a full tax return; it’s a blank Form 1120 with just the LLC’s name, address, and “Foreign-Owned U.S. Disregarded Entity” written on it, to formally attach the 5472​. Due date: April 15 each year for calendar-year entities (it aligns with the tax year of the foreign owner)​. An extension until October 15 can be obtained by filing Form 7004. Penalties: The penalty for failing to file Form 5472 or filing it incorrectly is $25,000. This steep penalty makes compliance critical for foreign-owned LLCs. (If the LLC had multiple related-party transactions requiring multiple Forms 5472, penalties can stack up for each required form.) There is no statute of limitations on a late-filed Form 5472, so the IRS may potentially levy penalties on as many years as the LLC has been active.

  3. If the LLC has a business in the US: The owner of the LLC will have a filing requirement in the US as well. Foreign corporations are required to file a corporate tax return, Form 1120-F. Foreign individuals and trusts file Form 1040-NR. Foreign partnerships must file Form 1065. Companies must take care to determine whether they are operating a US business. Often, a "protective" filing is recommended if there's a chance the LLC will create tax nexus in the United States. This preserves the ability of the foreign taxpayer to take deductions. Otherwise, if the taxpayer is found to have US business in later years, the taxpayer would be forced to pay tax on the gross income of the US business, not the net income. Taxpayers may also review the treaty (if any) that their country of residence has with the United States and see if that exempts them from US tax. If reliant on the treaty, taxpayers may file Form 8833 to claim the treaty benefit.


What You Can Do Foreign taxpayers should be proactive in understanding their US tax obligations when they open up a US LLC. Failure to file these forms may have significant tax consequences. If you've had a US LLC that hasn't made any US filings, you should take immediate action to ensure that your company isn't penalized for late filings.

 
 
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