Do Non-Residents Pay US Taxes on a US LLC?

Often, no, not in the way people fear. A non-resident who owns a US LLC and earns no income from US sources usually owes no US income tax on the LLC's profit. That does not mean there is nothing to do. The LLC still has a yearly IRS filing, some states charge their own fees, and the profit is usually taxable in your home country. This guide explains who pays what, so you can plan before you form the company. If you are ready to start, see our LLC registration in the USA for non-residents.

Key takeaways

• A single-member LLC owned by a non-resident is, by default, ignored for US income tax. The owner is taxed, not the company.
• US income tax for a non-resident depends mainly on where the income comes from and whether the business is run inside the US.
• A foreign-owned single-member LLC must still file Form 5472 with a pro forma Form 1120 every year, even with no income. The penalty for missing it is $25,000.
• States add their own costs, such as an annual report or a franchise tax.
• Your home country will usually tax the profit too. Check its rules, and any tax treaty with the US.

How the IRS sees a foreign-owned LLC

By default, an LLC with one owner is a "disregarded entity". The IRS looks through the company and treats its income as the owner's income. An LLC with two or more owners is taxed as a partnership by default. Either type can choose to be taxed as a corporation instead. The default matters because it decides which tax forms apply and who is responsible for the tax.

When does a non-resident owe US income tax?

For a non-resident, the main question is whether the income is "effectively connected" with a US trade or business, or is certain US-source income. In simple terms:

• Service or product income earned outside the US from clients abroad is generally not US-source income, so it is generally not taxed by the US. Where the work is done and where the customer is both matter.
• Income from a business run inside the US, for example staff, an office or inventory in the US, can be taxable in the US, and a return is required.
• Certain US-source income, such as some US rental income, dividends or royalties, can be taxed in the US, sometimes by withholding.

These are general rules. How they apply to you depends on your facts, so ask a tax professional about your own case.

The filing every foreign-owned LLC must make

Even with no US tax to pay, a foreign-owned single-member LLC must file Form 5472 with a pro forma Form 1120 each year. The form reports the LLC's transactions with its owner, such as money put in or taken out. It is due by April 15 for the year before, with extensions available. Missing it carries a $25,000 penalty. We prepare it as part of our US LLC tax filing service.

State costs are separate

Federal income tax is only part of the picture. Each state sets its own rules:

• Many states require a yearly or two-yearly report with a fee. See our LLC filing fees by state table.
• Some states charge a franchise tax or a minimum tax that applies even with no income, such as California's yearly minimum.
• Some states have no state income tax on an LLC, but this changes by state and by how the LLC operates.

This is one reason the choice of state matters. Read the best state for company registration in the USA before you pick.

Your home country probably taxes it too

Paying no US income tax does not mean the income is tax-free. Most countries tax their residents on income from anywhere in the world. Whether the profit of a US LLC is taxed at home, and how, depends on your country's rules and on any tax treaty with the US. Plan for this when you set prices and decide how much to take out. Our guide on paying yourself from a US LLC as a non-resident covers the money side.

LLC or corporation for tax?

A C-corporation pays corporate tax on its profit, and the owner can be taxed again when money is paid out. An LLC with the default tax treatment usually avoids that double layer. The right choice depends on your plans, such as raising investment. See LLC vs C-corp taxes explained.

What to do each year

1. Keep the LLC's records and bank statements, and keep money for the company and for you separate.
2. File Form 5472 and the pro forma Form 1120 by the deadline.
3. File the state annual report and pay any state fee.
4. Renew the registered agent so state and legal mail reaches you.
5. Report the income in your home country as its rules require.

For a full list of the yearly costs, see what a US LLC costs each year for a non-resident.

Frequently asked questions

Do I pay US tax if my LLC earns nothing?

You usually owe no US income tax on no income, but the Form 5472 filing is still required for a foreign-owned single-member LLC, and the state may charge fees.

Do I need a Social Security Number?

No. The LLC's EIN can be obtained without one. See how to get an EIN without an SSN.

Can I avoid the filing by keeping the LLC dormant?

No. A dormant foreign-owned LLC still has its yearly filing and its state duties until it is formally closed.

Does the US tax my country's income?

Generally the US does not tax income from outside the US that is not connected to a US business. Your own country's rules still apply.

This is general information, not legal, tax or financial advice. Tax rules for non-residents are detailed and change, so confirm your own position with a qualified tax professional before you act.