A limited liability company (LLC) combines the liability protection of a corporation with the tax flexibility of a partnership. By default, LLCs are pass-through entities, so profits are reported and taxed on the members’ individual returns. US citizenship or residency isn’t required to form one — individuals, corporations, other LLCs, and foreign persons can all be members — which makes the LLC a popular vehicle for non-US founders.
Key Takeaways
- LLC members can benefit from liability protection against some creditors, lowering business risks.
- LLCs under default tax treatment are exempt from federal income tax at the entity level due to their pass-through status. LLCs can also elect to be taxed as corporations. However, LLCs with non-resident alien members cannot elect S corporation treatment.
- A single-member LLC wholly owned by a foreign person is a foreign-owned “disregarded entity” (FODE), and must file Form 5472 and a Proforma Form 1120 with the IRS each year they have reportable transactions, even though they have no income tax return requirement.
What is a Limited Liability Company (LLC)?
The Internal Revenue Service defines a limited liability company as a type of business entity established under state law. It is a distinct legal entity that offers its owners limited liability protection.
To establish an LLC, you must file articles of organization with the appropriate state authorities. The specific rules governing LLC formation and operation differ from state to state. Depending on the number of members and election-making decisions, the IRS may treat an LLC as a corporation, partnership, or disregarded entity.
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What is a Foreign-Owned Limited Liability Company?
A foreign-owned LLC is one that is directly or indirectly owned (in whole or in part) by foreign persons. A foreign national with shares in the LLC is considered to have a direct interest in the enterprise, while a foreign individual acquires an indirect ownership stake by possessing a property interest. An LLC has a default tax classification that depends on its number of members.
Single Member
These are classified as FODE (foreign-owned disregarded entity) and are essentially ignored for tax purposes. Its activities are treated as if the owner conducted them directly. No entity-level tax is due, but an informational return must still be filed at the company level.
Multi-Member LLC
An MMLLC is treated by the IRS as a partnership, unless it chooses to be taxed as a corporation.
A foreign-owned LLC may elect to have its tax status treated as that of a corporation by filing Form 8832, but note that LLCs with foreign owners cannot elect to be taxed as S corporations. They can still elect to be treated as a C corporation and taxed at the company level.
How Does a Foreign Person Establish a US LLC?
A foreign person can form a US LLC by choosing a state to do business in, appointing a US-based registered agent, picking a compliant name, and filing articles of organization with that state.
Next, they draft an operating agreement, secure an EIN from the IRS, and get a US mailing address. Finally, they open a US business bank account: no US citizenship, residency, or in-person visit is required, and the whole process can be handled remotely.
1. Choose your state of formation
Consider which state offers the best tax advantages when choosing where to form your LLC.
2. Assign a registered agent
Appoint a registered agent with a physical address in the formation state to receive legal and official government correspondence.
3. Choose a name for your entity
Make certain that it complies with the naming regulations of the state you have selected, which typically require “LLC” or “Limited Liability Company” to be included in the name.
4. Get a mailing address in the United States
Ensure that your foreign-owned LLC’s physical location is where you intend to form it. Your bank, the LLC, your tax attorney registering your LLC with the state, and any other third party wishing to send you a bill or other correspondence will all use this address.
5. File articles of organization
An LLC is formed by filing formal legal documents called articles of organization containing important information about your LLC. These also specify members’ obligations, liabilities, responsibilities, and other rights and powers. Depending on your state, the articles may include additional information, such as the names of the LLC’s owners (members) or managers, as well as the purpose of the LLC. The LLC does not have legal existence until the articles of organization are filed with the state and approved.
6. Draft an operating agreement
A company’s financial and operational policies are outlined in an operating agreement, which addresses the structure, management, decision-making process, and operating procedures of an LLC. Although an operating agreement is required in some states, it is not required in all of them. If an LLC does not have one, the default rules established by the state where it was formed will apply.
7. Secure an Employer Identification Number (EIN)
A business entity is identified by its Federal Tax Identification Number, or EIN, which is a nine-digit number. There are several ways to obtain an EIN. You may also apply for an EIN online.
8. Open a business bank account
Open a dedicated business bank account for your LLC to keep company and personal finances separate.
Are Foreign-Owned LLCs Subject to Federal Income Tax?
Foreign-owned LLC taxation depends on the number of members and whether the LLC elects corporate treatment. LLCs are pass-through entities and are exempt from federal income tax at the entity level unless they elect to be taxed as corporations.
Foreign-owned SMLLC or Foreign-owned Disregarded Entity (FODE)
A foreign-owned single-member LLC is generally disregarded from its owner for federal income tax purposes unless it elects corporate treatment, so its activities are treated as the foreign owner’s own.
What the owner owes depends on whether the owner is an individual or a corporation, whether the LLC runs a US trade or business, and the source and type of income. Income effectively connected with a US trade or business is taxed on a net basis. US-source income that is not effectively connected is generally subject to 30% gross withholding, or a lower treaty rate.
Foreign-source income is generally not taxed for a nonresident alien or foreign corporation unless it is effectively connected with a US trade or business. Reporting duties can still apply with no tax due, including Form 5472 with a pro forma Form 1120.
To learn more, visit our guide to foreign-owned disregarded entities.
Foreign-owned Multi-Member LLC (MMLLC)
By default, the IRS treats a foreign-owned MMLLC as a partnership. As a pass-through entity, it is not subject to federal income tax at the entity level. Instead, the LLC’s income, gains, losses, deductions, and credits pass directly to the members, who then report the appropriate amounts on their own tax returns.
Tax Elections for an LLC (C-Corp or S-Corp)
LLCs can also file Form 8832 and/or Form 2553 to be treated as corporations for tax purposes. As a C-corporation, the LLC pays tax at the entity level and distributes income to shareholders as dividends.
As an S Corporation, income and deductions pass back to shareholders, but distinct rules apply to many tax items that differ from those of a partnership. Note that LLCs with nonresident shareholders cannot choose S Corporation classification.
Other Taxes
State Income Tax
Tax laws, rates, procedures, and forms differ greatly from state to state. Like the federal government, most states treat LLCs as pass-through entities by default and do not require them to file state tax returns. In these cases, LLC members pay taxes on the business’s profits based on the state’s individual income tax rates.
Some states levy a flat tax, while others use a progressive system with higher rates on higher income levels. LLC state income tax rates can range from 0% to 12.3%. If the LLC elects to be taxed as a C-Corp, it must file and pay at the state’s corporate rate.
Payroll Tax
If the foreign-owned LLC employs US citizens or residents, payroll taxes must be paid for each employee. An employee pays 6.2% for Social Security and 1.45% for Medicare, totaling 7.65%, and the LLC or employer pays the same 7.65%. The entire 15.30% is then remitted to the federal government.
Sales Tax
The state and locality in which you conduct business determine which goods and services are subject to tax. You must collect sales tax from your customers and remit it to the relevant state or local tax authority if the products or services your LLC sells are taxable. State-level sales tax rates vary by state.
Rates can change at the state and local level, so it is prudent to check with the specific states where you do business to ensure compliance. State tax changes typically go into effect on January 1st of the calendar year or July 1st of the fiscal year.
Withholding Obligations of MMLLC
Under IRC Section 1446, a multi-member LLC with taxable income effectively connected to a US trade or business must withhold tax on the portion of effectively connected taxable income allocable to its foreign partners. This applies regardless of the foreign partners’ ultimate US tax liability and regardless of whether the partnership makes any distributions during the year. The amount withheld must be remitted to the IRS.
The withholding rate depends on the type of partner:
- 21% for corporate foreign partners
- 37% for non-corporate foreign partners.
The partnership generally isn’t required to withhold if a nonresident partner’s only activity producing effectively connected income is the partnership investment and the Section 1446 tax is under $1,000.
A partnership may also be required to withhold tax on a foreign partner’s U.S.-source FDAP income that is not effectively connected with a U.S. trade or business, generally at a 30% rate or a lower applicable treaty rate. The partnership must deposit the withheld tax according to the applicable deposit schedule and report it annually on Forms 1042 and 1042-S.
Filing Requirements for Foreign-Owned Disregarded Entities
The following are some of the forms that FODEs may be required to file:
| Tax Form | Deadline and Penalties |
| Form 5472 (Information Return of a Foreign Corporation Involved in a U.S. Trade or Business or a Foreign Corporation Owned by 25% Foreign) and Proforma
Form 1120 (U.S. Corporation Income Tax Return) |
Deadline: April 15, after the end of the calendar year, or the 15th day of the fourth month that follows the fiscal year ends.
Penalties: – A $25,000 penalty may apply for each required Form 5472 that is not timely filed or is substantially incomplete. – If a failure to file continues for more than 90 days after receiving notification from the IRS, each related party will face an additional penalty of $25,000 for each 30-day period (or part of a 30-day period) that follows, with no maximum penalty. – Filing a Form 5472 that is substantially incomplete constitutes a failure to file Form 5472.
Notes: – A pro forma Form 1120 only requires the FODE’s name, address, and items B and E on the first page with “Foreign-Owned U.S. DE” across the top. Submit only Form 1120’s first page. – For every domestic or foreign-related party that the reporting corporation had a reportable transaction with during the tax year, a separate Form 5472 needs to be filed. – Form 5472 is attached to Proforma Form 1120 and cannot be filed electronically by FODEs. For more information, see the Form 5472 Instructions. |
| Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns) | Deadline: By the due date of Form 1120.
Notes: – FODEs must fax or mail their extension request to the IRS’s fax or mailing address (see Instructions for Form 5472). – Form 7004, Part I, line 1 should be filled out with the form code of Form 1120 to indicate the type of return for which you request an extension. –“Foreign-owned U.S. DE” should be written across the top of the form. |
| Form 1040-NR (U.S. Nonresident Alien Income Tax Return ) | Deadline: April 15 if the nonresident alien had wages subject to U.S. income tax withholding, June 15 if not. Filing Form 4868 by that date gets an automatic extension.
Penalties: Late-filing and late-payment penalties may apply when the return is not timely filed or the tax is not timely paid. Penalty amounts and minimum penalties are adjusted periodically, so the applicable rules should be confirmed for the relevant tax year. Notes: -Form 1040-NR may be required when the FODE’s owner is a nonresident alien individual with income subject to U.S. taxation. -Because the LLC is disregarded for federal income tax purposes, its activities are generally treated as conducted directly by the foreign owner. -Income effectively connected with a U.S. trade or business is generally taxed on a net basis at the graduated rates applicable to nonresident individuals. -Certain U.S.-source income that is not effectively connected with a U.S. trade or business may be taxed on a gross basis, generally at 30% or a lower treaty rate. -Form 1040-NR is not required solely because the individual owns a FODE. The filing requirement depends on the owner’s activities, income, withholding, and other applicable U.S. tax rules. |
| Form 1120-F (U.S. Income Tax Return of a Foreign Corporation) | Deadline:
– By 15th day of the 4th month after the end of its tax year (for those with an office or place of business in the US). – By the 15th day of the 6th month after the end of its tax year (for those with no office or place of business in the US).
Penalties: – 5% of the unpaid tax for each month or portion of a month that the return is filed after the deadline, with a maximum of 25% of the unpaid tax more than 60 days late is the smaller tax due, or $450. Notes: -Form 1120-F is filed by a foreign corporation to report its U.S. income, gains, losses, deductions, credits, and U.S. federal income tax liability. -A foreign corporation may be required to file Form 1120-F if it is engaged in a U.S. trade or business, has income effectively connected with a U.S. trade or business, or otherwise meets the Form 1120-F filing requirements. |
| FinCEN Form 114, Report of Foreign Bank Account Report (FBAR) | Deadline: Annual FBARs are due on April 15, following the calendar year reported. Without requesting an extension, FBAR filers who miss the annual due date receive a 6-month extension (up to October 15).
Penalties: – Failure to file an FBAR on time may result in civil monetary penalties, criminal penalties, or both. ($10,000 per form if the failure to file is non-willful and $100,000 per year or 50% of the value of the financial account at the time of valuation, whichever is higher, if the failure to file is willful).
Notes: – If a FODE owns one or more foreign financial accounts and their combined value is $10,000 or more at any point during the tax year, the FODE must file FinCEN Form 114. – FBAR must be electronically filed using FinCEN’s BSA E-Filing System. – Those who wish to file FBAR on paper must contact FinCEN’s Resource Center to request an exemption from e-filing. |
| Beneficial Ownership Information (BOI) | Deadline:
– Companies that were established or registered to conduct business in the United States prior to January 1, 2024, are required to file by January 1, 2025. – The reporting period for companies registered to conduct business in the United States on or after January 1, 2024, is 30 calendar days from the date of notice of the company’s creation or registration.
Penalties: – The consequences of willfully failing to provide FinCEN with a complete or updated BOI, providing a false or fraudulent BOI, or attempting to do so may include penalties of up to $500 for each day the violation persists, as well as criminal penalties of up to $10,000 in fines and/or up to two years in jail. |
FinCEN Beneficial Ownership Information (BOI) Reporting
Under FinCEN’s March 2025 interim final rule (still in effect as of 2026), entities created in the United States and their beneficial owners are exempt from BOI reporting. Only entities formed under foreign law that have registered to do business in a US state remain “reporting companies.”
Because most foreign-owned LLCs are formed in the US (Delaware, Wyoming, and so on), they generally have no BOI filing obligation right now, even with foreign owners. BOI reporting rules may change. Businesses should review FinCEN’s current guidance to confirm their filing obligations.
The Corporate Transparency Act remains federal law, and additional rulings are expected that may reinstate or modify these requirements. For the current rules and deadlines, see our FinCEN BOI latest update.
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FAQ s About Foreign-Owned LLCs
Can a foreign person own an LLC?
Yes. There’s generally no citizenship or residency requirement to own or form a US LLC. However, an LLC with nonresident owners can’t elect S-corporation status — though it can elect to be taxed as a C-corporation.
What is Form 8832?
Form 8832, the Entity Classification Election, lets an eligible LLC choose how it’s taxed. For example, electing C-corporation treatment instead of its default classification.
Can a US LLC have a foreign member?
Yes. A US LLC can have one or more foreign members. With a single foreign owner, it’s a foreign-owned disregarded entity; with multiple members, it’s taxed as a partnership by default.
Can a non-US resident own an LLC?
Yes. A non-US resident can own a US LLC, citizenship and residency aren’t required. Nonresident owners do face specific filing rules; see our guide to LLC tax for US nonresidents.
I didn’t start a partnership. I started an LLC, so why is it taxed as one?
By default, the IRS taxes a multi-member LLC as a partnership and a single-member LLC as a disregarded entity. You can file Form 8832 to be taxed as a corporation or convert to a C-corp at the state level.
