What a non-resident with a US LLC actually owes the IRS

A non-US founder forms a Wyoming LLC, sells software to customers in Europe, never sets foot in the United States, and is told — correctly — that the LLC is disregarded and pays no US federal income tax.

Two years later a notice arrives assessing $25,000. Nothing about the tax position was wrong. The filing position was.

This is the gap that catches people: owing no tax and having nothing to file are completely different statements, and the second one is almost never true. What follows is the actual obligation list for a foreign-owned US LLC, ordered by what it costs to get wrong.

What "disregarded" actually means

A single-member LLC is by default disregarded as an entity separate from its owner for US federal income tax. There is no corporate layer, no entity-level return of the usual kind, and no second tax on distributions.

What disregarding does is push the income up to the owner. The question then becomes whether you, as a non-resident individual, are taxable in the US on that income. And that turns entirely on what kind of income it is.

There are two categories that matter, and they are taxed on completely different principles.

For most founders reading this, the honest answer is neither. Selling a digital service from abroad, to customers who may or may not be American, using no US personnel and no US office, generally does not amount to conducting a trade or business within the United States. There is no ECI, and service fees earned that way are not the classic FDAP categories either.

That is where the zero comes from. It is a real zero. It is also narrower than people assume.

When the zero stops being zero

You are engaged in a US trade or business when activity in the United States is regular, substantial and continuous — carried on by you directly, or through someone acting for you. The things that most often push a founder across the line:

• People in the US. An employee, or a contractor whose work looks like employment, working from American soil on your behalf.
• A dependent agent. Someone in the US who habitually negotiates or concludes contracts for you. An independent agent acting in the ordinary course of their own business is a different case; a salesperson who works only for you is not.
• A fixed place of business. An office, a warehouse, a leased desk you actually use.
• Inventory held in the US. Goods stored in American fulfilment centres are a much closer question than most e-commerce sellers are told.
• Services physically performed in the US. Where you do the work matters, not just where the client is.

If a treaty applies between the US and your country of residence, it may raise the bar further — typically requiring a permanent establishment before business profits become US-taxable, which is a higher threshold than the domestic trade-or-business test. Claiming that protection is something you do on a return, with a disclosure. It is not automatic.

The filing that applies whether or not you owe anything

Here is the obligation that generates most of the penalty notices in this niche, and it applies to a company with zero revenue just as much as one with millions.

For tax years beginning on or after 1 January 2017, a foreign-owned US disregarded entity is treated as a domestic corporation for the limited purpose of the reporting rules under section 6038A. In plain terms: your disregarded LLC must file Form 5472, attached to a pro forma Form 1120, every single year.

It is not a tax return in any meaningful sense. It is an information return about reportable transactions between you and your own company — the money you put in, the money you took out, contributions, distributions, loans, and the entity's formation and dissolution.

What the filing looks like

• A Form 1120 completed only as to name, address and EIN, with "Foreign-owned U.S. DE" written across the top.
• A Form 5472 attached, reporting the related-party transactions.
• Filed by mail or fax — this combination cannot be submitted through ordinary e-file, which is why founders using consumer tax software conclude, wrongly, that nothing is due.
• Due on the 15th day of the fourth month after the tax year ends — 15 April for a calendar-year entity, extendable.

There is also a prerequisite people miss: the entity needs an EIN in order to file, and obtaining one as a foreign owner without an SSN or ITIN means submitting Form SS-4 rather than using the online application. Start that early — it is the long pole in the first year.

The obligations nobody warns you about

Three more sit outside the income tax system entirely, and each has its own penalty regime.

FBAR — and why your LLC may have one

The foreign bank account report, FinCEN Form 114, applies to US persons with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 in aggregate at any point in the year.

As a non-resident individual, you are not a US person and you personally have no FBAR obligation. Your LLC is a different matter. A US-formed LLC is a domestic entity, and domestic entities are US persons for this purpose — disregarded status does not change that. If your Wyoming LLC holds a Wise, Revolut or Airwallex account denominated outside the US, or any other non-US financial account, that account may be reportable by the LLC.

This one is genuinely under-advised, and the penalties are severe: non-willful failures run to over $13,000 per violation, and willful failures to the greater of roughly $136,000 or half the account balance, per account, per year. Figures are inflation-adjusted annually — check the current numbers rather than these.

Form 8938

A separate specified-foreign-financial-asset disclosure, filed with a tax return rather than with FinCEN, with materially higher thresholds — starting at $50,000 for filers inside the US and $200,000 for single filers abroad. Different form, different thresholds, different agency, overlapping subject matter. Triggering both means filing both.

Withholding certificates

Your US clients will ask for a tax form. Give them the right one:

• W-9 is for US persons. Your LLC is a US person, so a US client paying your US LLC will often accept one — but signing it as a non-resident owner has consequences you should understand rather than default into.
• W-8BEN is for foreign individuals.
• W-8BEN-E is for foreign entities.
• The form you provide determines whether a payer withholds 30% at source, and whether a treaty rate applies. Getting it wrong is recoverable but slow.

And then the states

Everything above is federal. States tax on their own rules and do not care what the IRS concluded.

• Franchise taxes and annual reports are owed for the privilege of existing, not for earning. Delaware wants $300 a year from an LLC whether it traded or not.
• Sales tax follows economic nexus rules that are triggered by sales volume or transaction counts into a state, entirely independently of income tax. A foreign-owned LLC selling digital goods to US consumers can have registration obligations in states it has never heard of.
• State income tax can apply where a state considers you to be doing business there, on tests that are not the federal ones.

The whole picture, on one page

What to actually do

1. 1Get the EIN early, by Form SS-4 if you have no SSN or ITIN, because the annual filing depends on it.
2. 2Diarise 15 April for the 5472 and pro forma 1120 from year one, including the years you earn nothing. Especially those years — dormant entities are where the penalties cluster.
3. 3Work out honestly whether you have ECI. If you have anyone in the US working on your behalf, get that assessed by a US-qualified adviser before you assume the zero.
4. 4Check every account the LLC holds for FBAR exposure. If any of them is outside the US, this applies to you.
5. 5Remember the state layer exists. The federal answer is not the whole answer.

The tax bill for most non-resident founders with a US LLC is genuinely zero. The compliance bill never is, and it is the compliance bill that carries the $25,000 number.

None of this is advice about your situation, and the ECI question in particular is one where the facts decide the outcome and the facts are yours. What you can take from it is the shape of the obligation list — so that when someone tells you a disregarded LLC means nothing to file, you know precisely which form they have not heard of.