As a non-US resident living in Japan, I’m considering forming an LLC in the US to sell e-books to Japanese customers. Since my LLC will be generating income from Japanese customers outside the US, I’m curious to know whether I need to file form 5472 and 1120 with the IRS. Can you provide any guidance on this matter? Thank you in advance for your help.
Firstly, it’s important to understand that nonresident aliens are taxed on US sourced FDAP income, and U.S sourced income that are effectively connected to US trade or business. However, a single member LLC owned by a foreign person is a disregarded entity for tax purposes, which means that income, deduction, credit, losses, etc. pass through the owner of the LLC and the LLC is not required to file and pay taxes on its own. Income earned by the LLC is reported directly on the owner’s tax return.
Based on the information you provided, it appears that the income you will be generating from the sale of e-books to Japanese customers will be foreign sourced income, and there will be no US tax implication unless the foreign person has an office or other fixed place of business within the United States to which the income is attributable. However, it’s important to note that if an LLC has elected to be a corporation, it will be required to pay taxes on all sources of income, whether US sourced or foreign, sales or royalties.
The LLC may need to file different types of federal tax returns and information returns depending on its tax classification and ownership structure. Here are some of the forms that may be required:
- Proforma 1120 and 5472: If the LLC is a foreign-owned single-member LLC, it may need to file a proforma 1120 and Form 5472 with the IRS.
- Form 1065: If the LLC is treated as a partnership for federal tax purposes, it will need to file a final Form 1065 with the IRS.
- Form 1120: If the LLC has elected to be treated as a C corporation for federal tax purposes, it will need to file a final Form 1120 with the IRS.”
It is also essential to consider not only the US tax and information reporting obligations of owning a US LLC but also the consequences of US LLC ownership in your home country, country of residence, or country of the parent company’s domicile. Therefore, seeking help from a competent local expert within that jurisdiction is always advisable.
As a CPA specializing in international taxation, I’m well-equipped to assist with any tax-related issues you may encounter. Don’t hesitate to reach out if you have any questions or require further assistance. With my expertise, you can rest assured that your tax matters will be handled accurately and efficiently.
New Compliance Alert!!: On January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) announced the commencement of beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA). This vital step forward ensures greater transparency and aids in the fight against illicit financial activities. Companies established or registered in the U.S. are required to comply with these reporting standards, contributing to a more accountable corporate environment.Learn more and seek guidance here.
