Educational content only — not legal or tax advice for your specific facts. Cross-border tax outcomes depend heavily on details like where people work, where inventory sits, who owns what, how contracts are signed, and whether you have U.S. employees/agents.
Who this FAQ is for
This guide is for non-U.S. owners (individuals or foreign companies) who want to:
- open a U.S. LLC to run a TikTok Shop / Amazon / Shopify business,
- use U.S. fulfillment (Amazon FBA or a 3PL warehouse),
- operate a U.S. restaurant or physical location through an LLC,
- structure ownership through a foreign parent (BVI, Colombia, UAE, etc.),
- understand which U.S. forms apply: Form 5472, pro-forma Form 1120, Form 1120-F, Form 8832, and when a protective return makes sense.
Glossary (quick reference)
- Disregarded entity (DRE): A single-member LLC that is “ignored” for U.S. income tax purposes. The IRS looks through it to the owner.
- ECI (Effectively Connected Income): Income connected to a U.S. trade or business. ECI is the gateway to U.S. federal income tax for many foreign persons.
- FDAP: Passive U.S.-source income (e.g., certain interest, royalties) often subject to withholding.
- Related party transaction: Money or value moving between commonly controlled parties (owner ↔ LLC, parent ↔ subsidiary, loans, capital contributions, reimbursements, etc.).
- Economic nexus (state): State tax exposure triggered by sales volume, revenue, or other in-state connections—even if you’re not physically there.
Part A — Starting a U.S. LLC for TikTok Shop / Amazon / Shopify (Foreign Owners)
1) Does it matter which state I form my LLC in?
Usually, not for federal income tax.
- For most foreign owners, the state choice is mainly about:
- annual maintenance cost (annual report fees, franchise taxes, registered agent fees),
- administrative convenience,
- and whether you will later need to register (“foreign qualify”) in other states where you actually operate.
- Many foreign founders pick lower-maintenance states (commonly Wyoming or Delaware)—but the key point is: Where you form the LLC is not the same as where you may owe state taxes.
2) If I sell to U.S. customers, do I automatically owe U.S. federal income tax?
No. Selling to U.S. customers alone does not automatically create U.S. federal income tax.
- The federal question is: “Do you have a U.S. trade or business (USTB) and ECI?”
- Factors that often increase the chance of ECI include:
- U.S. employees or dependent agents doing core revenue work,
- a U.S. office you control,
- owners or staff regularly in the U.S. negotiating/closing deals,
- operating a physical business (restaurant/store) in the U.S.
- Factors that often reduce the chance of ECI in ecommerce include:
- owners and staff are outside the U.S.,
- you use independent third-party fulfillment (Amazon FBA or a true 3PL),
- you do not own/control the U.S. warehouse (you’re just a customer of the warehouse service).
Bottom line: Many foreign-owned ecommerce models can have U.S. customers without creating ECI—but you must analyze the facts.
3) What do foreign owners usually have to file for a U.S. single-member LLC?
If a foreign person owns 100% of a U.S. single-member LLC that is treated as disregarded, the most common baseline compliance is:
- Form 5472 + pro-forma Form 1120 (information reporting)
This is typically used to report related-party transactions, such as:
- owner contributions (cash paid in),
- owner withdrawals,
- loans to/from the owner,
- reimbursements paid by owner,
- payments between the LLC and a foreign parent/sister company.
Important: These filings are often information returns. They can apply even when you owe zero U.S. income tax.
4) TikTok Shop asks for a U.S. SSN — can someone “lend” their SSN?
This is one of the most common traps.
- If a U.S. person provides their SSN to set up marketplace processing, the platform may issue Form 1099-K under that SSN. That can create:
- IRS matching notices,
- reporting headaches,
- possible audits if the income isn’t properly reallocated/documented.
- Even if the SSN-holder is “not really running the business,” the IRS sees paperwork first.
- Safer approach: Structure the tax identity properly (entity + EIN + correct reporting profile) before scaling.
5) What about sales tax?
Sales tax is state-level, not federal.
- Each state has its own economic nexus thresholds and rules.
- Many sellers use automation tools (e.g., sales tax software) to manage multi-state filings once they scale.
Key concept: You generally begin collecting/remitting after you trigger nexus in a state (rules vary). But waiting too long can create back-filing exposure, so you need a nexus tracking system.
6) Can I owe state income/franchise tax even if I owe no federal tax?
Yes. State rules can be very different.
- Some states impose:
- minimum franchise taxes/fees (even with low profit),
- income tax filing obligations once you cross a state threshold,
- additional rules if you have inventory or significant sales into that state.
- This is why “formed in Wyoming” does not mean “only Wyoming matters.”
Part B — When a Foreign Corporation Owns a U.S. LLC (1120-F vs 5472 vs Elections)
7) My Delaware/Florida LLC is owned by a foreign corporation (BVI/Colombia/etc.). Do we file Form 1120-F?
Maybe. Form 1120-F is a U.S. income tax return for foreign corporations.
- The trigger is not “having a U.S. LLC.” The trigger is usually:
- “Does the foreign corporation have ECI (U.S. trade or business income)?”
- Examples:
- U.S. restaurant / store / operations in the U.S. → ECI is likely.
- Purely offshore activity with minimal U.S. footprint → 1120-F may not be required.
- If a foreign corporation is engaged in a U.S. trade or business, 1120-F becomes relevant, and you also watch for issues like branch profits tax (depending on structure and treaty access).
8) If the LLC is disregarded, who is the “taxpayer” for income tax purposes?
If the LLC is a single-member LLC and has not elected corporate treatment:
- the LLC is a disregarded entity,
- and the IRS looks through it to the owner.
So if the owner is a foreign corporation, the tax analysis often sits at the foreign-corporation level (1120-F), but the disregarded LLC still commonly has 5472/pro-forma 1120 reporting for related-party transactions.
9) I’ve heard 5471 applies when a U.S. LLC owns a foreign company. Is that always true?
No.
- Form 5471 is for U.S. persons with certain foreign corporation ownership.
- A disregarded single-member LLC owned by a foreign person is generally not treated as the relevant “U.S. person” for 5471 purposes. The key question becomes:
- “Is there a U.S. person in the ownership chain who meets 5471 filing categories?”
- If the U.S. entity is a corporation (or domestic partnership) and meets the rules, 5471 can come into play. But it is not automatic just because “a Delaware LLC owns something abroad.”
10) Why do loans and owner funding matter so much (especially on 5472) – Especially for LLCs that has elected to be treated as C-Corporation?
Because related-party funding affects:
- whether deductions (like interest) are legitimate,
- whether amounts should be treated as loan vs capital,
- whether transfer-pricing and reasonableness concepts become relevant,
- and whether reporting is complete.
Practical rule: If money moves between commonly controlled parties, assume it’s reportable unless you’ve confirmed otherwise.
11) Can a foreign parent repay a loan that the U.S. LLC owes to someone else?
It can be done, but it needs clean documentation.
- Typical paper trail (conceptually):
- original promissory note (LLC ↔ lender),
- agreement that the parent will satisfy the debt (parent ↔ LLC),
- acknowledgment that lender is paid by a third party and the original debt is extinguished (LLC ↔ lender),
- if the LLC now owes the parent instead, a new loan agreement (LLC ↔ parent).
This is as much legal documentation as it is accounting.
12) Should a foreign-owned U.S. operating LLC elect to be taxed as a C-corporation?
Often, yes—when the business is clearly operating in the U.S. and will have ECI anyway, such as:
- restaurants,
- stores,
- U.S. employees,
- U.S. management activity.
Why?
- Form 1120-F can be more complex and operationally frustrating for many foreign owners.
- A domestic C-corp return (Form 1120) can be simpler administratively.
- You may avoid certain foreign-corporation-branch style issues (depending on facts).
How is the election made?
- Usually via Form 8832 (check-the-box election) to treat the LLC as an association taxable as a corporation. There are also late election options in many cases if handled correctly.
Part C — Online Courses, Recorded Content, and Digital Products (Foreign Sellers)
13) Are prerecorded online courses “services,” “royalties,” or “product sales”?
It depends. The classification can change your tax treatment.
- Common buckets:
- Services (active work performed),
- Sale of a digital product (you “buy and own” access permanently),
- Royalties / licensing (recurring payments or limited access rights).
- Why it matters:
- Some categories can be treated as withholding-type income (FDAP) in certain structures.
- Others are treated more like active business income (then you analyze USTB/ECI).
- Practical tip: When a product is sold with permanent access (non-recurring), it tends to resemble a sale. When access is time-limited or subscription-based, it can resemble a license/royalty model.
- If your model is mixed (recorded library + live mentoring), you often analyze which component is dominant.
Part D — Partnerships, K-1s, and K-2/K-3 for Foreign Activity
14) If a partnership’s income is foreign-source and not ECI, should it show up in Box 1 of the K-1?
Generally, no.
- If you put foreign activity into the “normal” U.S. operating income lines, you can trigger IRS confusion and partner notices (e.g., pushing partners toward 1040-NR filings they may not need).
- For partnerships with international items, Schedule K-2 / K-3 is designed to carry those foreign allocations. Many foreign-only fact patterns should have:
- minimal amounts on the main K-1 income boxes, and
- the relevant detail living on K-3.
Part E — ITINs, Protective Returns, and “Do I need to file 1040-NR?”
15) If a foreign owner has no ECI, should they file a 1040-NR anyway?
Not always.
- There are three common approaches:
- No 1040-NR, only the required entity information filings (often used when the facts strongly support no USTB/ECI and the owner doesn’t need an ITIN).
- Protective 1040-NR (blank return + attached position statement) — used when you want to preserve statute of limitations positions, support an ITIN application, or make a conservative disclosure without “pretending” you had ECI.
- Avoid “fake Schedule C + offset to zero” — a frequent mistake that can trigger mismatches and IRS adjustments because the return format implies ECI.
Part F — Crypto (Bitcoin) for Non-U.S. Residents
16) If a foreign person trades Bitcoin through a U.S. exchange, are gains automatically taxable in the U.S.?
Generally, many foreign persons are not taxed by the U.S. on capital gains from trading intangible personal property (like stocks/crypto), unless special fact patterns apply, such as:
- the gains are effectively connected to a U.S. trade or business,
- the person has a U.S. office that changes sourcing,
- U.S. real property rules apply (not typical for crypto),
- or other special presence-related rules apply.
Crypto is typically treated as property for U.S. tax purposes, and many analyses track closely to how you think about stock gains.
Part G — Late Filing, Penalties, and “What if we missed 5472?”
17) Is Form 5472 really a big deal?
Yes. The penalty exposure can be significant (often referenced as $25,000 per failure, depending on circumstances). The risk is highest when:
- the IRS is already looking at the taxpayer,
- filings are chronically late,
- or facts show repeated noncompliance.
That said, practical enforcement can vary by fact pattern and visibility. From a professional standpoint, the safest approach is:
- implement a clean compliance calendar,
- file correctly going forward,
- and consider remediation strategies when needed.
If you’re a foreign owner (or advisor) trying to confirm whether you need Form 5472 / pro-forma 1120, Form 1120-F, a C-corp election (Form 8832), a protective 1040-NR, or K-2/K-3 treatment, we can review your full structure, money flow, and U.S. activity and give you a clear compliance roadmap.
Book a paid consultation here: https://oandgaccounting.com/appointment-booking-form/
