Operating a U.S. Limited Liability Company (LLC) as a foreign owner can be complex, especially when dealing with U.S. tax obligations. Below, we address common questions from foreign owners of single-member LLCs in the U.S., with a focus on key tax forms such as Proforma 1120 and Form 5472, as well as important considerations like foreign-sourced income and U.S. trade or business issues.
Q1: Do I need to file Forms Proforma 1120 and 5472 if my LLC has no activity or reportable transactions?
Answer: No, if your LLC has not had any reportable transactions—such as contributions, distributions, or payments to related parties—there is no requirement to file Forms Proforma 1120 and 5472. These forms are only required when reportable transactions occur. Without any such activity, you are not obligated to file them.
Q2: My LLC has generated some profit. Do I file taxes as a corporation or on a personal tax return?
Answer: If your LLC is a single-member entity and has not elected to be taxed as a corporation (via Form 8832), it is considered a disregarded entity. This means the LLC’s income passes through to the owner and is reported on your personal tax return, not as a corporate entity. However, if the LLC is taxed as a C-Corp, it would be subject to a flat 21% corporate tax rate.
Q3: What if my LLC’s income is generated from services performed outside the U.S.?
Answer: U.S. taxes income based on where the services are performed. If your LLC generates income from services performed outside the U.S., such as in India, that income is considered foreign-sourced and is not subject to U.S. taxation. The IRS looks at the location of the work being done, not where payments are received. Therefore, your LLC would not be engaged in a U.S. trade or business, and no U.S. tax would be due beyond the possible filing of Forms Proforma 1120 and 5472 to report transactions.
Q4: Do I need to pay U.S. taxes on income stored in a U.S. bank account?
Answer: No, simply having a U.S. bank account does not create a U.S. tax liability. U.S. taxes are determined by where business activities or services take place, not by the location of the bank account. If your work is performed outside the U.S., the income is considered foreign-sourced and is not taxable in the U.S., even if the funds are held in a U.S. bank account.
Q5: What is a disregarded entity, and how does it affect my LLC’s tax filing?
Answer: A disregarded entity refers to a single-member LLC that has not elected to be taxed as a corporation. For tax purposes, the LLC is treated as an extension of the owner, meaning the LLC’s income and activities are reported on the owner’s personal tax return. If the income is foreign-sourced and not connected to a U.S. trade or business, it is not subject to U.S. taxation. However, reportable transactions, if any, must still be disclosed through Forms Proforma 1120 and 5472.
Q6: Can I file Forms Proforma 1120 and 5472 electronically?
Answer: No, these forms cannot be filed electronically. You must submit them by fax or mail. Be sure to keep confirmation of your fax or mail submission for future reference. The IRS does not typically send confirmations unless there is an issue with your filing.
Q7: Does the U.S.-India Tax Treaty apply to my situation?
Answer: The U.S.-India tax treaty applies if you are engaged in a U.S. trade or business or have U.S.-sourced fixed, determinable, annual, or periodical (FDAP) income, such as interest, dividends, or royalties, which are subject to withholding. However, if you perform services in the U.S. and can prove the absence of a permanent establishment (even if the income is effectively connected to a U.S. trade or business), you may rely on the treaty to avoid double taxation. The key is demonstrating that despite having U.S.-effectively connected income, you do not have a permanent establishment in the U.S.
Important Reporting: Corporate Transparency Act Compliance
Foreign owners of U.S. LLCs should also be aware of the Corporate Transparency Act (CTA). Under the CTA, certain U.S. entities, including LLCs, must report beneficial ownership information to the U.S. government.
- Who Needs to File: U.S. corporations, LLCs, and similar entities, including foreign-owned entities, must report beneficial ownership information.
- Deadlines: Entities created before January 1, 2024, must file by January 1, 2025. Entities formed after January 1, 2024, have 90 days from formation to file.
Failure to comply can result in penalties, so it’s essential to file on time.
To ensure compliance with all your U.S. tax and reporting obligations as a foreign LLC owner, we recommend consulting with tax professionals who specialize in U.S. international taxation. Schedule a consultation with O&G Tax and Accounting Services to clarify your filing requirements, including Forms Proforma 1120 and 5472. Click here to schedule an appointment.
O&G can also assist with Corporate Transparency Act (CTA) compliance to ensure your beneficial ownership information is filed accurately. Contact us today for expert guidance and support.
