U.S. Taxes for Non-Resident Owners of Single-Member LLCs (Services, Consulting & Freelancing)
- Who this is for: Non-U.S. individuals living abroad (e.g., Spain) who own—or plan to form—a U.S. single-member LLC (SMLLC) to bill clients (U.S. or foreign) for services such as IT, cloud ops, design, development, consulting, etc.
- Why this matters: Whether you have U.S. clients or a U.S. bank account is not the decisive issue. The core question is whether your income is U.S.-taxable (i.e., Effectively Connected Income, “ECI”) and what filings your SMLLC must submit each year. This FAQ explains the moving parts in plain English and clarifies what our firm does—and does not—do.
1) If I live and work outside the U.S., do I owe U.S. federal income tax on my service income?
- Often no. Service income is generally sourced to where the services are performed. If you perform the work entirely outside the U.S., have no U.S. office, no U.S. employees or dependent agents, and you don’t travel to the U.S. to do the work, your income is usually not ECI and not U.S.-taxable at the federal level.
- Caution: Facts can change the outcome—e.g., working while physically in the U.S., hiring U.S.-based staff/agents, or maintaining a U.S. office.
2) My SMLLC is “disregarded.” Do I still have to file anything in the U.S.?
- Yes. A foreign-owned SMLLC must file Form 5472 + pro forma 1120 every year (an information return, not an income tax return). It reports related-party transactions (money you put in/take out, balances with the owner).
- Due date: typically April 15 for calendar-year entities; extend with Form 7004.
- Penalty: $25,000+ for late/missing/incomplete filings. This is the most common (and expensive) miss for foreign SMLLCs.
3) Do I file a personal U.S. tax return (Form 1040-NR)?
- If you had no U.S.-taxable income (no ECI), typically no U.S. personal return is required.
- If any portion of your services were performed while in the U.S., you generally file Form 1040-NR and pay U.S. tax on that U.S.-source portion.
4) What’s the difference between Form 5472 and Form 1065?
- Single owner (SMLLC, default disregarded): 5472 + pro forma 1120 (information return).
- Two or more owners (partnership): Form 1065 with K-1/K-2/K-3 (not 5472).
- If you elect to tax the LLC as a corporation, the filing regime changes accordingly.
5) Do U.S. clients, a U.S. bank account, or billing in USD create U.S. Federal tax?
- No, not by themselves. Those conveniences do not automatically cause U.S.-taxable income. The key drivers are where you perform services and whether you’ve created a U.S. trade or business (office/people/agents in the U.S., or you personally working there).
6) I was told to find a “registered agent.” Are they the ones who file my tax forms?
- Usually no. A registered agent keeps your company in good standing at the state level and receives official mail. They typically do not prepare federal tax or information returns unless you separately engage them (or their affiliated CPA) for that service. State good standing ≠ IRS compliance.
7) I missed prior-year 5472 filings. What now?
- Get compliant: prepare and file the missing 5472 + pro forma 1120 returns.
- If penalties are assessed, we can pursue reasonable-cause relief/abatement. The IRS generally issues notices before collection; respond promptly and professionally.
8) Does a tax treaty cap my U.S. tax at a flat 5–15%?
- Treaty dividend rates apply to corporate dividends, not to an SMLLC owner’s distributions.
- For service income, treaties often require a permanent establishment (PE) before the U.S. can tax business profits. If you perform all work abroad and maintain no U.S. PE, there’s often no U.S. federal tax on your service income.
9) Do I need to worry about FDAP income (interest, dividends, royalties)?
- FDAP (passive) income has separate U.S. withholding/treaty rules and is distinct from your active services income. We’ll flag FDAP if it’s relevant to you.
10) Which state should I choose for formation?
- For non-resident solo service providers, the decision is usually about annual maintenance cost and admin—not “tax-free” branding. Any state LLC formation does not, by itself, create U.S. federal tax.
11) What other filings might apply besides IRS forms?
- Certain state business licenses/renewals may apply, depending on the state of formation.
12) What changes would likely make my income U.S.-taxable?
- Performing services while physically in the U.S.
- Hiring U.S. employees or appointing dependent agents to solicit or conclude contracts
- Maintaining a U.S. office or fixed place of business
Annual Compliance Checklist (Foreign-Owned SMLLC)
- Form 5472 + pro forma 1120 (due Apr 15; extend with Form 7004)
- Accurate bookkeeping capturing owner contributions/distributions and intercompany balances
- W-8BEN (as requested by U.S. payors/platforms)
- Form 1040-NR only if you had U.S.-taxable income (e.g., services performed in the U.S.)
How We Work (Scope, Engagements & Service Levels)
- Formation Package (optional)
- LLC formation with the state (filing fees included)
- Operating Agreement
- EIN acquisition
- Registered Agent – Year 1 included (renewable thereafter)
- Compliance & Advisory
- SMLLC information return: Form 5472 + pro forma 1120 (annual; fixed fee—see website; fees subject to change)
- Books & monthly closes: QuickBooks setup, bank/platform access (e.g., Mercury), categorization, financial statements
- On-call advisory: 15/30/60-minute consults for ECI/PE determinations, treaty questions, missed-filing remediation, and process setup
- What We Don’t Do
- Open bank/merchant accounts or provide a virtual office
- Act as your U.S. employees/agents or create a permanent establishment
- Prepare your home-country tax returns
- Handle recurring state sales-tax filings in-house (we’ll help you automate if you sell taxable goods/services)
- Onboarding Basics
- Choose formation state and legal name
- We file formation, draft the Operating Agreement, obtain EIN, and set up the registered agent
- Subscribe to QuickBooks Online (Plus) and grant accountant access (and to your bank/platforms)
- We configure owner-transaction tracking to keep 5472 compliant and audit-ready
Red-Flag Summary (Avoid these if you want to stay out of U.S. tax)
- Doing your work from U.S. soil (even short trips count)
- U.S. staff/agents who regularly solicit or conclude contracts for you
- A U.S. office or other fixed place of business
If you’re a non-resident who performs all services from abroad and keeps no U.S. presence, you often owe no U.S. federal income tax on those service profits. But your foreign-owned SMLLC still must file Form 5472 + pro forma 1120 each year, and you must keep clean books—especially tracking money you contribute or withdraw. Know the difference between a registered agent (state compliance) and a CPA (IRS filings). When in doubt—or before your facts change—talk to us first so we can keep you clean, simple, and compliant.
