Who this is for: Non-U.S. individuals living abroad who own or plan to form a U.S. single-member LLC (SMLLC) to bill U.S. clients for services (design, dev, consulting, etc.).
Why it matters: In the U.S., the key question isn’t “Are your clients in the U.S.?”—it’s whether your income is U.S.-taxable (e.g., USTB/ECI—Effectively Connected Income) and what filings your entity requires. This FAQ explains, in plain English, how that works and how our firm engages.
Quick Primer: SMLLC vs. Multi-Member LLC
- Single-Member LLC (owner = one foreign individual): By default it’s a disregarded entity for U.S. income tax. The LLC doesn’t pay U.S. income tax; you do—but only if your income is U.S.-taxable (USTB/ECI—Effectively Connected Income). Separately, SMLLCs owned by foreigners must file Form 5472 + pro-forma 1120 every year (information return; $25,000 penalty if missed/late/incorrect).
- Multi-Member LLC (two or more owners): Default is a partnership that files Form 1065 and issues K-1/K-2/K-3. If the partnership has ECI, it must generally withhold for foreign partners under §1446. (This FAQ focuses on SMLLCs, but we call out differences where helpful.)
FAQ
- 1) If I live abroad and provide services from abroad, do I owe U.S. federal income tax?
Often no. Service income is generally sourced where the services are performed. If you perform all work outside the U.S., don’t travel to the U.S. for the work, and have no U.S. office, employees, or dependent agents, your income is usually foreign-source and not U.S.-taxable (no ECI).
Caution: Facts matter. If you start doing work while physically in the U.S., use U.S. staff/agents, or set up a real U.S. office, your conclusion can change. - 2) If my SMLLC doesn’t owe tax, do I still file something?
Yes. A foreign-owned SMLLC must file Form 5472 + pro-forma 1120 every year (information return). It reports related-party transactions (money you put in/take out, payables/receivables with the owner), not your full P&L.- Due date: April 15 (calendar year); extend to October 15 with Form 7004.
- Penalty: $25,000+ for late/missing/incomplete filings. This is the #1 trap for foreign SMLLCs.
- 3) Do I, personally, file a U.S. tax return (Form 1040-NR)?
- If no U.S.-taxable income (no ECI): Typically no personal U.S. return is required.
- If any U.S.-taxable income (e.g., you performed services while in the U.S.): You generally file Form 1040-NR and pay U.S. tax on that U.S. income.
- 4) I heard about Forms 5472 and 1120 vs. 1065—which applies to me?
- You (one owner) = SMLLC (disregarded): Form 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 corporate status for the LLC, rules change (corporate return instead).
- 5) Does having U.S. clients, a U.S. bank account, or billing in USD create U.S. tax?
No, not by themselves. Those do not automatically make your income U.S.-taxable. What matters is where you perform the services and whether you have a U.S. trade or business presence (office/people/agents here). - 6) Do tax treaties (e.g., Bulgaria–U.S.) cap my tax at a flat 10%?
Treaty dividend rates (5%/10%/15%) apply to corporate dividends, not to LLC distributions to an individual owner. For service income, the treaty usually matters only if your income is otherwise U.S.-taxable; many treaties require a permanent establishment before the U.S. can tax business profits. If your services are performed entirely abroad with no U.S. PE, there’s often no U.S. tax to cap. - 7) What about FDAP income (interest, dividends, royalties)?
FDAP (passive) income has separate withholding rules and possible treaty reductions. That’s different from your active service income via your SMLLC. - 8) Which state should I choose to form the LLC?
From a non-resident freelancer perspective, focus on annual maintenance cost & admin, not “zero tax state.” Examples (typical annual fees): Delaware ~$300, Wyoming ~$60, Colorado ~$25 (filing fees vary over time). Formation state doesn’t by itself create U.S. federal tax. - 9) Do I need a registered agent and an EIN?
Yes to both. We include first-year registered agent and EIN in our formation package. After year one, you can keep our agent or move to another low-cost provider. - 10) If I accidentally paid personal expenses from the LLC account, can you fix it?
Yes. We reclassify as owner draws (not deductible business expenses) and clean things up so your 5472 shows the right owner transactions. - 11) Do sales taxes affect me as a pure service provider?
Most states don’t tax traditional services, but some do tax certain digital services. If you start selling goods (e.g., merch) or digital products, economic nexus and sales-tax rules may apply. Ask us before you branch out. - 12) What changes would likely make my income U.S.-taxable?
- Performing services while physically in the U.S.
- Hiring U.S. employees or using dependent agents who solicit/close for you
- Leasing/using 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 books showing owner contributions/distributions & intercompany balances
- W-8BEN for your U.S. payors/platforms, as applicable
- 1040-NR only if you had U.S.-taxable income (e.g., work performed while in the U.S.)
- (For multi-member LLCs taxed as partnerships: replace the above with Form 1065 + K-1/K-2/K-3, and consider §1446 withholding if there’s ECI.)
How We Work (Scope, Engagement & Service Levels)
Formation Package (optional)
- LLC formation with Secretary of State (filing fees included)
- Operating Agreement (single-member)
- EIN acquisition
- Registered Agent – Year 1 included (renewable thereafter)
Compliance & Advisory
- SMLLC information return: Form 5472 + pro-forma 1120 (annual, fixed fee; fees on website, subject to change)
- Books & monthly closes: QuickBooks setup, bank/platform access (e.g., Mercury, platforms), monthly categorization, financials
- On-call advisory: 15/30/60-minute consults for structuring, treaty/PE, and “do I have U.S. tax?” questions
What We Don’t Do
- Open bank/merchant accounts or provide a virtual office
- Serve as your U.S. employees/agents or create a permanent establishment
- Prepare your home-country returns (we’ll coordinate with your local advisor)
- In-house recurring sales-tax filings (we’ll help you automate if you sell taxable items)
Onboarding Basics
- Pick your state and confirm legal name
- We file formation, draft OA, obtain EIN, set registered agent
- Subscribe to QuickBooks Online (Plus) and grant accountant access (and to Mercury/platforms)
- We set up your owner-transactions tracking for 5472 compliance
For a non-resident freelancer operating entirely from abroad, your service income is often not U.S.-taxable—but your foreign-owned SMLLC still must file Form 5472 + pro-forma 1120 every year. Keep clean books (especially owner contributions/distributions), avoid U.S. presence that creates ECI, and ask us before facts change. We’ll keep you compliant and make the admin painless—so you can focus on your clients.
