An LLC (limited liability company) is a US company form with limited liability, formed under the law of a specific state. Foreign entrepreneurs often consider it as an alternative to a classic offshore company: the company sits on a clear public register, and its federal tax treatment is determined by its IRS classification and the facts about its owner. A foreign owner's main obligations are at the federal level: the EIN, information returns and records of transactions with the company.
How the IRS classifies an LLC
Under IRS rules, a single-member LLC is by default a disregarded entity, meaning that for federal tax purposes it is "transparent" and merges with its owner. An LLC with two or more members is classified as a partnership by default. A different treatment, such as being taxed as a corporation, is elected by filing Form 8832.
The classification determines which returns are filed. For a foreign owner it also determines whether the owner personally has to pay tax in the US: what matters here is the source of income, whether there is a trade or business in the US (effectively connected income) and the tax treaty with the owner's country. The owner's tax residency and the controlled foreign company rules at home apply in parallel.
An EIN without a US address
The Employer Identification Number is issued by the IRS. The instructions for Form SS-4 allow an online application only for applicants with a legal residence, principal place of business or principal office in the US or its territories. A foreign applicant without such an address uses other channels:
- the phone line for international applicants, 267-941-1099 (not a toll-free number, 6:00 a.m. to 11:00 p.m. Eastern time, Monday through Friday); EINs are issued by phone only to international applicants;
- fax 304-707-9471 for sending from outside the US.
The IRS warns that the numbers may change, so check them against the current instructions before applying. The EIN is the company's tax number. It opens the way to a bank application and tax returns, while the bank decides separately whether to open an account.
Form 5472: the foreign owner's obligation
The IRS instructions expressly include a foreign-owned U.S. disregarded entity, a single-member LLC with a foreign owner, among reporting corporations. Such a company has no regular tax return, but it files Form 5472 together with a pro forma Form 1120 by the return due date, including extensions. Reportable transactions are the company's transactions with its owner and related parties, including contributions to and distributions from the company. That is why even an LLC with no profit, into whose account the owner has put money, usually falls under this form.
The penalties are high. According to the IRS, a penalty of $25,000 may be assessed for each failure to file a complete and correct Form 5472 on time. If the form is still not filed within 90 days after the IRS mails a notice, an additional $25,000 is charged for each further 30-day period, and this penalty has no maximum. The Form 5472 calendar is worth assigning to an accountant from the company's first year.
Beneficial ownership report to FinCEN
The Corporate Transparency Act required companies to report beneficial ownership information (BOI) to FinCEN. Under FinCEN's final rule, companies created in the US are exempt from this obligation and no longer have to file BOI reports. At the same time, banks, registered agents and payment services still collect information about owners as part of their KYC checks.
State costs: Delaware and Wyoming
The state sets the registration fee, the annual payment and the registered agent requirements. Two popular options:
| Delaware | Wyoming | |
|---|---|---|
| Annual LLC payment | $400 tax, due by June 1 | license tax from $60 (or 0.0002 of the assets located in the state, if greater) |
| LLC formation | per Division of Corporations fees | Articles of Organization: $100 |
| Detailed guide | Delaware company formation | Wyoming LLC formation |
State fees are a small part of the budget. The main recurring costs are the registered agent, bookkeeping, Form 5472 and banking. The states are compared by scenario in the guide Delaware vs Wyoming, and the choice between an LLC and a UK company in the comparison UK Ltd vs US LLC.
Bank and payment services
Registration and an EIN give the company legal existence, and the bank opens an account based on its own risk assessment. Banks and EMIs look at the owners, their country of residence, the business's connection to the US, the website, contracts and expected volumes. The registered agent's address serves for legal correspondence and is often acceptable to a bank only in addition to a real business address. We describe how to prepare a KYB package before applying on the page bank account opening preparation.
Two typical scenarios
An independent developer sells services to US clients and wants to sign contracts through an LLC. Before forming an LLC in the US, they need to understand where they pay tax personally, which forms the company will file and which bank will accept their profile.
Three co-founders are planning a venture round and stock options for the team. Investors usually expect a corporation (C-Corp), so this choice is best made before registration to avoid restructuring the ownership later.
For an online store with customers in the US, sales tax is covered in the guide to an eCommerce company, and preparing for the bank in a bank account for a foreign company.
Offshora will compare an LLC, a C-Corp and a UK Ltd for your business. Send us the owners' country of residence, the clients' countries and the expected turnover, and we will prepare a budget and a two-year compliance calendar.
Tell us about your task, and we will propose a jurisdiction, the scope of services and the order of work.
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