In the increasingly global world of online business, it’s not unusual for entrepreneurs, freelancers, and consultants to seek a business structure that supports international operations, offers stable banking options, and keeps administrative burdens low.
One solution that has quietly become popular among non-U.S. entrepreneurs is the single-member U.S. LLC owned by a nonresident alien (or “NRA” for U.S. tax purposes). While this approach isn’t the right fit for everyone, it offers some practical advantages for NRAs earning income from sources outside the United States.
U.S. Entity, Foreign Ownership
A Limited Liability Company (LLC) is a business structure available in all U.S. states. It’s flexible, relatively easy to manage, and you do not need to be a U.S. citizen or resident to form one. Further, there is no requirement to have U.S. based partners or directors.
Owners of an LLC are referred to as “members.” A single-member LLC is treated as a “disregarded entity” for U.S. tax purposes. This means that the U.S. doesn’t recognize the LLC as a separate taxpayer. Instead, the income is attributed directly to the owner. This can be particularly beneficial for NRAs. The U.S. only taxes NRAs on income that has a U.S. source or is effectively connected with a U.S. trade or business.
Therefore, if the LLC, owned by an NRA earns only foreign-sourced income, and the business activities take place outside the U.S., then no U.S. tax will apply. This makes the single-member LLC particularly attractive to foreign freelancers, consultants, and other self-employed persons.
Why Some Choose This Structure
This setup can serve a range of practical needs. For example:
- A non-U.S. freelancer working with clients in the EU or Asia might use a U.S. LLC to access U.S. based banking or payment platforms.
- A remote business that sells digital products or subscriptions to global customers may find the U.S. LLC useful for administrative clarity and international credibility.
- Some prefer the legal simplicity and familiarity of U.S. entity structures over those offered in their home jurisdictions or traditional offshore centers.
- Some may prefer using a jurisdiction that does not participate in common reporting standards (CRS).
What these use cases tend to have in common is that the underlying income does not originate from U.S. sources. That distinction is essential, when U.S. source income or a U.S. trade or business is involved, the tax consequences can change significantly.
Tax Compliance and Ongoing Filings
Even if no U.S. tax is owed, U.S. compliance rules still apply. A foreign-owned single-member LLC must file:
- Form 5472 – which reports the LLC’s ownership and any reportable transactions with its foreign owner.
- A pro forma Form 1120 – essentially a cover sheet that accompanies Form 5472
These are due annually and are relatively straightforward compared to full corporate or personal income tax filings. However, it is essential that these filings are not missed. Failure to file Form 5472 carries significant penalties, USD 25,000 or more in some cases.
There may also be state-level filing or reporting obligations depending on where the LLC is formed, though some states (like Delaware) are known for minimal requirements.
Things to Be Aware Of
This structure is not a tax shelter, or a loophole and it won’t eliminate tax obligations in your home country. Income that isn’t taxed by the U.S. may still be taxable in the country where you reside or where it is earned, so local compliance is essential.
It’s also important to avoid inadvertently creating a U.S. tax presence. Hiring employees in the U.S., holding inventory there, or engaging agents to act on your behalf can result in a U.S. trade or business, triggering different tax consequences.
Final Thoughts
Using a U.S. LLC as a foreign-owned business structure can be an efficient, legitimate way to operate internationally, particularly when U.S. source income is not involved. It offers access to U.S. banking or payment platforms, a familiar legal environment, and relatively light compliance compared to other options.
As with any cross-border structure, the details matter. It’s worth evaluating how this type of LLC fits into your broader business and tax strategy, including obligations in your country of residence.
[View source.]
