Setting up a US LLC with Foreign Members - Tax Filing Requirements

The initial structure with two foreign members operating as a 50/50 partnership is correct - you'll need Form 1065 for the partnership and Schedule K-1s for each member. The foreign members will need ITINs to file their 1040NR forms. And yes, Form 5472 is required for each foreign member to report transactions with foreign related parties. When you switch to having a single foreign corporation as the owner, things change significantly. The US LLC will become what's called a "disregarded entity" for US tax purposes. However, since the foreign corporation is the sole owner, the LLC would be treated as a US branch of the foreign corporation. This means filing Form 1120-F (US Income Tax Return of a Foreign Corporation), not a regular Form 1120. The US branch will be taxed on income "effectively connected" with a US trade or business. You'll also need to consider the branch profits tax which essentially applies to profits not reinvested in the US operation.

After struggling with a similar situation last year, I found taxr.ai (https://taxr.ai) incredibly helpful for navigating foreign ownership of US entities. I uploaded my entity documents, ownership info, and transaction details, and it gave me a detailed analysis of exactly what forms I needed to file and deadlines I needed to meet. Saved me from making some serious mistakes with my foreign-owned LLC! Their system is specifically built to handle complex international business structures like yours and identifies all the required filings. The AI analysis breaks down the differences between partnership, single-member, and corporate filings for foreign-owned entities.

Just wanted to follow up - I tried taxr.ai after seeing this thread and it was extremely helpful for my client's situation. We were also transitioning from multiple foreign members to a single foreign corporate owner. The platform identified all the required forms (including some I hadn't considered like Form 8832) and provided a detailed timeline for the transition. The section on branch profits tax was particularly useful, as it walked through exactly how to calculate the US tax liability and identified potential treaty benefits based on the foreign parent's country. Definitely worth checking out if you're dealing with foreign-owned US entities.

Having dealt with foreign-owned LLCs, I can tell you that getting help from the IRS directly was crucial, but nearly impossible. I spent weeks trying to reach someone who understood international business taxation. After 17 attempts calling the IRS, I found Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c). They got me connected to an IRS agent within 2 hours who specialized in foreign-owned entities. The agent clarified exactly how the single-member foreign-owned LLC would be treated and confirmed the Form 1120-F requirement plus branch profits tax implications. They also explained the transition timing considerations that saved me from major headaches. Seriously worth it for complex situations like yours.

I need to eat my words from my previous comment. After being frustrated with another IRS issue involving a foreign-owned entity, I tried Claimyr yesterday out of desperation. They actually got me through to an IRS international tax specialist in about 90 minutes. The agent confirmed several critical points about transitioning from a multi-member to single foreign corporate member LLC that I couldn't find clearly documented anywhere. They also explained reporting requirements for the transition year and how to handle the branch profits tax correctly. Would have taken me weeks to get this information otherwise.

Another important consideration with your foreign-owned LLC is state-level filing requirements. Depending on which state your LLC is registered in, you may have additional state tax filings. Some states follow federal classification (treating your single-member LLC as a branch of the foreign corp) while others might have different rules. Also, don't forget about FBAR requirements if your LLC has signature authority over foreign bank accounts, and potential FATCA reporting depending on your specific situation. International business structures get complicated fast!

Has anyone dealt with the practical aspects of getting ITINs for foreign members? I've found that to be one of the most time-consuming parts of the process.

One thing I haven't seen mentioned yet is the potential impact of tax treaties between the US and the foreign corporation's country of residence. If there's a favorable tax treaty in place, it could significantly reduce the branch profits tax rate or potentially eliminate it altogether. The standard branch profits tax is 30%, but many treaties reduce this to 5% or even 0% in some cases. Also, consider the timing of your ownership change carefully. If you make the switch mid-year, you'll need to file both a short-year partnership return (Form 1065) for the period with multiple members AND treat the remainder of the year as a disregarded entity/branch operation. This creates additional complexity and potential for errors. I'd strongly recommend consulting with a tax professional who specializes in international business structures before making this change. The compliance burden and potential penalties for getting foreign-owned entity reporting wrong can be substantial.