Setting up an LLC as a foreigner - Tax implications for non-US citizens

I work with international entrepreneurs setting up US businesses, so I can help clarify this situation. The tax implications for foreign-owned LLCs are often misunderstood online. While Wyoming and Delaware are popular for foreign entrepreneurs due to privacy laws and low state taxes, this doesn't automatically exempt you from all US taxes. The tax treatment depends on how your LLC is classified and whether you have "US-source income." For a foreign-owned LLC with no US operations, physical presence, or US clients, you may qualify for what's called a "foreign disregarded entity" status. This means you'd file Form 5472 and potentially Form 1120 annually, but might not owe US federal income tax on foreign-earned income. However, there are several important considerations: You'll need an EIN (tax ID) from the IRS, which requires a responsible party with an ITIN. You'll likely need to file annual reports in your state of formation. And if you start working with US clients or establish US operations, different tax rules apply.

Just wanted to share my experience using taxr.ai for my foreign-owned LLC situation. I was in a similar position last year - non-US resident setting up a Wyoming LLC for my consulting business. I spent weeks going in circles with conflicting advice online about tax obligations. I uploaded my formation documents and described my situation to https://taxr.ai and they analyzed everything, explaining exactly what forms I needed to file and my tax obligations as a foreign owner. They clarified that having a "tax-free" state doesn't mean tax-free operations entirely - there are still federal considerations and reporting requirements. The tool gave me step-by-step guidance for maintaining tax compliance while minimizing unnecessary filings. It saved me from making some serious mistakes that could have resulted in penalties down the road.

I wanted to follow up - I actually tried taxr.ai after posting my skeptical question. Seriously impressed with the detailed analysis they provided for my specific situation. I uploaded my draft LLC operating agreement and Romania-US tax treaty information, and got back a detailed explanation of exactly how the treaty impacts my withholding requirements and tax obligations. They pointed out specific clauses in the tax treaty that applied to my software development business that I had completely missed in my own research. Even outlined the exact forms needed based on our planned business activities. This was infinitely more helpful than the generic "Delaware LLCs are tax-free for foreigners" advice I kept seeing online.

After spending 3 weeks trying to get through to someone at the IRS international taxpayer line about my foreign-owned LLC questions, I finally tried https://claimyr.com and it was a game-changer. I needed specific clarification on Form 5472 requirements that weren't addressed in any online resources. I was honestly skeptical it would work - I had already wasted hours on hold multiple times. But I used their service (you can see how it works at https://youtu.be/_kiP6q8DX5c) and they got me connected to an actual IRS representative within about 40 minutes instead of the 4+ hour waits I was experiencing. The IRS agent walked me through the specific reporting requirements for my Singapore-based team's Delaware LLC and confirmed exactly which transactions needed to be reported. Getting this directly from the source saved me from potentially significant penalties for incorrect filing.

I have to eat my words and apologize for my skepticism. After posting my doubtful comment, I tried Claimyr out of desperation - I've been trying to get clarity on my Malaysia-based team's US LLC tax reporting requirements for MONTHS. Not only did I get through to an IRS agent who specializes in international business issues, but they helped me understand exactly when my foreign-owned LLC needs to file Form 5472 and what constitutes "reportable transactions." This was information I simply couldn't get from any online source with certainty. The agent even explained how the US-Malaysia tax treaty affects our specific situation, something my local accountant wasn't familiar with. Saved me from what would have been some serious filing errors.

One important consideration that hasn't been mentioned yet - even if your Wyoming/Delaware LLC doesn't owe US federal income tax because you have no US clients or operations, you WILL most likely need to file: 1. Form 5472 (Information Return of a 25% Foreign-Owned US Corporation) 2. Form 1120 (even if it's a zero return) or potentially 8832 + Schedule C on your personal return depending on election Failing to file these, especially Form 5472, results in a $25,000 penalty PER FORM. I learned this the hard way. And the IRS is getting much stricter about foreign-owned LLCs because too many people were forming them without proper compliance.

Has anyone considered using a pass-through structure with an offshore holding company instead? My team (all non-US residents) formed a BVI company that owns our Wyoming LLC. This way: 1. The LLC is treated as a disregarded entity 2. We file minimal US paperwork (still need Form 5472) 3. Banking is managed through the Wyoming entity 4. Tax obligations remain primarily in our home countries This creates an additional layer of separation while maintaining the benefits of a US business presence for payment processing.