US LLCs and foreign owners: What international entrepreneurs need to know

Though forming an LLC can be simple, the ongoing compliance requirements are often less well understood. Foreign ownership does not prevent the use of a US LLC, but it can create US tax reporting obligations that are easily overlooked at the formation stage. In some cases, US filing requirements may apply even where the LLC has little activity or no income. A common misconception is that an LLC operating entirely outside the United States or holding only foreign assets falls outside the US reporting regime. However, a foreign-owned, single-member US LLC may still be required to file Forms 5472 and 1120 annually, even where there is no US-source income. 

This filing obligation is not limited to single-member LLCs. It can also apply to any US corporation with at least 25% direct or indirect foreign ownership, including a multi-member LLC that elects corporate tax treatment, as well as to foreign-owned disregarded entities. 

Penalties for failing to file Form 5472 can be significant, beginning at USD 25,000 per return, with further penalties potentially applying if non-compliance continues after notification by the IRS. 

Additional complexity can arise where different countries classify the same entity differently for tax purposes. A structure that appears straightforward from a US perspective may be viewed differently abroad, resulting in unexpected reporting as well as administrative and tax obligations.

Practical challenges can also arise beyond tax compliance. Obtaining an employer identification number (EIN), opening bank accounts, maintaining corporate records, and meeting ongoing tax and legal filing requirements may require more attention than many foreign owners anticipate.

State-level obligations add a further layer of cost. Delaware, a popular state for LLC formation, now charges every LLC a flat USD 400 annual tax (up from USD 300), due by 01 June regardless of income or activity. Other states impose their own annual reporting fees, franchise taxes, and registered agent requirements, so the state of formation should reflect ongoing costs, not just the initial filing fee. These requirements should be considered before the formation of the LLC.

The popularity of US LLCs is well deserved, and they can be an effective vehicle in the right circumstances. However, the decision to establish an LLC should take into account both US and local country considerations. Early planning and a clear understanding of the compliance obligations can help avoid costly surprises and unnecessary administrative burdens later. Consult a tax advisor before taking any decisions. 

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Hannah Nelson has been practising US tax since 2015. She joined the USTAXFS London office in 2026 after previously working in the Zürich office. Prior to joining USTAXFS she worked at Ernst & Young in Germany and the US. Hannah is the European Regional Chair of GGI's Young International Taxation Practice Group (YITPG).