LLC Taxes for Non-Resident Aliens: What You Actually Owe

TL;DR: If a non-resident alien (NRA) owns a single‑member US LLC treated as a disregarded entity, the LLC itself is not taxed—but the owner still faces US filing and reporting obligations (Form 5472 + pro‑forma 1120, EIN, possible 1040‑NR or withholding). Whether you pay income tax depends on whether the LLC is engaged in a US trade or business (ETBUS). Don’t ignore state taxes and reporting—penalties are steep.

Time to read: ~8 minutes

Lo que vas a aprender

Qué significa que una single‑member LLC sea "disregarded" para un non‑resident alien.
Cómo funciona el concepto ETBUS (effectively connected trade or business) y por qué importa.
Cuándo hay que presentar Form 5472, obtener EIN y/o declarar con Form 1040‑NR o 1120.
Obligaciones estatales comunes y errores frecuentes que cometen los dueños extranjeros.
Pasos prácticos que podés seguir hoy para cumplir y minimizar riesgos.

Context / the problem: LLC taxes non-resident — why it’s confusing

Many entrepreneurs from LATAM form a US LLC because of credibility, access to payment processors, and a stable legal framework. But tax rules for foreign owners are counterintuitive:

A single‑member LLC owned by a non‑resident alien (NRA) is generally a disregarded entity (DRE) for federal tax: the LLC itself is not taxed separately.
However, “not taxed” does NOT mean “no filing.” The IRS requires specific reporting when a foreign person owns a US entity, especially when there are related‑party transactions.
Whether the NRA owes US income tax depends on whether the LLC is engaged in a US trade or business — often referred to as ETBUS (effectively connected trade or business). Determining ETBUS is factual and can be tricky.
State rules add another layer: income tax, franchise tax, annual reports, sales tax nexus — each state differs.

Because of these nuances, misunderstandings create real risks: large penalties (e.g., for missing Form 5472), blocked bank accounts, or unexpected tax bills.

Key concepts explained (NRA LLC taxes, ETBUS LLC, Form 5472)

Single‑member disregarded entity treatment

Tax perspective: A DRE isn’t a separate taxpayer — the owner reports the LLC’s items directly.
For a non‑resident alien owner, if the LLC generates US‑source effectively connected income (ECI), the owner usually must file Form 1040‑NR and pay tax on ECI at graduated US rates.
If the income is US‑source FDAP (fixed or determinable, e.g., interest, dividends), it’s generally subject to 30% withholding (unless reduced by treaty) and is not treated as ECI unless there’s a trade or business connection.

ETBUS / “effectively connected trade or business” (ETBUS LLC)

ETBUS means the business is actively conducting trade/business in the US. Examples that often create ETBUS: selling services to US customers from within the US, having employees or an office in the US, or substantial business activities directed at the US market.
If the LLC is engaged in ETBUS, income is ECI and taxable on a net basis (expenses deductible) — owner files Form 1040‑NR.
If not ETBUS, income might be FDAP and taxed via withholding instead of a net return. Determination is fact‑specific; it’s advisable to consult a tax professional.

Form 5472 and the pro‑forma 1120 filing (foreign-owned LLC tax reporting)

Since 2017 the IRS requires reporting for foreign owners of certain US entities. A foreign‑owned single‑member DRE must file:
- A pro‑forma Form 1120 (U.S. Corporation Income Tax Return) — even though it’s disregarded — to serve as a cover for
- Form 5472 (Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business), reporting reportable transactions between the DRE and its foreign owner or related parties.
Common reportable items include capital contributions, distributions, management fees, and loans.
Penalties: Failure to file Form 5472 or pro‑forma 1120 can trigger significant penalties (starting at $25,000; higher if continued noncompliance).

Other federal obligations to watch

EIN: The DRE needs an EIN even if it has no employees, because banks and IRS reporting require it.
Withholding: If the LLC makes FDAP payments to the foreign owner (or other foreign persons), the LLC may be a withholding agent.
Election to be taxed as a corporation: An NRA owner can elect corporate tax treatment (Form 8832 or 2553 for S corp not available to NRAs). If elected, file Form 1120 as a corporation and different rules apply.

State taxes: don’t assume “federal only”

States have their own rules and thresholds. Common state obligations include:
- Income/franchise taxes: e.g., California imposes an annual minimum franchise tax (check current amount), other states have fees or gross receipts taxes.
- Annual reports / registered agent fees: required in most states.
- Sales tax nexus: selling goods or certain services to residents may create sales tax collection obligations.
Actionable tip: identify the state of formation and the states where you have customers, employees, or property; consult state tax guides or a local advisor.

Common misconceptions (and the truth)

Misconception: “My DRE has no US tax filings.” Truth: Even disregarded entities commonly must file Form 5472 + pro‑forma 1120 and the owner may need Form 1040‑NR.
Misconception: “Form 5472 is only for corporations.” Truth: It applies to foreign‑owned DREs under current regs.
Misconception: “If I don’t have US income, I don’t need an EIN.” Truth: Banks and many tax forms require an EIN even if no tax is due.
Misconception: “State taxes are negligible.” Truth: State filing fees, franchise taxes, and sales tax can add materially to costs and compliance.
Misconception: “Hiring contractors is tax‑free.” Truth: Payments to foreign contractors might still trigger withholding or reporting responsibilities.

Practical step‑by‑step checklist (concrete actions)

Classify activities: Determine whether your LLC’s activities rise to ETBUS (are you selling, shipping, performing services in the US?).
Obtain EIN: Apply for an EIN early — banks and Form 5472 require it.
Determine filing obligations:
- If ETBUS/ECI: owner likely files Form 1040‑NR (or 1120 if corporation election).
- Regardless, if foreign owner >25%, file pro‑forma 1120 + Form 5472 and attach required statements.
Track related‑party transactions: document capital inflows, loans, management fees, and distributions — these are reported on 5472.
Address withholding & FDAP: identify any FDAP payments and whether withholding applies or treaty rates reduce withholding.
Check state requirements: annual reports, franchise tax, sales tax registration.
Get professional help if unsure: tax treaties, ECI determinations, and state rules are fact‑dependent.

Cómo Rely te ayuda

Rely simplifica la formación y los primeros pasos administrativos para que puedas concentrarte en el negocio. Nuestros planes (desde USD 449 hasta USD 649) incluyen la formación de la LLC, registered agent, obtención del EIN y documentos legales (Operating Agreement y BOIR), además de soporte por email o chat. El proceso es 100% online — no necesitás viajar a EE. UU.

Si elegís un plan con apertura de cuenta bancaria, Rely te puede ayudar con bancos como Mercury o Relay. El tiempo estándar para formar la LLC es de 5–7 días hábiles; con servicio express la LLC puede formarse en 1 día y podés estar operativo en menos de 5 días. Rely te ayuda a cubrir los primeros requisitos que facilitan cumplir obligaciones fiscales (por ejemplo, tener EIN y estructura documentada para preparar Form 5472 y otras presentaciones).

Próximos pasos

Si querés formar una LLC correctamente y dejar ordenadas las obligaciones fiscales iniciales (EIN, bank account, documentación), comenzá con Rely. También es recomendable coordinar una consulta con un contador especializado en NRA LLC taxes para revisar ETBUS, treaty positions y obligaciones estatales específicas.