A hybrid between a partnership and a corporation, an LLC (limited liability company) offers several benefits, including operational flexibility, protection of your personal assets and tax efficiencies.
While there are various types of business entities that you can start in the US, an LLC is the most popular choice among small businesses and entrepreneurs. Setup is fast, easy and relatively inexpensive. They’re also easier to run and reporting requirements (paperwork) is generally low hassle.
From a foreigner’s perspective, they’re particularly appealing for these exact reasons. However, there’s often some confusion around LLC foreign ownership. Can a foreigner own an LLC or be a member of one in the US, or are they only for US citizens?
In this guide I’ll unpack the answer to that question and more. Let’s dive in.
Can a Foreign Person Own an LLC?
Generally, yes: most states allow foreign individuals and entities to own an LLC. State rules, regulated activities, sanctions and provider eligibility can still restrict a particular arrangement. IRS overview.
US citizenship or a green card is not generally required just to own an ordinary LLC. Ownership does not grant immigration permission, a bank account or eligibility for every federal tax election.
Member vs Manager
When starting a US LLC, you’ll be posed the question of whether or not it will be “member-managed” or “manager-managed”.
Members are similar in concept to shareholders. They own a portion of the company.
Managers are similar to directors. They are appointed by the owners (members) and run the company, which includes the responsibility of filing.
Most small businesses are member-managed LLCs, as they are only owned by a small number of members.
Who Can Be an LLC Member in the US?
According to the IRS, most states do not restrict ownership. Members of US-based LLCs can therefore include:
- Individuals
- Corporations
- Other LLCs
- Foreign entities
The above applies to Ultimate Beneficiary Owners who are residents and non-resident aliens.
There is no limitation placed on the number of members who can own an LLC and single-member LLCs are also permitted in the majority of states in the US.
FAQs
How Much Money Must a Foreign-Owned LLC Make Before Filing Form 5472?
There is no general profit threshold that makes Form 5472 irrelevant. A wholly foreign-owned domestic disregarded entity is treated as a corporation for the limited reporting rules, and reportable related-party transactions can include funding and distributions.
The 25%-foreign-owned reporting-corporation rule is not a rule that every LLC with a foreign member files the same forms. Tax classification and transactions matter. IRS Form 5472 instructions.
When Do Foreign LLC Owners or Members Need a Visa?
Ownership and immigration permission are different. Running the business while outside the US does not itself require a US work visa, but physically entering the US requires the appropriate status for the intended activity.
Meetings and negotiations can be permitted business-visitor activities; productive work is a different question. The State Department’s B-1 fact sheet explains the distinction. An LLC is not a work permit.
What Annual Tax Filing Is Required for the IRS?
First determine the LLC’s tax classification. A single-member domestic LLC normally defaults to disregarded treatment; two or more members normally default to partnership treatment, unless an election changes the result.
A wholly foreign-owned disregarded entity with reportable transactions generally files Form 5472 with a pro-forma Form 1120. A partnership generally uses Form 1065, with partner reporting and possible withholding under section 1446; Forms 8804 and 8805 can be relevant. A corporation follows its corporate filing rules. IRS partnership-withholding instructions.
Owner income-tax returns, state filings, sales tax and payroll are separate. FinCEN currently exempts US-created entities from CTA beneficial-ownership reporting under its revised rule, but that does not remove IRS obligations. FinCEN’s current explanation.
What Happens if I Don’t File Everything I’m Supposed To?
Missing a required Form 5472 can trigger an initial $25,000 penalty, with further consequences for continuing failures. That is a reason to check whether the form is required, not to label it mandatory for every LLC with any foreign owner.
Keep a compliance calendar covering federal, state and owner filings, and maintain the records your preparer needs throughout the year. Tax due of zero does not prove that no return is due.
Final Thoughts on Foreign-Owned LLCs
While it is possible for a foreigner to own or be a member of an LLC in the US, the process involves a fair amount of admin. Failure to tick all the relevant boxes will have the IRS breathing down your neck.
That said, by now you should have enough information about LLCs with foreign members to avoid this happening. Take it a step at a time and you’ll find the effort to reward ratio skewed in your favour.
Take it from someone who knows, opening a company in the USA as a non-resident holds many perks, such as excellent banking, low fees, a good reputation and more.
For the practical sequence, continue with my US company setup guide and have the tax classification checked before registering.