US tax for an owner abroad · A term for founders abroad
What is a disregarded entity?
A single-member LLC the IRS ignores for income tax, treating its income as the owner's; it still files Form 5472 if the owner is foreign.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 26 of 105 in the glossary, filed under D.IRS: single-member limited liability companies
Disregarded entity, for a founder abroad.
By default, a single-member LLC is disregarded as separate from its owner for federal income tax, so the owner reports its income as their own. An individual owner reports it on their own return, and a company that owns one treats it as a division. A foreign owner with no US trade or business generally has no US income tax to report on the company's profit, because it's earned outside the US.
Being disregarded for income tax doesn't make the company invisible. For tax years beginning after 2016, a foreign-owned disregarded entity is treated as a corporation for Form 5472, and files it every year with a pro forma Form 1120. It needs its own EIN to do so.
Where it isn't disregarded
- Form 5472, as above, for a foreign owner.
- Employment and certain excise taxes: the IRS treats it as a separate entity, which reports under its own name and EIN.
- State law: it's a company of its own, with the liability protection, the state's yearly charge and the registered agent that come with that.
It stops being disregarded if it takes on a second member, and becomes a partnership, or elects to be taxed as a corporation on Form 8832.
Sources: IRS: single-member limited liability companies; IRS: instructions for Form 5472.
Read next · guide · 6 minHow to get an EIN without a Social Security NumberWhat founders ask next.
- Is a foreign-owned single-member LLC a disregarded entity?
- Yes, by default, wherever the owner lives. It's ignored for income tax but still files Form 5472 with a pro forma Form 1120 every year.
- Which tax form does a disregarded LLC give a US client, a W-9 or a W-8BEN?
- Its foreign owner's. The IRS looks through a disregarded LLC to the owner, so a foreign individual gives a W-8BEN in their own name, not a W-9 for the LLC. The W-8BEN guide covers the edge cases.
- Does a disregarded entity pay US tax?
- Not itself. Any income tax falls on the owner, and a foreign owner owes it mainly on income connected with a US trade or business. The tax guide works through when that applies.
03 · See also
- The company itselfLLCA US company whose owners aren't personally liable for its debts, and whose profit is taxed once, to the owners, unless it elects otherwise.Read the term
- The EIN and IRS formsForm 5472The yearly IRS information return a foreign-owned US company files to report transactions with its foreign owner, with a $25,000 penalty for missing it.Read the term
- The company itselfSingle-member LLCAn LLC with one owner; a disregarded entity for US income tax and, when the owner is foreign, a Form 5472 filer every year.Read the term
- US tax for an owner abroadUS trade or businessRegular, continuous business activity in the US that makes a foreign person's connected income taxable there; decided by facts, not where you formed.Read the term
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