Do non-resident LLC owners pay US tax? The trade-or-business test, plainly

For income tax, a single-member LLC is a disregarded entity: the IRS looks through it to you. So the real question isn't whether the LLC pays US tax but whether its foreign owner has income the US can tax. The US taxes a foreign individual on two kinds of income: income effectively connected with a US trade or business, and certain US-source passive income, such as royalties, dividends and interest. Other income is outside US tax.

The law doesn't define the phrase. Courts and the IRS look for business activity in the US that's considerable, continuous and regular, carried on by you or by people acting for you. In practice, these are what create one:

• An office or fixed place of business in the US, including a co-working desk you actually use.
• Employees in the US, or a dependent agent there who can sign contracts for the company.
• Services performed in the US by you or your staff, depending on how much and how often.
• Inventory held in the US and sold from there, which is the open question for Amazon FBA sellers.

On their own, these don't: forming the company in Wyoming, having a registered agent, a US bank account, US customers, independent US contractors, a US mailing address, or selling software or services to Americans from a desk in another country. A company with none of the first list, whatever it has from the second, is the ordinary foreign-owned LLC, and it has no US trade or business.

Income from services is sourced where the work is done. A developer in Lahore writing code for a client in Austin earns Pakistani-source income, whatever the client's address or the invoice says. Income from selling goods you bought is generally sourced where ownership passes to the buyer, which for inventory shipped from abroad is often abroad. Royalties are sourced where the intellectual property is used, so a US platform paying for US views or downloads pays US-source royalties, which is why creators have tax withheld.

US-source royalties, dividends and interest paid to a foreign person are taxed by withholding. The payer keeps 30% unless a treaty lowers the rate, and you claim the lower rate on a W-8BEN. If the right amount was withheld, there's usually no return to file for that income. Payments for services performed abroad aren't withheld on, because they aren't US-source.

If you live in a treaty country, the treaty generally lets the US tax your business profits only if you have a permanent establishment there: a fixed place of business, or an agent who habitually concludes contracts for you. Treaties also set lower withholding rates. Without a treaty, the domestic rules above apply on their own. Each country page says which applies to you.

Wyoming has no income tax, and Delaware doesn't tax an LLC that doesn't operate in Delaware. Other states tax income sourced to them, which for a company with no presence in the state is usually none. A company that does operate somewhere, with staff, an office or stock, is taxed there and should register there. State income tax and your LLC has more.

Separate from the company, the US treats you as a tax resident if you meet the substantial presence test: at least 31 days in the US this year, and 183 days over three years, counting every day this year, a third of last year's days and a sixth of the year before's. A resident is taxed on worldwide income, like a citizen. A founder who visits for a few weeks a year stays well short. One who spends four months a year there for three years doesn't.

Work you do while you're in the US is US-source income, whatever the client's address. Short business trips for meetings rarely change the picture, but running the company from a US apartment for months can, both for tax and for your visa.

None of this changes what your own tax office expects. It taxes you as a resident under its own rules and its own view of what a US LLC is. Most countries tax residents on their worldwide income, a few tax only local income, and many treat a company managed from their territory as resident there. Whatever the US concludes, you still file at home.