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None of that is hard, but it is different, and founders who add a co-founder in the first year without realising often file the wrong forms the next spring.
A US LLC with two or more members is taxed as a partnership unless it elects on Form 8832 to be taxed as a corporation. A partnership pays no income tax itself. It reports its income and allocates it to the partners, who each report their share. For foreign partners, when the partnership has no US trade or business, that share usually isn't taxed by the US.
| Form | What it is | When |
|---|---|---|
| Form 1065 | The partnership's return: income, deductions and each partner's share | 15 March for a calendar year, or 15 September with Form 7004 |
| Schedule K-1, one per partner | Each partner's share of the year's results, sent to the partner and filed with the 1065 | With the 1065 |
| Forms 8804 and 8805 | Withholding on foreign partners' shares of effectively connected income, if there is any | With the 1065, with instalments paid during the year |
| Form 5472 | Not filed. It's for corporations and foreign-owned single-member LLCs | — |
| If Form 1065 is late | $255 a month for each partner, for up to 12 months | From the due date, including extensions |
A partnership with no income and no deductions in a year doesn't have to file Form 1065. Many accountants file one anyway when the partners are abroad, because the K-1s are the record of each partner's position.
If the partnership has income effectively connected with a US trade or business, it has to withhold US tax on each foreign partner's share, whether or not it pays anything out: 37% for an individual partner and 21% for a corporate one. It pays the tax during the year and reports it on Forms 8804 and 8805. Each foreign partner then files a US return, Form 1040-NR, to report the income and claim the withholding, which is the point where an ITIN is needed. If it has none, which is normal for a service business run from abroad, there's nothing to withhold. The trade or business guide explains the test.
- The operating agreement matters more. It fixes the ownership split the K-1s follow, who manages, and what happens when one of you leaves.
- Each partner gets a K-1, and may need it for their own country's return.
- The company gives US clients a W-9, not a W-8, because a US partnership counts as a US person for that purpose.
- A partner joining or leaving changes the allocation from that date, so tell your accountant when it happens rather than at year end.
A multi-member LLC can elect on Form 8832 to be taxed as a C-Corporation. It then files Form 1120, pays corporate tax on its profit, and withholds on dividends to its foreign members. Few small service companies want that, and the ones that do should decide with an adviser.
Sources
Checked by Saais Patel against these official pages.
Next in EIN and tax:Form SS-4 without an SSN: line by line for a foreign-owned LLC