The Complete US LLC Tax Guide for Non-Residents (0% Tax Explained)
Understand your tax obligations, the "ETBUS" rule, and how to file Form 5472 to avoid the $25,000 IRS penalty.
Legal Disclaimer - READ THIS FIRST
We are not attorneys, CPAs, or licensed tax professionals. This guide is for informational and educational purposes only.
US tax laws are extremely complex and change frequently. Tax obligations vary based on your specific situation, country of residence, income sources, and business activities.
⚠️ ALWAYS consult with a qualified tax professional (CPA or Enrolled Agent) before making any tax decisions or filing any forms with the IRS.
Failure to file required tax forms can result in penalties of $25,000 or more. Do not rely solely on this guide for tax compliance.
📋 What's Covered in This Guide
The "Tax Haven" Myth
"Is it true I can pay 0% income tax with a US LLC?"
The Short Answer: YES, but...
It's possible to legally pay 0% US federal income tax on your LLC profits, but it's NOT automatic.
It depends on a critical factor: Are you "physically engaged" in trade or business within the United States?
Key Concept: Territorial Taxation for Non-Residents
The United States is NOT a tax haven in the traditional sense (like the Cayman Islands or BVI). However, it operates on a territorial taxation system for non-resident aliens.
What This Means:
- US Citizens & Residents: Pay tax on worldwide income (no matter where it's earned)
- Non-Resident Aliens: Generally only pay US tax on income that is "US-sourced" or "effectively connected" to a US trade or business
So if you:
- Live in Argentina 🇦🇷
- Work remotely from your laptop
- Sell digital services to clients worldwide
- Have NO physical presence in the US (no office, no employees, no warehouse)
Concept 1: How the IRS Sees Your LLC (Disregarded Entity) 👻
Understanding this concept is crucial to understanding why you might pay 0% tax.
What is a "Pass-Through Entity"?
For Tax Purposes: Your LLC is Invisible
If you own a single-member LLC (only one owner), the IRS treats it as a "disregarded entity" by default.
The LLC doesn't file its own tax return
The LLC doesn't pay taxes itself
All income "passes through" directly to you (the owner)
The Tax Logic Chain:
Your LLC earns $50,000
From selling software online.
The IRS ignores the LLC
It's a "disregarded entity" (ghost company for tax).
The income is attributed to YOU
The IRS looks at you personally, not the LLC.
You're a non-resident alien living abroad
You earned the money remotely from Colombia.
Result: No US income tax owed (0%)
Your income is not "US-sourced" or "effectively connected."
Then it's treated as a Partnership by default. Partnerships file Form 1065. The tax logic is similar (pass-through), but filing requirements are more complex. Consult a CPA for multi-member LLCs.
Concept 2: The "ETBUS" Test (Do I Owe Taxes?) 🧪
This is the golden rule that determines whether you owe US income tax or not.
ETBUS = "Engaged in Trade or Business in the United States"
You likely owe US taxes
You likely owe $0 US income tax
The 3 Factors That Make You ETBUS:
Factor 1: Dependent Agents in the US
Do you have employees or contractors working inside the US on your behalf?
- You hire a US-based salesperson
- You have a warehouse manager in Texas
- You pay a US contractor to fulfill orders
✅ If YES → You are likely ETBUS (taxable)
❌ If NO → Continue to Factor 2
Factor 2: Physical Office or Operations in the US
Do you have a physical business location in the US?
- You rent an office in Miami
- You own a retail store in California
- You have inventory stored in a US warehouse (owned by you, not Amazon FBA)
✅ If YES → You are likely ETBUS (taxable)
❌ If NO → Continue to Factor 3
Factor 3: Substantial Presence Test (Days in US)
Do you spend significant time physically present in the US conducting business?
- 183+ days in the US in a year = Likely a tax resident
- Working from the US (even remotely) = May trigger ETBUS
✅ If YES → You may be ETBUS (taxable)
❌ If NO → You are likely NOT ETBUS
Common Scenarios for Digital Nomads:
- You live in Mexico and work remotely
- You use digital services (AWS, Stripe, PayPal)
- You sell to clients worldwide via your website
- You use Amazon FBA (Amazon is your agent, not your employee)
- You have NO employees, office, or warehouse in the US
- You hire a virtual assistant in Florida
- You rent a coworking space in Austin
- You spend 6 months/year in the US working
- You own a physical inventory warehouse in the US
- Using a US-based payment processor (Stripe US vs Stripe Atlas)
- Having a US phone number or mailing address (registered agent)
- Attending trade shows or conferences in the US
The "Monster" Requirement: Form 5472 & 1120 👹
This is where most non-resident LLC owners get tripped up.
CRITICAL: Even if you owe $0 in taxes, you MUST file Form 5472
The penalty for NOT filing is $25,000 USD PER YEAR
This is NOT negotiable. The IRS takes this extremely seriously.
What is Form 5472?
Form 5472 is an informational return required for:
- US LLCs with at least one foreign (non-US) owner
- Even if the LLC had $0 income or $0 profit
- Even if no US taxes are owed
It reports reportable transactions between the LLC and related foreign persons (you).
What is Form 1120?
Form 1120 (Pro Forma) is the corporate tax return.
Even though your single-member LLC is "disregarded" for tax purposes, you must file a "pro forma" Form 1120 as an attachment to Form 5472.
This form typically shows $0 taxable income (if you're not ETBUS).
Who Must File Form 5472?
You MUST file if:
- Your LLC is owned by a non-US citizen/resident
- You had ANY transactions with foreign related parties (including you contributing capital, taking distributions, etc.)
- Even if your LLC was dormant (no activity)
When is the Deadline?
April 15th of each year (for the previous calendar year)
Example: For 2025 activity, file by April 15, 2026.
You can request a 6-month extension (Form 7004), pushing the deadline to October 15th.
How to File Form 5472
Recommended Tax Services for Non-Residents
doola Total Compliance
What's Included:
- Form 5472 & 1120 filing
- State Annual Report filing
- Bookkeeping support
- Dedicated tax advisor
Don't Risk a $25,000 Fine
Form 5472 is complex and unforgiving. One mistake can cost you tens of thousands of dollars.
Hire a professional to handle your tax compliance from day one.
Do I Need an ITIN? (Individual Taxpayer Identification Number)
This is one of the most confusing questions for non-residents.
EIN vs. ITIN: What's the Difference?
| EIN (Employer Identification Number) | ITIN (Individual Taxpayer ID Number) | |
|---|---|---|
| Who needs it? | Your LLC (the business entity) | YOU (the individual person) |
| Purpose | Identify your business for tax purposes | Identify YOU for personal tax filing |
| Required? | ✅ Yes, always (for LLC) | ❓ Depends on your situation |
When Do You Need an ITIN?
✅ You NEED an ITIN if:
- You are ETBUS and owe US income taxes (must file Form 1040-NR)
- You want to open a personal US bank account (not business)
- You want to apply for a US credit card
- Your bank or payment processor requires it (rare but happens)
- You want to claim a tax treaty benefit
❓ You MIGHT NOT need an ITIN if:
- You're only filing Form 5472 (informational return)
- You owe $0 US income tax (not ETBUS)
- You only have a business EIN (not personal tax ID)
How to Get an ITIN
You must file Form W-7 (Application for ITIN) with the IRS.
- Fill out Form W-7 (available on IRS.gov)
- Submit original passport (or certified copy from embassy)
- Attach a US tax return (Form 1040-NR or Form 5472)
- Mail everything to the IRS
- Wait 7-11 weeks for approval
State Taxes (Franchise Tax) 🗺️
So far, we've talked about Federal taxes (IRS). But states also have their own rules.
Federal vs. State: Two Different Systems
Federal (IRS)
- Income tax (0% if not ETBUS)
- Form 5472 requirement ($25k penalty)
State (Your LLC's State)
- Annual Report fee (NOT an income tax)
- Franchise Tax (varies by state)
State-by-State Breakdown:
Wyoming
Annual Fee: $60/year (Annual Report)
Income Tax: $0 (Wyoming has NO state income tax)
Franchise Tax: $0
Delaware
Annual Fee: $300/year (Franchise Tax)
Income Tax: $0 (if no Delaware-sourced income)
California
Annual Fee: $800/year (Minimum Franchise Tax)
Income Tax: Up to 8.84% (if you have CA-sourced income)
New York
Annual Fee: $25 (Biennial filing)
Income Tax: Up to 6.5% (if you have NY-sourced income)
Our Recommendation:
For non-resident LLC owners with no US physical presence, Wyoming offers the best combination of:
- ✓ Low annual fees ($60)
- ✓ No state income tax
- ✓ Strong privacy protections
- ✓ Simple compliance
Sales Tax (The E-commerce Headache) 📦
If you sell physical products (Amazon FBA, Shopify, eBay), you need to understand sales tax.
What is Sales Tax?
Sales tax is a consumption tax charged to customers at the point of sale.
It's NOT a business income tax—you collect it from customers and remit it to the state.
Economic Nexus: The New Rule
After the 2018 Supreme Court case South Dakota v. Wayfair, states can now require out-of-state sellers to collect sales tax if they exceed certain thresholds.
Typical Economic Nexus Threshold:
$100,000 in sales OR 200 transactions in a state per year
If you exceed this, you must register for a sales tax permit in that state and start collecting sales tax from customers in that state.
Good News for Amazon FBA Sellers:
Marketplace Facilitator Laws
Most states now require Amazon (not you) to collect and remit sales tax on your behalf.
This applies to:
- Amazon FBA
- eBay
- Walmart Marketplace
- Etsy
✅ You don't need to worry about sales tax if you sell exclusively through these platforms.
What About Shopify or Your Own Website?
If you sell through your own Shopify store or website, YOU are responsible for collecting and remitting sales tax.
Steps:
- Determine which states you have nexus in (use TaxJar or Avalara)
- Register for sales tax permits in those states
- Configure Shopify to collect the correct sales tax rate
- File quarterly/monthly sales tax returns in each state
Sales Tax vs. Income Tax (Don't Confuse Them)
| Sales Tax | Income Tax |
|---|---|
| Collected from customers | Paid by your business (on profits) |
| Based on sale price | Based on net income |
| Remitted to states | Filed with IRS (and state) |
| Applies to physical products | Applies to all business income |
Summary Checklist for Non-Residents ✅
Here's your annual tax compliance roadmap:
Prepare Your Bookkeeping
- Organize all income and expense records
- Calculate total revenue and profit
- Hire a CPA if you haven't already
DEADLINE: File Form 5472 & 1120
- File via fax or mail to the IRS
- Or request 6-month extension (Form 7004)
- Penalty for missing deadline: $25,000
Pay Annual Report Fee
- Wyoming: $60 (due by 1st day of anniversary month)
- Delaware: $300 (due June 1)
- Check your state's specific deadline
Sales Tax (if applicable)
- File monthly or quarterly (varies by state)
- Use TaxJar or Avalara for automation
Expected Tax Bill for Non-Residents (Not ETBUS):
| Federal Income Tax: | $0 |
| State Income Tax (Wyoming): | $0 |
| Annual Report (Wyoming): | $60 |
| CPA for Form 5472 Filing: | $300-$600 |
| Total Annual Tax Cost: | $360-$660 |
Remember: This assumes you are NOT ETBUS (no US physical presence, no US employees, 100% remote work).
If your situation is different, your tax obligations may be higher. Always consult a CPA.
Frequently Asked Questions
Do I really pay 0% US income tax?
Yes, if you meet the requirements:
- You're a non-resident alien
- You work remotely from outside the US
- You have NO physical presence in the US (no office, employees, or warehouse)
- Your income is not "effectively connected" to a US trade or business (ETBUS)
However, you must still FILE Form 5472 annually even if you owe $0 in taxes.
What happens if I don't file Form 5472?
The IRS penalty for failing to file Form 5472 is $25,000 USD per year, per form. This penalty applies even if you owe $0 in taxes.
The IRS takes this extremely seriously, and the penalty is not negotiable. Always file on time (April 15) or request an extension.
Can I deduct expenses from my LLC income?
Yes, legitimate business expenses are deductible. Common deductions include:
- Software subscriptions
- Web hosting
- Advertising
- Professional services (CPA, lawyer)
- Office supplies
- Travel for business
Keep detailed records and receipts. A CPA can help maximize your deductions while staying compliant.
Do I need to file taxes in my home country too?
YES. Most countries tax their residents on worldwide income, including income from foreign companies.
You must report your LLC income to your home country's tax authority. Many countries have tax treaties with the US to prevent double taxation.
Consult a local tax professional in your country.
What if I have business partners (multi-member LLC)?
Multi-member LLCs are treated as Partnerships by default. Partnerships must file Form 1065 (US Return of Partnership Income).
Each partner receives a K-1 form showing their share of income/losses. Tax obligations are more complex for partnerships.
Strongly recommend hiring a CPA if you have a multi-member LLC.
Can I pay myself a salary from my LLC?
Single-member LLCs are "disregarded entities" for tax purposes. You cannot technically pay yourself a "salary."
Instead, you take owner's draws (distributions). These are not taxable events—you simply transfer money from the business account to your personal account.
All LLC profit is attributed to you personally, regardless of whether you take distributions.
What is a tax treaty? Can it help me?
A tax treaty is an agreement between the US and your home country to prevent double taxation.
Tax treaties may:
- Reduce withholding tax rates on US-sourced income
- Provide exemptions for certain types of income
- Define tax residency rules
To claim treaty benefits, you typically need an ITIN and must file Form 8833 with your tax return.
Consult a CPA to determine if a treaty applies to you.
Can I use accounting software like QuickBooks?
Yes! Using accounting software is highly recommended to track income and expenses.
Popular options:
- QuickBooks Online - Most popular, comprehensive features
- Wave - Free for basic accounting
- Xero - Popular outside the US
- FreshBooks - Good for service businesses
Proper bookkeeping makes tax filing much easier and cheaper.
Don't Gamble With IRS Penalties
Form 5472 compliance is NOT optional. One missed deadline can cost you $25,000.
Get professional help from day one and sleep soundly knowing your taxes are handled correctly.
Continue Your LLC Journey
Now that you understand your tax obligations, take the next steps:
Get a US Business Address
Required for LLC formation, banking, and IRS correspondence.
LLC Without a Visa?
Learn why you can legally own a US LLC without immigration concerns.