Foreign Owned Single Member LLC (SMLLC)
A Single-Member LLC is automatically considered a Disregarded Entity by the IRS unless the LLC has made a special election to be taxed as a Corporation. The word “disregarded” simply means the IRS “ignores” the LLC for federal tax purposes and taxes the LLC the same way the owner is taxed.
On December 13, 2016, the IRS issued final regulations requiring domestic disregarded entities that are fully owned, either directly or indirectly, by a foreign person, to be treated as a domestic corporation to comply with Internal Revenue Code Section 6038A. The final regulations generally require foreign-owned LLCs to do the following:
- File Form 5472;
- Maintain records to prove the accuracy of Form 5472; and
- Obtain an employer identification number (EIN) to report on Form 5472
As provided in the entity classification regulations, disregarded entities are eligible business entities with only one owner and not recognized for tax purposes as an entity separate from its owner (i.e. single member LLC).
Foreign Owned Multiple Member LLC (MMLLC)
If you have a Multi-Member LLC that is taxed as a Corporation and has at least 1 Foreign owner that owns 25% or more you must file Form 5472 and Form 1120.
If you have a Foreign-owned Multi-Member LLC that is taxed as a Partnership on Form 1065. Multi-Member LLCs taxed as a Partnership are considered Domestic Partnerships by the IRS, and Domestic Partnerships are not disregarded entities, and file a U.S. tax return.
Foreign-owned Multi-Member LLCs must:
- file an informational Partnership Return on Form 1065
- issue K-1s to each LLC Member
- and each Member is responsible for filing a U.S. income tax return
- each member must obtain a ITIN if not possessing one or a SSN
If the Foreign-owned Multi-Member LLC has no income (and no expenses, deductions, or credits it would like to claim), then there is no Form 1065 and K-1 filing requirement.
The above is a brief overview of U.S. taxation for a foreign-owned
Multi-Member LLC, however the details are more complex including who
your LLC Members are, where your LLC is located, how income is made, and
your U.S. tax filing requirements. For example, many foreign-owned
Multi-Member LLCs also need to file Form 8804 and 8805. You will need to speak with us to determine all of your U.S. tax filing requirements, as well as assisting you in obtaining ITINs for you and your partners.