top of page

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).

A foreign person is defined as “any person who is not a United States person.” A foreign person includes individuals who are not residents or citizens of the United States, as well as a partnership, association, company, or corporation that is not created or organized in the United States. Likewise, any foreign estate or foreign trust described in section 7701(a)(31) is also a foreign person. Furthermore, a foreign person will be considered to wholly own a disregarded entity if the foreign person has direct or indirect sole ownership of the entity. The regulations do not affect the entity’s classification for other purposes.

The purpose of Form 5472 and these new regulations is to prevent foreigners from evading U.S. taxes and to close some loopholes that existed in the tax code.

Companies required to file such reports are liable for penalties of at least $10,000 for each Form 5472 that is not timely filed or is filed inaccurately or for failure to maintain the required records; penalties may increase significantly in the case of continued failures.

CONTACT us for more information and assistance in filing your Form 5472 by the correct due date.

Note: If you have a Foreign-owned Multi-Member LLC that is taxed as a Partnership, you are not required to file Form 5472 and Form 1120.

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.

Important: 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.

bottom of page