How to Form a Foreign Owned LLC

Happy couple at home paying bills with laptop

Are you a foreign business owner looking to expand into the US market? With over 21 million LLCs in the United States, it’s clear that citizens and foreigners alike love this business structure and the flexibility it provides.

In short, setting up a foreign-owned LLC can be an effective and straightforward way to take advantage of all the United States offers. But, navigating unfamiliar laws and regulations doesn’t always feel easy — especially if English isn’t your first language. 

This quick guide will walk through every step necessary for forming a foreign-owned LLC in the US — from understanding what an LLC is to filing paperwork with state agencies. Get ready to start growing your company in the US!

Is LLC Foreign Ownership Legal?

If you’re business savvy, then you know that LLCs offer many business owners, whether native or foreign, numerous advantages. LLCs provide the limited liability of a corporation while granting the tax treatment of a partnership. Fortunately, LLCs can be owned by people from any country without restrictions.

That’s right. You don’t need to be a US citizen or hold a green card to establish an LLC or corporation in the United States. You still have to file formation papers in the state where you want to set up the LLC, but in general, foreign LLC ownership is allowed and (somewhat) simple to set up.

Transferring funds may take a bit more paperwork than if the business was domestically owned. Still, if you do it correctly and with the help of an international tax specialist, there’s no reason why you can have a foreign limited liability company in the United States.

What Is a Foreign-Owned LLC?

Let’s take one step back first. Just so we’re all on the same page here, what is an LLC? LLC stands for limited liability company. As the name suggests, they allow owners of these businesses to enjoy limited liability if anything goes wrong (for example, if a customer were to sue you).

LLCs are incredibly popular corporate structures among small businesses in the United States. They provide entrepreneurs with plenty of advantages, including the following:

  • Limiting their liability
  • Allowing them to benefit from the tax advantages of a corporation without the headaches typically associated with corporations
  • Providing more flexibility than other popular corporate structures like S Corporations and C Corporations

LLCs also make it easier for entrepreneurs to add partners down the line and protect their intellectual property. All-in-all, LLCs provide you with multiple options for your business needs and peace of mind as you venture out into the world. When it comes to foreign-owned LLCs, there are four main types.

Non-Resident Alien

A non-resident alien in the US is any person who is not a citizen of the US and may or may not have a visa that permits them to stay in the country. Technically, non-resident aliens live outside of the US and travel to the country for specific purposes, like business, study, or vacation. 

You can still form an LLC in the US if you fall into this category. However, any non-resident alien individual or foreign entity who wishes to form an LLC in the US must meet two conditions:

  1. First, you must be able to manage the affairs of the LLC effectively
  2. Second, you can’t be a corporation, company, or partnership created or organized in the US

If these criteria are met, non-resident aliens can easily create their own LLCs and become incorporated in no time. What’s the point if you don’t live in the US? Setting up an LLC makes sense for many non-residents looking to take advantage of all the United States offers without permanently relocating. 

Foreign Corporation

This type of business is also an option for foreign corporations looking to expand their operations beyond their native borders. The foreign entity needs to have some ownership interest to form a foreign-owned US LLC. This could be direct or indirect, such as through shares of stock or property within the LLC.

The foreign entity doesn’t necessarily have to be an individual; it could be any corporation, company, partnership, or group of foreign persons with ownership interests or shares in the multi-member or single-member LLC. With the help of experienced legal counsel, forming an LLC in the US can be relatively straightforward, even for foreign entities and people.

Foreign Person

What if you aren’t a resident or non-resident alien in the US? You can still form an LLC in the United States as a foreign person or group of people. 

Additionally, foreign entities can also be part of binding contracts between themselves and the LLC, which convey the foreign owner’s interest in the company by foreign government regulations or those of the foreign person or group of people.

Foreign Trust

Finally, a foreign trust can also create a foreign-owned LLC. This ownership can take shape through the direct ownership of the company or indirect ownership through shared stocks and other properties.

Forming a foreign-owned LLC, in this case, requires an individual foreign trustee or foreign estate trustee to file paperwork with a US state and create an operating agreement for the LLC. With all paperwork filed, foreign trusts can operate their LLCs within US laws and regulations.

Foreign-Owned LLC Taxes

How do taxes work if you’re the owner of an LLC in the United States but are a fiscal resident of another country? It will depend if you set up a multi-member or single-member LLC.

Foreign-Owned Multi-Member LLC

If you own a multi-member LLC in a foreign country, it may surprise you to learn that you’re on the hook for taxes. Your LLC will be taxed similarly to a partnership. Depending on where your LLC is based, you may need to file a corporate tax return and self-employment taxes.

Though the regulations may not fit into your overall business plan, the silver lining is that it can make filing much simpler and straightforward compared to the multi-tax requirements of some other countries.

Foreign-Owned Single-Member LLC

Single-member LLCs don’t pay taxes unless the foreign-owned LLCs generate certain income wihc are sourced frm the US. This income, known as FDAP (Fixed or Determinable Annual or Periodical), consists mainly of passive investments from US sources like interest, dividends, rents, and royalties.

However, there’s a caveat. Any single-member LLC, whether foreign-owned or not, cannot elect to be treated as a corporation. If you elect to be treated as an individual, your business is considered a “disregarded entity” and therefore the LLC entity doesn’t need to worry about paying taxes.

How to Create a Foreign Limited Liability Company

Ready to set up your foreign-owned LLC? Setting up the company is somewhat straightforward. It’s the bookkeeping, compliance, and tax documents that are hard to get a handle on. Nevertheless, here are a few tips on how to set up your LLC in the United States.

Remember, it’s always best to speak with a qualified tax specialist or attorney before creating any business or engaging in any business activity in a different country.


Operating a business in the United States as an international organization requires an Employer Identification Number (EIN), also known as a federal tax number.

Applying for an EIN is surprisingly easy, and you can get started in only a few simple steps. All you need to do is complete IRS Form SS-4 and submit your basic information, such as your name, address, and type of business entity. Once it’s processed, you will receive your official EIN quickly and be ready to take on the next steps of setting up your LLC.

Form 5472

You are also responsible for filing Form 5472. You’ll have to file it with the Internal Revenue Service if any “reportable transactions” happened during the prior tax year, such as money transfers or property between related parties in different countries.

Understanding Form 5472 will ensure your LLC complies with all US tax law regulations and avoids penalties for not filing the form. Failure to file the form correctly and on time could result in a $25,000 fine. Therefore, we recommend you consult a certified accountant to help you fill it out correctly.

Maintain Books

Along with filing Form 5472, you must maintain books and records to ensure the claims you make on the form are accurate and complete.

You should always stay organized and keep up to date with bookkeeping requirements, as failure to maintain records properly could result in hefty penalties from the IRS. Plus, keeping good records of your business financial transactions is a great way to stay on top of business performance. It’s just good practice whether you have a foreign-owned LLC or not.

International Tax Help

Are you looking to set up a foreign-owned LLC? Relax. We’ve got your back.

Our team of tax experts is here to help make complex international tax planning situations simple. We offer comprehensive services, from preparing and filing paperwork to helping with negotiations and appeals if needed. And we’ve got you covered no matter where you work (or what currency you’re dealing with).

Get in touch today to chat about your business and tax needs.

Comments are closed.