Does a Foreign-Owned LLC Pay US Taxes? The Law Asks Three Separate Questions

The law never asks what your address is

This is worth stating plainly before anything else, because the fear is common and the answer is short. None of the provisions quoted in this article makes a US address a trigger for US tax. The tests they name are written around conduct. Section 864(b) speaks of performing personal services. Even the office rules further downstream are written the same way: regulation section 1.864-7(b)(1) speaks of a fixed facility through which a person engages in a trade or business, and section 864(c)(5)(A) speaks of an agent who has authority to conclude contracts and regularly exercises it. Those are verbs.

There is also a structural reason the address has nowhere to sit. A single-member LLC is disregarded by default, and regulation section 301.7701-2(a) says that if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner. The company is not a separate taxpayer whose location could matter. Its activities are the owner's activities, and the question moves straight to what the owner does.

One regulation does define an office or other fixed place of business in the United States, and it is worth knowing exactly what that definition is for, because it is easy to cite for the wrong reason. Regulation section 1.864-7 opens by stating its own scope: it applies to determining whether a person who is already engaged in a trade or business in the United States has an office here, for purposes of applying section 864(c)(4)(B), which governs when income from sources outside the United States gets attributed to that office. In other words, the definition is downstream. It assumes the first question has already been answered yes, and it sorts foreign-source income. It is not the test for whether you are taxable in the first place.

Question one: what are you doing, and where

The threshold term is engaged in a trade or business within the United States. Almost everything downstream depends on it, and the code does not fully define it. Section 864(b) says the term includes the performance of personal services within the United States, then spends the rest of its length on what it does not include: services performed for a foreign employer under a 90-day and $3,000 limit, and trading in securities or commodities under the conditions set out in section 864(b)(2). Section 7701(a)(26) adds that a trade or business includes performing the functions of a public office. Neither passage draws a general boundary.

The regulations then say the boundary is not fixed on purpose. Regulation section 1.864-2(e) states that whether or not such person is engaged in trade or business within the United States shall be determined on the basis of the facts and circumstances in each case. That single sentence is the honest answer to the question this article opened with, and it is why confident yes or no answers should be read carefully. The IRS describes the character of activity that generally counts as considerable, continuous and regular. That is a description of a pattern, not a line with a number on it.

Two consequences follow, and both matter more than they look at first. If you have more than one member, section 875 attributes the partnership's status to you: a nonresident alien is considered engaged in a US trade or business if the partnership of which the individual is a member is so engaged. And because your LLC's activities are your activities, hiring someone in the United States, holding inventory there, or having an agent who signs contracts on your behalf all belong to this question. Where the mail arrives does not.

Question two: which bucket each piece of income falls into

The second question is separate from the first, and it is asked income by income rather than once for the whole company. The familiar picture has two buckets. There are three, and the third is the one that explains how a company with US customers can owe nothing.

Effectively connected income is taxed under section 871(b), which makes a nonresident alien engaged in a US trade or business taxable under section 1 or 55 on taxable income which is effectively connected. That is net taxation: expenses come off first, and graduated rates apply. Separately, section 871(a) imposes a flat 30 percent on amounts received from sources within the United States in a listed set of categories, described in the statute as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income. That is gross taxation, usually collected by withholding at the source.

Now the part that is missing from the two-bucket picture. The 30 percent rule requires the income to be both US-source and inside those listed categories, and profit from selling goods is not in them. The withholding regulations draw the same line: regulation section 1.1441-2(b)(2) provides that gains derived from the sale of property are not fixed or determinable annual or periodical income, and goods sold in a business are property. So income that is US-source but neither effectively connected nor in those categories is reached by neither rule. That is not a loophole, it is the structure of the two provisions, and it is the mechanism behind a founder in another country who sells products to US customers and owes no US income tax.

That third outcome holds only while the answer to question one stays no. Once you are engaged in a US trade or business, section 864(c)(3) pulls your other US-source income into the effectively connected bucket, which is why the answer is so sensitive to what you do rather than to who your customers are.

Question three: what you file, which has nothing to do with what you owe

This is the question that costs people money, and it is the one the search results collapse into the other two. Filing duty is a separate track with its own triggers, and it can be live when the tax answer is zero.

Regulation section 301.7701-2(c)(2)(vi)(A) does something unusual. It takes an entity that is disregarded and treats it as a corporation for purposes of section 6038A only, when the entity is domestic and one foreign person has direct or indirect sole ownership. Nothing about income tax changes. The entity stays invisible for that. It becomes visible for one reporting statute.

The IRS instructions then state both halves in a single sentence. While a foreign-owned US disregarded entity has no income tax return filing requirement, the instructions say, as a result of final regulations under section 6038A it is required to file a pro forma Form 1120 with Form 5472 attached. The same instructions add a note that Exception 6, which relieves filers in certain no-transaction situations, does not apply to foreign-owned US disregarded entities. Read those together and the picture is clear: no income tax return, and a mandatory information return anyway.

The penalty is where the asymmetry shows. The instructions set it at $25,000 for a failure to file or maintain records, with an additional $25,000 if the failure continues more than 90 days after IRS notification, and that additional amount applies for each related party and for each 30-day period after that. We checked those figures against the live instructions on August 14, 2026. A company with no revenue, no US activity, and no tax to pay can reach a five-figure penalty by not sending in a form that reports transactions between the entity and its foreign owner, which for a new company is often the formation itself and the money put in.

Add one member and the logic changes direction, which is worth seeing side by side.

A treaty can remove the tax without removing the return

If your country has an income tax treaty with the United States, the threshold usually moves from engaged in a trade or business to permanent establishment, and the treaty text defines what that means. Under the United States and Korea treaty, industrial or commercial profits of a resident of one state are exempt from tax by the other unless that resident is engaged in industrial or commercial activity there through a permanent establishment, which the treaty defines as a fixed place of business through which a resident engages in such activity. The treaty also lists what does not create one, including places used only for storage, display, delivery, purchasing, collecting information, advertising, or scientific research, and it treats a dependent agent who regularly exercises authority to conclude contracts in the resident's name as creating one, unless that authority is limited to purchasing goods. An agent of independent status acting in the ordinary course of that business is excluded.

Treaties differ, and the direction of the difference is not guaranteed. The permanent establishment standard is generally narrower than the domestic trade or business standard, but the dependent agent rule in the treaty quoted above reaches an agent who can sign contracts in your name, which a founder may not think of as having an office, so the safe framing is that a treaty replaces the test rather than always raising it.

The part that surprises people is what a treaty does not do. Regulation section 1.6012-1(b)(1)(i) requires a nonresident alien individual who is engaged in a trade or business in the United States at any time during the year to file Form 1040-NR even though the individual has no income which is effectively connected, or no income from US sources, or income that is exempt from income tax by reason of an income tax convention. Claiming a treaty benefit is something you do on a return. It is not a reason to skip one.

The phrase tax-free hides three different things

Return to the second answer on that search page, the one saying most foreign-owned LLCs are tax-free. We could not find a primary source for it. The IRS publishes aggregate Form 5472 transaction data for foreign-owned domestic corporations, a dataset that does not cover disregarded entities, and it does not publish a distribution of tax outcomes, so we have no published figure to check the proportion against.

The more useful objection is not about the proportion. It is that tax-free folds three different things into one word. Tax owed can be zero while filing duty is live, which is the entire content of question three. Filing duty can be satisfied while tax is still being collected somewhere else, because the 30 percent in section 871(a) is taken by the payer rather than through your return, and because states run their own tests. Treating those as one state of affairs is what produces a founder who believes the structure is handled and then meets a $25,000 penalty notice.

The page Google is quoting in its answer box illustrates the same collapse in a different way. It tells nonresident partners of an LLC they may need to file Form 5471, Form 8865, or Form 8938, and the titles it prints alongside the first two name US persons as the filers. The form titles in the sentence contradict the sentence. The same page tells multi-member LLCs they can file as a partnership without completing Form 5472 and Form 1120, and that much is true on its own terms, because section 6038A applies to a corporation that is 25 percent foreign-owned and measures ownership in stock. Framing it as an absence of obligation is where it goes wrong, because what changes with a second member is which obligations apply, not whether any do.

The resident line is about you, not your company

Everything above describes the treatment of a nonresident owner. If you spend enough time in the United States to meet the substantial presence test, or hold a green card, you are taxed as a US resident on worldwide income and a different body of rules applies from the start. The line is about your own status, not your company's, and it can move from one year to the next without anything about the LLC changing.

The two tests look at the same kind of facts, which is why an answer about one is easy to mistake for an answer about the other. Time and activity in the country feed both. They remain separate tests with separate thresholds, and it is worth knowing which one someone is talking about when they give you an answer.

An address is evidence, not a test

We sell business addresses, so it is worth being exact here rather than convenient. An address is not a tax trigger, and nothing in the provisions above turns on it. What an address can be is evidence. Because the first question is decided on the basis of the facts and circumstances in each case, the facts of your situation are what get examined, and documents showing where a business operates are part of a record. An address by itself does not establish that you conduct business somewhere, and it does not prevent that conclusion either.

What we can say is narrower and more useful. A business address gives you a fixed place to receive government mail, which matters when the IRS sends a notice about a form like the one described above, and it gives you something other than a home address to put in the filing fields that accept a mailing address. Some fields ask for a residence and only a residence, which is a separate matter from the three questions above. It is not a tax position, it does not change which of the three questions apply to you, and no provider can tell you the answer to question one. That answer comes from what you do, and confirming it for your situation is work for a cross-border tax professional who can look at the facts.

If you are weighing where to put your company's address, our guide on how to write a suite number so address fields accept it covers the mechanics, and the federal and state layers are separate, as our guide to when a Delaware LLC counts as doing business in California works through on the state side.