United States: tax and foreign structures

Determine the owner’s status first

For a non-citizen, the green-card and substantial-presence tests are central federal residence rules, with exceptions and treaty provisions requiring separate analysis. The substantial-presence calculation uses a weighted multi-year day count; it is not simply a universal 183-day allowance.

A person planning repeated visits should track days before booking travel. A resident alien and a nonresident alien may own an identical company but have materially different tax obligations.

Foreign companies do not automatically defer U.S. tax

U.S. shareholders of controlled foreign corporations may have current income inclusions and Form 5471 reporting even without a dividend. Ownership attribution, income category, elections and the shareholder’s status matter. Recent legislative changes also make old online summaries unsafe to reuse without checking the relevant tax year.

A useful review identifies each entity’s tax classification, direct and indirect owners, related-party payments and accumulated earnings. It should distinguish tax payments from information filings: a low final liability does not establish that there is nothing to file.

A U.S. LLC is a legal form, not a tax conclusion

The company’s classification and activity must be examined alongside the owner’s country of residence. A structure can be treated one way by the United States and differently abroad. Treaty relief, foreign tax credits and timing mismatches may therefore require work in both jurisdictions.

Do not choose an entity solely because a provider says it is “tax-free”. Ask which taxpayer, which income and which filing obligations the statement actually describes.

Build a complete map

• Citizenship, green-card history, U.S. days and state connections.
• Entity classifications and the full ownership chain.
• Where services, inventory, staff and contracting activity are located.
• Income inclusions, withholding, payroll, sales-tax and information reporting to investigate.
• How the arrangement is treated in every relevant foreign jurisdiction.

What to do with conflicting advice

An existing-plan review should identify the assumption causing the disagreement. Often advisers are answering different questions about residence, entity classification or source. We can help document those questions and coordinate the cross-border analysis; U.S. return preparation and formal opinions should be assigned expressly.

Classify the entity before calculating tax

A single-member LLC’s default disregarded status is a federal income-tax classification; it does not erase the company under state law. A multi-member LLC commonly defaults to partnership treatment, and an eligible entity can elect corporation treatment. A foreign owner must also ask how the residence country classifies the same entity.

A US corporation’s federal tax is generally computed at 21% under the Form 1120 instructions, before relevant adjustments and state taxes. Distributions to foreign shareholders can create another withholding layer. Choosing corporate treatment merely to simplify one filing may therefore change the economics substantially.

Service source, ECI and withholding are different tests

The normal service-source rule follows where the work is physically performed. A US customer paying an overseas consultant into a US account does not, solely for that reason, turn the service into US-source income. Workdays in the United States, employees, agents and an actual business presence can change the analysis.

Effectively connected income is generally taxed after allowable deductions under the applicable regime. US-source passive FDAP income commonly faces 30% gross tax or a lower treaty rate. Do not apply the service-source rule to royalties, inventory, real estate or dividends without reviewing the different rules for those categories.

Foreign-owned LLC reporting can exist without income tax

A foreign-owned US disregarded entity with reportable related-party transactions must generally file Form 5472 with a pro forma Form 1120. Owner funding, withdrawals, formation and dissolution transactions may matter. The IRS instructions impose a USD 25,000 penalty for failure to file correctly, with additional penalties for continued failure after notice.

Obtain the EIN, identify the related parties and preserve transaction records from formation. A dormant label or zero revenue does not by itself establish a filing exemption. Form 7004 may extend the filing deadline when properly submitted, but an extension does not excuse missing records or other taxes.

BOI, tax returns and bank checks remain separate

The August 2026 FinCEN final rule exempts US-created entities and US persons from the revised CTA reporting obligation. A foreign entity registered in a US jurisdiction can still require analysis under the foreign-reporting-company rules. Neither exemption is permission to conceal ownership from banks or omit an IRS return.

The final structure should name who prepares each federal and state filing and who monitors activity changes. Hiring in a new state, moving the owner, adding a partner or changing a platform’s contracting entity can require a fresh analysis even when the original company stays registered in the same state.