This is the question behind most "should I form a US LLC" searches, and the one most likely to be answered badly online — usually as a confident "no US tax" that leaves out the conditions.
Two questions, not one
Founders collapse these together and then get caught:
- Do I owe US income tax? Often no.
- Do I have to file something with the IRS? Almost always yes.
A foreign-owned single-member LLC with no US tax liability still generally files Form 5472 with a pro-forma 1120, with a $25,000 penalty for not doing so. Owing nothing is not the same as having nothing to do. See Form 5472.
How the IRS sees a single-member LLC
By default a single-member LLC is a disregarded entity for federal income tax. The company is not taxed separately; its income is treated as belonging to the owner. If the owner is a non-resident alien, the question becomes whether that income is taxable to a non-resident under US rules.
A multi-member LLC is treated as a partnership by default, which brings different filing obligations and, frequently, US withholding on amounts allocable to foreign partners. This article is about the single-member case.
The test that decides it: effectively connected income
A non-resident is generally taxed by the US on income that is effectively connected with a US trade or business — usually shortened to ECI.
There is no single bright line, but the factors that matter most in practice:
- Where the work is physically performed. If you write code, design, consult or manage from outside the United States, that weighs strongly against ECI.
- Whether you have a US office or fixed place of business.
- Whether you have employees or dependent agents in the US acting on your behalf.
- Whether you hold inventory in the US and fulfil from it.
What does not by itself create ECI:
- Having US customers.
- Having a US bank account.
- Using Stripe or another US payment processor.
- Registering the company in a US state.
- Using a US registered agent.
What flips the answer
These are the facts that commonly create ECI, and any one of them changes the analysis:
- You travel to the US and work there, even occasionally, in a way that generates income.
- You hire someone in the United States — an employee, or a contractor who acts with authority on your behalf.
- You store goods in a US warehouse, including third-party fulfilment, and sell from that stock.
- You rent an office or co-working desk as a fixed place of business.
- You own US real estate generating rental income — a separate regime with its own rules.
Warehousing is the one that most often surprises e-commerce sellers, because the arrangement feels like outsourcing rather than presence.
State tax is a separate layer
Federal and state are different systems. Wyoming, Nevada, Texas, Florida and several others levy no personal income tax, which is where "no tax state" marketing comes from. It does not touch your federal position.
More relevant to most online sellers is sales tax. States apply economic nexus thresholds — commonly around $100,000 of sales into the state, sometimes a transaction count — and crossing one can create a collection obligation regardless of where you live. Digital goods and SaaS are taxed differently state by state.
Withholding, and the W-8BEN-E
US businesses paying a foreign entity often ask for a Form W-8BEN-E. It certifies your foreign status so they do not withhold 30% from your payments, and lets you claim a reduced rate under a tax treaty if your country has one.
If your LLC is a US entity, the position differs — a US payer paying a US LLC generally requests a W-9 rather than a W-8. Getting this wrong results in withholding you then have to reclaim, which is slow. Ask the payer which form they need for a US-registered entity with a foreign owner.
The question most guides skip
Your home country almost certainly has rules about this, and they are frequently the more consequential set.
- Controlled foreign company rules may attribute the LLC's profits to you personally, taxable at home whether or not you distribute them.
- Place of effective management — if you run the company from your country, it may be treated as tax-resident there.
- Reporting obligations for foreign entity ownership, with their own penalties.
- Tax treaties may relieve double taxation, but usually only if you claim it correctly.
"No US tax" is a statement about one country. If your home jurisdiction taxes worldwide income and treats the LLC as transparent, the profits may simply be taxable where you live. That is often the correct outcome — it is only a problem when nobody told you.
The C-corporation election
An LLC can elect to be taxed as a C-corporation. That makes it a US taxpayer in its own right, currently at 21% federal, with dividends to a foreign owner generally subject to 30% withholding unless a treaty reduces it.
It is occasionally the right structure — retaining profits in the US, or satisfying investor expectations. For most founders reading this it converts a likely zero federal liability into a definite one. It is a decision to make with a CPA, not by default.
A practical checklist
- Where is the work done? Outside the US → probably no ECI.
- Any US office, staff or inventory? Any yes → get advice before assuming anything.
- Selling physical goods into US states? Check sales tax nexus separately.
- Filed Form 5472? Required regardless of whether tax is owed.
- Asked a professional at home? The obligation that catches most people is domestic, not American.
If you are still at the formation stage, how to open a US LLC from abroad covers the mechanics, and what a US LLC actually costs covers the numbers — including the CPA fee this article is an argument for.