🇺🇸US LLC (Wyoming and Delaware) for Non-⁠Residents: Disregarded Entity, ECI and Form 5472

Concept

The US LLC is one of the most misunderstood tools in international planning. For a non-resident of the United States it is attractive for its combination of jurisdictional prestige, access to payment systems and — when properly structured — the absence of federal tax. But a "tax-free American company" lives only in marketing copy: the reality is subtler and rests on two concepts — disregarded entity and effectively connected income.

Where the Popularity Came From

The first state to pass an LLC statute was Wyoming, in 1977; a decade later the form spread to every state. The turning point was the check-the-box regime of 1997, which let an LLC choose its own tax classification — disregarded entity, partnership or corporation. For a single foreign owner, that default "transparency", combined with access to American banks and payment services, turned the LLC into the standard wrapper for online businesses and holdings. Hence the persistent myth of a "tax-free US company", which lives a life of its own in registrar advertising.

Disregarded Entity: Tax Transparency

A domestic single-member LLC is disregarded for federal income tax by default unless it elects corporate treatment: income is attributed to its owner. A foreign owner must still test US taxation. The absence of a US trade or business does not itself remove tax on US-source FDAP income, such as dividends or royalties. ECI is tested separately and can include some foreign-source income in limited circumstances. Disregarded status is a classification, not a general tax exemption.

The diagram separates attribution of income from federal reporting and the owner’s residence-country obligations.

ECI and ETBUS: Where the Line Is Drawn

The key concepts are engaged in a US trade or business (ETBUS) and effectively connected income (ECI). Services performed in the US, an office, agents or inventory can affect the analysis; their presence is not a substitute for testing the activity and the income. ECI is generally taxed on a net basis at the applicable ordinary rates. Separately, US-source FDAP that is not ECI may be taxed on a gross basis, subject to exemptions or an available treaty. Marketplace sales and Amazon warehouses (FBA) therefore require individual analysis of operations and income sourcing.

Form 5472: An Annual Discipline

Since 2017 a US disregarded entity wholly owned by a foreign person is treated as a reporting corporation for the limited Form 5472 rules. It files Form 5472 with a pro forma Form 1120 when it has reportable transactions. The form overview and instructions should be checked each year: an absence of trading revenue is insufficient, because formation, contributions, distributions and other related-party transactions can be reportable. A year with no reportable transactions falls within the filing exception. The base penalty for a missing or incomplete form is $25,000; if the delay runs more than 90 days past an IRS notice, a further $25,000 is added for each additional 30 days, with no upper limit. E-filing is unavailable for such LLCs — only by mail or fax to Ogden; the company needs an EIN to operate and to file.

BOI and the Corporate Transparency Act

From 2024 the Corporate Transparency Act required companies to disclose their beneficial owners (BOI) to FinCEN, and initially this reached non-residents' LLCs too. But on 21 March 2025 FinCEN issued an interim final rule that redefined the term "reporting company": only entities formed under the law of a foreign country and registered to do business in the US now fall within the reporting scope. US LLCs — including those owned by foreigners — are exempt from federal BOI reporting, and FinCEN stated that it will not enforce penalties against them. FinCEN's final rule, effective 14 August 2026, has made the exemption permanent (the interim final rule was adopted with limited changes), though the status is still worth checking at the time of formation; in addition, some states maintain their own beneficial-ownership registries.

Wyoming, Delaware, New Mexico or Florida

Wyoming is prized for low fees, the absence of a state income tax and registry privacy — it is the workhorse for a non-resident's holding and online business; the annual license tax here starts at $60. Delaware is chosen for reputation and the Court of Chancery — when fundraising or deals lie ahead where counterparties expect precisely a "Delaware" company, up to a Series LLC for individual projects; for this it charges an annual franchise tax — a flat $300 due 1 June. New Mexico and Florida add different filing costs and state-tax rules to this choice. Formation, annual registry charges, operational nexus and the owner’s tax position must be compared separately.

The federal row describes common federal rules, not a tax exemption: FDAP and the reportable-transaction test for Form 5472 apply in all four states. State formation does not settle operational nexus or the owner’s home-country tax. The NM Act has no recurring LLC annual report; its $50 formation charge does not include an agent or taxes. Florida’s $125 formation charge comprises $100 for the articles and $25 for agent designation; optional copies and certificates cost extra, and the first annual report follows in the next calendar year under the effective-date rules. The wider choice — a US LLC against a UK LLP, an Estonian OÜ, a Hong Kong or Singapore company, a UAE free-zone entity or a Cyprus company — is set out across nine forms in operating vehicles for non-residents.

Wyoming also carries a specialisation Delaware does not: since 2021 the state has given decentralised organisations a legal wrapper of their own — the DAO LLC — and since July 2024 the Decentralized Unincorporated Nonprofit Association as well. How those forms close the risk of a DAO being treated as a general partnership, how each is taxed and where their limits run is covered in Wyoming DAO LLC and DUNA. DUNA is a separate unincorporated nonprofit association, not an LLC subtype; the table names it as an adjacent Wyoming form.

Typical Scenarios

A non-resident’s LLC may serve online services, SaaS or consulting performed from abroad, including for clients outside the US. Foreign-source service income may fall outside US federal income tax where there is no ECI, but the sourcing and tax treatment of each income stream must be checked. An LLC holding IP or stakes in foreign companies needs a separate analysis: royalties and investment returns cannot simply be treated like service fees. Frequently the main value is access to Stripe, PayPal and dollar accounts, with eligibility depending on the provider. Warehouses, employees or inventory in the US, including Amazon FBA, require a fresh US-trade-or-business and ECI analysis. State obligations can arise separately: New Mexico economic nexus can exist without physical presence.

What an LLC Does Not Eliminate

The absence of tax in the US does not mean the absence of tax altogether. An LLC's profit is taxed where its owner is a tax resident, and CFC rules can attribute undistributed profit to the controlling person. An LLC is an entity, not automatically a financial account. Under the CRS account and entity classifications, reporting on an account held by an LLC depends on the account’s institution and jurisdiction, the entity’s status and, where relevant, its controlling persons. Meanwhile, Series LLCs and holding structures require separate analysis — as does the question of beneficial ownership. A US company is a Flag 4 tool (business domicile) from the five flags theory, and it works only in combination with deliberate planning of the owner's residency and real economic substance.