Taxation of a Wyoming LLC
How are Wyoming LLCs owned by foreigners taxed
A Wyoming LLC taxation will depend on several factors, this includes its federal tax classification, and source of income.
Federal tax classification is how the IRS will treat your LLC for tax purposes, this can be as a Disregarded Entity, Foreign Owned US Disregarded Entity, Partnership, or as a Corporation.
A single-member LLC owned by a non-resident foreigner with no US sourced or US Effectively Connected Income is not subject to income tax in the US, does not file an income tax return, and is only subject to some information returns reporting just the transactions between the LLC and the owner (and related parties).
Foreign Owned US Disregarded Entity
Exempt from income tax if it has no US sourced income.
One Single Member.
Member is a non-resident foreigner.
Not subject to income tax if it does not US sourced income nor Effectively Connected Income.
Does not have to file income tax return. Only files an information return reporting transactions between the LLC and the Owner, including transactions with the related parties of the Owner.
If the LLC has only one member who is a non-resident foreigner, we can elect the tax classification to be as a “Foreign-Owned US Disregarded Entity”. This means the LLC itself is disregarded (ignored) for income tax purposes, and the income is passed to the owner. If the entity had no US-sourced income, then the owner is not subject to US income tax.
If the income is US Sourced Income or Effectively Connected Income, will depend on the type of income.
For example, what determines the Source of Income for Personal Services, Salary or Wages, and other compensations, is where the services are performed. In lay terms, let’s say you form a Wyoming LLC, and you provide personal services like counseling, web design, SEO, research, marketing services, administrative support, management - or any other type of service you can think of - through this LLC while physically located outside of the US. Since you are performing this outside of US soil, this income earned via the LLC will not be subject to US taxes even if the clients are located in the US.
“Fixed, Determinable, Annual, or Periodical (FDAP)”, or Passive Income in other words, is treated differently. For example, if you receive dividends, royalties, interest (except for bank deposits), etc., from US sources, then this income is considered is subject to a 30% withholding tax when you receive it.
You can check the factors that determine the income source HERE
Avoid a Permanent Establishment
The Foreign Owned US Disregarded Entity should having office premises, employees, dependent agents, in the USA to avoid having a Permanent Establishment and getting taxed.
Multi-member LLC taxed as a Partnership
Partnerships must file form 1065, a tax return, and issue K-1 to each of its partners.
The taxation of Multimember LLCs classified as Partnerships will depend on whether the LLC had or didn’t have Income Effectively Connected with business or trade in the US.
Wyoming LLC yearly maintenance and annual fees
The yearly ongoing costs will depend on several factors, and mainly on the way the company is taxed as each tax classification has its own and different form. Compliance requirements are at a State and Federal Level.
In general, at the state level, companies must maintain and renew the Registered Agent and Address, and file the Annual Report.
Annual Report: The State charges a USD$60 fee when submitting the annual report. In the Annual Report we confirm and submit information to the State confirming the business and mailing address of the company, the registered agent and address, email address, value of assets located in Wyoming, and information alike.
Federal requirements, hence costs, will depend on your tax classification. In summary, a Single Member LLC owned by a foreigner files form 1120 Pro Forma and Form 5472 as Information Return. An LLC classified as a Partnership files form 1065 as Tax Return, and an LLC taxed as a corporation files form 1120 and related and applicable Schedules
Foreign-Owned US Disregarded Entity
US Single Member LLCs owned by a non-resident foreigner are classified as Foreign-Owned US Disregarded Entity for tax purposes, hence the LLC itself does not file a federal US tax return. What they file is an information return comprised of (1) form 1120 Pro Forma, and (2) form 5472
Form 1120 For Foreign-Owned US Disregarded Entity
What is form 1120?
Form 1120 U.S. Corporation Income Tax Return is a form filled by the U.S. Corporation as their tax returns, but domestic Disregarded Entities wholly owned by one foreign person or company (single member LLC) are required to file form 1120 Pro-Forma, so basically only the top section of the form which requires basic information of the company must be filled.
How to fill form 1120?
On top of the form you must add the phrase “Foreign-Owned US Disregarded Entity”
Fill section requiring the company name and address.
Add Employer Information Number (EIN) on section B.
Check the appropriate box in section E (1) or (2). Leave empty if none applies.
Sign at the bottom of first page, add date.
Form 5472 is what we call an information return, and not a tax return. In this form, we report information on the transactions between the LLC and the foreigner owner(s) or any other related party, like a company owned by the Owner(s) - except for other US companies - or relatives.
The company has to fill one form 5472 for each owner or related party that had a transaction with the company. These transactions include royalty payments, salaries, licenses, donations, loans, etc.. We also have to report transactions that had no monetary value, such as royalty-free licenses.
It is worth noting that also the expenses for forming the company are reported if those expenses come from the owner or a related party.
Where to mail: form 1120 and 5472 are mailed or faxed to a different address than the one set for corporations who fill 1120. It is better to confirm this address each year to avoid relying on information not updated.
When to file form 1120 and 5472 for a Foreign-Owned US DE Entity: you must file it before around the second week of April.