Do you have a foreign owned LLC or are looking forward to starting one? Then you will be interested in knowing all about foreign-owned LLC taxes, because it is an important topic in order to avoid potential problems with the IRS.
Even though these entities have not had filing requirements for several years, this changed years ago, and hence, it is important to make sure that you are up to date. Keep reading to find out all you need to know about foreign owned LLC taxes.
What Are Foreign Owned LLC Taxes?
Foreign owned LLC taxes do not exist as long as your entity is not involved in any business activity or transaction in the US. In simple words, as long as the income is not “US sourced”, you will not have to pay foreign owned LLC taxes.
However, you might be wondering: how do I know if my LLC is generating US sourced income? Here is what you need to know:
- If you have a designated agent in the country, and this person does something important or substantial for your LLC, then you will be required to pay taxes
- If your foreign-owned LLC is found to be involved in regular business activities, trades and transactions in the United States, then you will have to pay taxes.
You need to be especially careful with the “regular business activities” part, because courts have not defined them clearly. Therefore, it is easy to commit mistakes that could lead you to having to pay foreign owned LLC taxes.
If you want to play it safe, then the best move will be to have a consultation with an accountant that has experience helping foreign owned LLCs.
All about Foreign Owned LLC Taxes and Filing Requirements
Even though you will not have to pay foreign owned LLC taxes as long as your income is not US sourced, you still have to filing requirements to meet. We have already covered them in another article, which you can check out here.
However, we will summarize them in the following list:
- You will have to get an Employer Identification Number (EIN)
- You will have to fill the pro forma Form 1120
- You will have to fill the form 5472
You can easily get your EIN and complete the pro forma Form 1120 on your own, but when it comes to filing the Form 5472, it is likely that you will need a qualified accountant to help you, since you have to enter specific information that will have to be supported by your books and records.
Should You Hire an Accountant to Help You with Foreign Owned LLC Taxes?
You should definitely work with an accountant, especially if you have a designated agent in the country. Because, as we mentioned before, it is easy to commit mistakes that will make it mandatory for you to pay taxes.
Furthermore, the penalties for filing a Form 5472 with wrong or inaccurate information are set at $25,000 per form per year, and as we said before, it is easy to commit such mistakes if you do not have previous experience.
Therefore, based on the severity of the penalties, it is a much better approach to work with a qualified accountant, because it is a small price to pay in comparison to the costly mistakes you could end up facing.
Do You Need Help with Your Foreign Owned LLC?
If you are ready to start handling your foreign owned LLC the right way, in order to keep your entity free from taxes and problems, then give us a call right now at (786) 310-5582 or email us at [email protected] to book a consultation.
