1. What Is a Disregarded Entity?

A foreign-owned Single-Member LLC is treated as a disregarded entity for U.S. tax purposes. The LLC does

not pay income tax separately. Instead, the foreign owner reports U.S. income directly.

2. U.S. Source Income (Taxable in the U.S.)

Common examples of U.S.-source income include:

• Services performed physically in the United States
• Business income connected to U.S. offices, employees, or warehouses
• Interest and dividends from U.S. companies or banks
• Rental income from U.S. property

3. Non-U.S. Source Income (Usually Not Taxable)

Examples of non-U.S.-source income include:

• Services performed outside the United States
• Foreign clients with foreign operations
• Digital services performed abroad
• Interest from non-U.S. banks
• Income from foreign investments

4. Key Rule: Where the Work Is Done

5. Tax Impact for Foreign Owners

If income is U.S.-source:• Filing Form 1040-NR may be required

• U.S. income tax may apply
• State tax may also apply

If income is non-U.S.-source:

• Usually no U.S. income tax
• Form 5472 filing may still be required

6. Reporting Requirements

Foreign-owned Single-Member LLCs must file Form 5472 with a Pro Forma Form 1120, even if there is no

income. Failure to file can result in penalties of $25,000 or more.

7. Example Scenarios

Example 1: IT Company Based in Nepal

• Team and operations in India, clients in the U.S.
• Income is generally non-U.S.-source

Example 2: Consultant Working in the U.S.

• Services performed in the U.S. with physical presence
• Income is U.S.-source and taxable

Example 3: E-commerce with U.S. Warehouse

• Inventory stored and shipped from the U.S.
• Income is U.S.-source

8. Tax Treaty Note

Some countries have tax treaties with the U.S. that may reduce tax obligations.

Updated on: 06/02/2026