I Live in Latin America and Own a U.S. LLC. What U.S. Taxes Apply?

How the IRS classifies a foreign-owned LLC

A U.S. LLC with one owner is, by default, a disregarded entity for federal income tax purposes. It does not pay federal income tax itself; its income is treated as earned directly by the owner. When the owner is a nonresident alien individual, the owner is taxed under the nonresident rules. An LLC with two or more owners defaults to partnership treatment, which brings its own return (Form 1065) and, where there is effectively connected income allocable to foreign partners, withholding under section 1446. An LLC can also elect to be taxed as a corporation, which changes the analysis entirely.

When income is taxable in the United States

A nonresident alien is generally taxed in the United States on two categories of income. The first is income effectively connected with the conduct of a U.S. trade or business, which is taxed on a net basis at graduated rates and reported on Form 1040-NR. The second is fixed or determinable annual or periodical income from U.S. sources — such as U.S. dividends, certain interest, royalties and rents — which is generally subject to 30 percent withholding on the gross amount unless a treaty reduces it or an exception applies.

The location of the work matters

Compensation for services is sourced where the services are physically performed. A consultant in Bogotá, a software developer in Buenos Aires or a designer in Guadalajara who performs all of the work from home and invoices clients through a U.S. LLC is generally earning foreign-source income. Using a U.S. bank account, a U.S. address from a registered agent, or a U.S. payment processor does not, by itself, move the source of that income to the United States.

What can create a U.S. trade or business

The analysis changes when there is regular and continuous activity in the United States. Examples include having employees or dependent agents in the United States who habitually conclude contracts, operating from a U.S. office or warehouse, the owner spending meaningful time working in the United States, or owning and actively managing U.S. rental property. Whether activity rises to the level of a trade or business is a facts-and-circumstances question, and the Internal Revenue Code does not contain a bright-line test.

The role of tax treaties

The United States has income tax treaties with only a few Latin American countries, including Mexico, Venezuela and, since late 2023, Chile. A resident of a treaty country is generally taxed on business profits only if they are attributable to a permanent establishment in the United States, which is usually a higher threshold than a U.S. trade or business. Residents of Colombia, Argentina, Peru, Brazil, the Dominican Republic and most other countries in the region do not have that protection and are evaluated under the domestic trade-or-business standard. Claiming a treaty position generally requires disclosure on Form 8833.

Filings that apply even when no tax is due

• Form 5472 attached to a pro-forma Form 1120 for a foreign-owned single-member LLC, reporting transactions between the LLC and its owner or other related parties
• Form 1040-NR when the owner has effectively connected income or U.S. tax that was not fully satisfied by withholding
• Form 1065 and Schedules K-1 for a multi-member LLC, with section 1446 forms where applicable
• State annual reports and franchise or registration fees, which are separate from federal filings
• Forms W-8BEN or W-8BEN-E and W-9 given to banks, platforms and clients, which must match the tax position actually being taken

Your home country is part of the analysis

Even when the United States does not tax the income, the owner's country of residence usually does. Several countries in the region have controlled-foreign-entity or transparency rules, and a U.S. LLC that the IRS disregards may be treated as a corporation, a transparent entity or something in between under local law. That mismatch can affect when income is taxed locally, whether foreign tax credits are available, and how distributions are characterized. The U.S. and local positions should be planned together with an adviser in the home country.

Beneficial ownership reporting

Following FinCEN's March 2025 interim final rule, companies formed in the United States and their beneficial owners are no longer required to file beneficial ownership information reports under the Corporate Transparency Act. The requirement now applies to entities formed abroad that registered to do business in a U.S. state. Because this area has changed repeatedly, the current FinCEN guidance should be confirmed before relying on it.

Common mistakes

• Concluding that no U.S. income tax means no U.S. filing
• Providing a W-9 to a bank or platform, which represents that the owner is a U.S. person
• Hiring U.S. personnel or using a U.S. warehouse without revisiting the trade-or-business analysis
• Commingling personal and LLC funds, which makes Form 5472 reporting and substantiation difficult
• Ignoring how the owner's home country taxes the LLC

Sources and official references

• IRS — Effectively Connected Income (ECI)
• IRS — Instructions for Form 5472
• IRS — Publication 519, U.S. Tax Guide for Aliens
• IRS — United States Income Tax Treaties A to Z
• FinCEN — Beneficial Ownership Information