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Prior to 2017, ownership of a Limited Liability Company (LLC) by a non-American generally did not require the filing of a U.S. tax return with the IRS. Consequently, non-American programmers and other digital nomads that lived and worked outside the U.S. but created an LLC (that was disregarded for tax purposes) to help their operations rarely had any U.S. tax filing obligation.<\/p>\n
This was because the IRS generally only imposed taxes and reporting requirements on \u201cU.S. persons\u201d (i.e. U.S. citizens, residents, corporations, trusts, etc\u2026) and \u201cforeign persons\u201d (i.e. any person or legal entity that is not a \u201cU.S. person\u201d) that had income related to a physical activity or presence in the U.S. In contrast, the digital nomads would generally choose to treat their LLC as a \u201cdisregarded entity\u201d for tax purposes (i.e. it would not exist for tax purposes) and, since they had no other physical connection to the U.S., they would not be subject to any U.S. tax reporting.<\/p>\n
However, to \u201cenhance the United States compliance with international standards of transparency and exchange of information for tax purposes\u201d and to \u201cstrengthen the enforcement of U.S. tax laws\u201d, the IRS issued final regulations (TD 9796) which, among other things, effectively created a new U.S. tax filing requirement for disregarded foreign-owned LLC\u2019s. As of January 1, 2018, every foreign owned LLC that had a reportable transaction need to annually file Form 5472 (which reports certain ownership and accounting details\u00a0of the LLC) and comply with the associated record-maintenance requirements.<\/p>\n
Important reminders:<\/p>\n
As always, you should not rely on the above as legal advice and, if you need assistance with the U.S. tax matters, please feel free to contact us:<\/p>\n