U.S. LLC with multiple foreign members

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U.S. LLC with multiple foreign members

A U.S. limited liability company (LLC) can have multiple members, including foreign members. In the following section, we will discuss the U.S. tax implications of a multi-member LLC that includes foreign members.

The different forms of members in a multi-member LLC can be represented by the following scenarios:

Let’s consider a situation where a multi-member LLC includes one foreign person and one foreign company as a member.

 Here, the multi-member LLC is taxed by the IRS as a pass-through entity.

The following are the tax consequences of each member as well as the LLC:

Foreign Individual Member:
  • The LLC profits from the business pass through to the foreign members and are treated as personal income, with foreign members paying tax on their share of profits through their personal income tax returns.
  • Likely obligated to file Form 1040-NR “U.S. Non-resident Alien Income Tax Return” to report U.S. source income.
  • Effectively Connected Income (ECI): Subject to tax at graduated tax rates on their Effectively Connected Income (ECI) from their U.S. trade or business. Subject to withholding by U.S. LLC on their ECI at a rate of 37% (2025) on ordinary income, unless reduced by the applicable tax treaty.
  • Fixed, Determinable, Annual, or Periodical (FDAP): Subject to withholding by U.S. LLC on their Fixed, Determinable, Annual, or Periodical (FDAP) income at a rate of flat 30% withholding tax (2025) unless an applicable tax treaty provides a lower rate. Here, FDAP income refers to passive income that does not originate from their active income operations.
Foreign Company Member:
  • Foreign corporations are likely obligated to report their share of effectively connected income (ECI) on Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. For a detailed discussion on how a foreign company may be subject to U.S. trade or business through its LLC, refer to this article.
  • Effectively Connected Income (ECI): Subject to tax at 21% (2025) tax rates on their ECI from their U.S. trade or business. Further, Subject to withholding by U.S. LLC on their ECI at a rate of 21% (2025) unless an applicable tax treaty provides a lower rate.
  • Fixed, Determinable, Annual, or Periodical (FDAP): Subject to withholding by U.S. LLC on their FDAP income at a flat 30% withholding tax (2025), unless an applicable tax treaty provides a lower rate. Here, FDAP income refers to passive income that does not originate from their active income operations.
  • Branch Profit Tax: Subject to an additional 30 percent branch profits tax (2025) on the corporation’s dividend equivalent amount. This is because when a foreign corporation is a member of a U.S. limited liability company (LLC), the LLC’s activities constitute a branch of the foreign corporation, triggering Branch Profits Tax considerations. For more information regarding Branch Profit Tax, please refer to this article.   
Limited Liability Company (LLC) Itself:
  • LLC does not get taxed itself as it acts as a pass-through entity. The income passes through to their members. However, the LLC is obligated to withhold the tax from their members and remit to the IRS.
  • A U.S. LLC with foreign members should withhold tax on their Effectively Connected Taxable Income (ECTI) on the following income:
    • Ordinary Income for Individuals: 37% (2025)
    • ECTI for Corporates: 21% (2025)
  • Likely obligated to file Form 1065 “U.S. Return of Partnership Income.”
  • Issue Schedule K-1 to each member reporting their share of income.
  • The U.S. LLC should also file Form 8804 (Annual Return for Partnership Withholding Tax) with the IRS and provide Form 8805 (Foreign Partner’s Information Statement of Section 1446 Withholding Tax) to each foreign member by the 15th day of the third month following the end of the tax year. The amounts withheld will serve as prepayments that foreign members can claim when they file their U.S. tax returns.

Let’s consider a scenario where an LLC has two members: one individual from the U.S. and another from a foreign country. In this case, the LLC will be classified as a multi-member LLC. Like in the previous example, the IRS treats this type of LLC as a pass-through entity. Below are the tax implications for each member, as well as for the LLC itself:

U.S. Individual Member:
  • The profits generated by the LLC are passed through to its members and are considered personal income. This means that members should report their profit share on their personal income tax returns.
  • Members report LLC income on their personal Form 1040 (U.S. Individual Income Tax Return) using Schedule E (Form 1040) Supplemental Income and Loss and related schedules.
  • No withholding taxes are required on distributions made to U.S. individual members.
Foreign Individual Member:
  • The LLC profits from the business pass through to the foreign members and are treated as personal income, with foreign members paying tax on their share of profits through their personal income tax returns.
  • Likely obligated to file Form 1040-NR “U.S. Non-resident Alien Income Tax Return” to report U.S. source income.
  • Effectively Connected Income (ECI): Subject to tax at graduated tax rates on their Effectively Connected Income (ECI) from their U.S. trade or business. Subject to withholding by U.S. LLC on their ECI at a rate of 37% (2025) on ordinary income, unless reduced by the applicable tax treaty.
  • Fixed, Determinable, Annual, or Periodical (FDAP): Subject to withholding by U.S. LLC on their Fixed, Determinable, Annual, or Periodical (FDAP) income at a rate of flat 30% (2025) withholding tax unless a lower rate is provided by an applicable tax treaty. Here FDAP income refers to passive income that does not originate from their active income operations.
Limited Liability Company (LLC) Itself:
  • LLC does not get taxed itself as it acts as a pass-through entity. The income passes through to their members. However, the LLC is obligated to withhold the tax from their members and remit to the IRS.
  • U.S. LLCs with foreign members must withhold tax on Effectively Connected Taxable Income (ECTI) at a rate of 37% (2025) for Ordinary Income for Individuals in 2025.
  • Likely obligated to file Form 1065 “U.S. Return of Partnership Income”
  • Issue Schedule K-1 to each member reporting their share of income.
  • The U.S. LLC should also file Form 8804 (Annual Return for Partnership Withholding Tax) with the IRS and provide Form 8805 (Foreign Partner’s Information Statement of Section 1446 Withholding Tax) to each foreign member by the 15th day of the third month following the end of the tax year. The amounts withheld will serve as prepayments that foreign members can claim when they file their U.S. tax returns.

Let’s consider a U.S. LLC that has one U.S. member and one foreign member. In this situation, the U.S. LLC is classified as a multi-member limited liability company (LLC). As in the previous example, the IRS treats the U.S. LLC as a pass-through entity. Below are the tax consequences for each member:

US Company Member:
  • Reports its share of LLC income on its corporate tax return, Form 1120.
  • No withholding is required on distributions to the U.S. company member.
Foreign Company Member:
  • Foreign corporations are likely obligated to report their share of effectively connected income (ECI) on Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. For a detailed discussion on how a foreign company may be subject to U.S. trade or business through its LLC, refer to this article.
  • Effectively Connected Income (ECI): Subject to tax at 21% tax rates (2025) on their ECI from their U.S. trade or business. Further, Subject to withholding by U.S. LLC on their ECI at a rate of 21% unless a lower rate is provided by an applicable tax treaty.
  • Fixed, Determinable, Annual, or Periodical (FDAP): Subject to withholding by U.S. LLC on their FDAP income at a flat 30% withholding tax (2025), unless a lower rate is provided by an applicable tax treaty. Here, FDAP income refers to passive income that does not originate from their active income operations.
  • Branch Profit Tax: Subject to an additional 30 percent branch profits tax (2025) on the corporation’s dividend equivalent amount. This is because when a foreign corporation is a member of a U.S. limited liability company (LLC), the LLC’s activities constitute a branch of the foreign corporation, triggering branch profits tax considerations.
LLC Itself:
  • LLC does not get taxed itself as it acts as a pass-through entity. The income passes through to their members. However, the LLC is obligated to withhold the tax from its members and remit it to the IRS.
  • U.S. LLC with foreign members likely to withhold tax on Effectively Connected Taxable Income (ECTI)
  • Likely obligated to file Form 1065 “U.S. Return of Partnership Income”
  • Issue Schedule K-1 to each member reporting their share of income.
  • The U.S. LLC should also file Form 8804 (Annual Return for Partnership Withholding Tax) with the IRS and provide Form 8805 (Foreign Partner’s Information Statement of Section 1446 Withholding Tax) to each foreign member by the 15th day of the third month following the end of the tax year. The amounts withheld will serve as prepayments that foreign members can claim when they file their U.S. tax returns.

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