You’ve registered a US LLC: Now what?
Some UK companies decide to do business in the US by registering a US limited liability company (or LLC). What US federal tax filing requirements will result?
There are good reasons why a UK company shouldn’t own a US LLC – unless, that is, an election (known as a “C-corporation election”) is made to treat the LLC as a corporate entity separate from its owner. (See my article on the subject here.) But for a small group of UK companies intending to do business in the US without a permanent establishment in the US (that is, without US employees or a fixed place of business in the US), an LLC may be a logical choice.
If your UK company has decided to own a US LLC without making a C-corporation election, then there are two federal tax filing requirements of which you should be aware:
1. Form 1120-F. Without a C-corporation election, an LLC is considered by the IRS to be a “disregarded entity.” In other words, from a federal tax perspective, it’s as though the entity doesn’t even exist. That means that the IRS considers the parent entity to be doing business directly in the US. Thus, if you have US sourced income arising out of your LLC’s activities, your UK company will need to file a US corporate income tax return, known as Form 1120-F. Whether any tax is owed usually depends on whether your UK company has a permanent establishment in the US. If it does, the UK company will pay tax on any business profits attributable to that permanent establishment. But even if it doesn’t have a permanent establishment in the US, you’ll need to file a “protective Form 1120-F,” along with Form 8833, claiming the benefits of the US-UK tax treaty.
2. Pro Forma Form 1120 and Form 5472. Unfortunately, the LLC itself may also have its own filing obligation. Although an LLC that has not elected C-corporation status is disregarded by the IRS for federal corporate income tax purposes, the IRS considers it to be a domestic corporation for certain purposes if it is wholly owned by a single foreign interest. (See Treas. Reg. § 1.6038A-1(c)(1) and Treas. Reg. § 301.7701-2(vi)). A US LLC that meets these criteria is required to report certain transactions between it and its foreign affiliate. This could include payments made by the UK parent on behalf of the US LLC (e.g., bank or company registration fees) or distributions made to the UK parent, no matter how small. These transactions are reported on Form 5472, which is submitted annually along with an abbreviated, pro forma Form 1120.
If your LLC has made a C-corporation election, different rules apply. Note also that these requirements are independent of any State (and, in some cases, local) filing obligations that may exist.