ARTICLE | August 27, 2026

Many times, foreign ecommerce brand owners are selling products into the US via a single member LLC.  Owners should be aware of several significant tax considerations with this form of business.

For federal income-tax purposes, the single member LLC is generally treated under its default US tax status as a “disregarded entity” and doesn’t need to file any federal level business income tax return. But that does not mean the business is invisible to the IRS.

A foreign-owned U.S. disregarded entity that has transactions with its foreign owner may have to file Form 5472 with a pro forma Form 1120. The IRS specifically treats a foreign-owned U.S. disregarded entity as a reporting corporation for these limited information-reporting rules.

That means something as ordinary as the owner contributing cash to the LLC or paying expenses for it can create a U.S. information-reporting obligation even when the business has little or no U.S. income tax liability.

The penalty for failing to file a required Form 5472 can be $25,000 per failure, with additional continuation penalties in certain circumstances.

There may also be situations where the nonresident member of the LLC gets wrapped into US personal income tax return filings as well.  This can happen if the LLC has significant “US sourced income” from sales to US customers.  US sourced income is, in very general terms under the concept of ecommerce, defined by the federal government as inventory sales where the ownership of the inventory transfers to the customer in the US. 

Sometimes, instead of shipping each order from an overseas warehouse directly to a customer, the LLC buys inventory and sends it to a warehouse operated by a U.S. third party logistics provider (“3PL”). The 3PL stores the products, picks and packs orders, and ships them to U.S. customers.

If a US 3PL is used, then the sale of inventory is almost certainly US sourced since ownership transfer on the product always happens in the US.  If a foreign supplier of the product ships from a warehouse in another country (common in “dropshipping” scenarios) and the customer takes ownership of the product when it leaves the foreign country warehouse, then the sale is likely considered foreign source, even though a US customer is the customer.

In cases where there is US sourced income, it is attributable to the foreign member since the LLC itself is disregarded.  Thus, the foreign member would personally need to file US federal personal income tax returns to report this US sourced income and obtain a personal US tax identification number.  There may be federal personal income tax assessed at rates as high as 37% on the LLC’s profits, especially in cases where the foreign member lives in a foreign country that does not have an income tax treaty with the US.  Income tax treaties often have provisions that require a fixed place of business, office, or permanent establishment before the US federal government can impose income tax on US sourced profits, and a 3PL may possible not rise to that level as defined in the treaty.

Dropshipping from outside the U.S. can produce a cleaner federal tax fact pattern, although it does not eliminate U.S. filing or state sales-tax obligations. A U.S. 3PL can improve delivery times and customer experience, but it places inventory in the United States and may create additional federal tax considerations.

It is also very important to note that regardless of title passage of inventory, a seller can be outside the U.S., have no federal income-tax liability, and still have state sales-tax, state income tax, gross-receipts, franchise-tax or registration obligations.  States often do not follow federal income tax treaties, and sourcing of income rules often are completely different from the federal income tax sourcing rules noted earlier.  Although there might not be a federal income tax filing or payment requirement, that doesn’t mean that a state level tax filing or payment requirement won’t apply.

For an international e-commerce owner, although a single member LLC might be the cheapest business model to use when selling into the US, it might not be the most tax effective model.  US and state tax advice, along with tax advice in the owner’s home country, should be sought prior to finalizing an inbound structure for US ecommerce activity.