Thinking of forming a U.S. LLC with Indian partners? Or already own one? Don’t fall for the trap most CPAs and online platforms miss-foreign ownership in a U.S. LLC triggers complex IRS rules, extra disclosures, and U.S.-India treaty nuances that can cost you thousands if done wrong.
Most Indian founders think an LLC is “simple,” but the moment a non-U.S. person owns even 1%, the IRS wants more. At Kewal Krishan & Co, we help Indian businesses navigate LLC formation, Form 5472 filings, withholding tax issues, and treaty planning-ensuring full compliance and zero penalties.
IRS View: Foreign-Owned US LLCs Are Not “Simple”
A US LLCs with one or more foreign members is considered a foreign-owned disregarded entity (FODE) or foreign-owned partnership under IRS rules. Here’s what that means:
If Single-Member (owned by Indian entity or person):
- Treated as a disregarded entity
- Must file Form 5472 + Pro Forma 1120
- Must maintain U.S. books and records
If Multi-Member (with Indian and U.S. owners):
- Treated as a partnership
- Must file Form 1065 + K-1s
- Withholding tax rules may apply under IRC §1446
Required Filings for Indian-Owned LLCs in 2025
| Form | Description | Due Date |
|---|---|---|
| Form 5472 | Related party transaction disclosure | April 15 (with 6-month extension) |
| Pro Forma 1120 | Cover sheet for 5472 | April 15 |
| Form 1065 | Partnership return if >1 member | March 15 |
| Form 8804 / 8805 | Withholding on foreign partner income | March 15 |
| Form W-8BEN / W-8BEN-E | Certify foreign ownership | Ongoing |
| Form 1042 / 1042-S | Withholding on U.S. source FDAP income | March 15 |
Failure to file Form 5472 triggers a $25,000 penalty per form per year. We’ve seen clients hit with $75K+ in cumulative fines simply because their CPA didn’t know about the foreign ownership requirement.
How U.S.-India Tax Treaty Helps (If Planned Right)
The U.S.-India Income Tax Treaty offers major relief-if invoked properly:
- Article 7 (Business Profits):
Exempts Indian residents from US tax if no PE (Permanent Establishment) exists in the U.S. - Article 12 (Royalties & Fees for Technical Services):
Taxed at 15% max, often lower than default rates under IRC - Article 14 (Independent Personal Services):
Income may be exempt in the U.S. if under threshold and no fixed base
To invoke treaty benefits, Form 8833 must be filed with the U.S. return. Missing this? IRS ignores the treaty.
Example: Indian IT Firm Sets Up U.S. LLC in Wyoming
- Indian parent owns 100% of a Wyoming LLC
- U.S. LLC earns $200,000 in software services
- LLC is a disregarded entity
IRS Requirements:
- Must file Form 5472 + Pro Forma 1120
- Must submit W-8BEN-E from Indian owner
- Can claim treaty benefit under Article 7 via Form 8833
If Form 5472 is skipped → $25,000 penalty
If Form 8833 is not filed → IRS taxes full $200K at 37%
Step-by-Step Guide for Indian Members of U.S. LLCs
- Identify Structure
- Single-member or multi-member
- Who are the foreign owners?
- Register for EIN (with responsible party info)
- For Indian members, use SSN/ITIN or foreign address + passport
- File Form 5472 with Pro Forma 1120 (if disregarded entity)
- Include all related party transactions
- File Form 1065 and K-1s (if partnership)
- Indian partners get Schedule K-1, Line 14 shows effectively connected income
- Withholding on Distributive Share
- Use Form 8804/8805 for partnership-level withholding
- Consider Form 8233 or W-8BEN for treaty claims
- Submit Form 8833 to claim treaty relief
- Attach with 1120/1065 as applicable
- Maintain Records
- Transfer pricing reports, invoices, bank statements, W-8s
Conclusion
A U.S. LLC with Indian members opens great global opportunities-but also opens IRS floodgates if not structured and filed correctly. Don’t risk $25,000+ penalties or double taxation. File Forms 5472, 1065, 8805, and 8833 properly-and plan ahead with expert guidance.
Call to Action
Anshul Goyal, CPA EA FCA, is a U.S. licensed tax expert, authorized to represent clients before the IRS and assist with global compliance. If you or your Indian entity owns a U.S. LLC, consult Anshul to ensure proper structure, filing, and treaty use.
About Our CPA
Anshul Goyal specializes in cross-border US-India tax filings, treaty interpretation, Form 5472 and 8833 compliance, and structuring US LLCs for Indian entrepreneurs. His team has successfully helped clients avoid IRS penalties and structure their businesses for tax efficiency.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax advisor for your specific situation. IRS rules and treaty benefits are complex and constantly evolving.
Top 5 FAQs: Indian-Owned US LLCs
1. Do I need to file Form 5472 if I have an Indian-owned U.S. LLC?
Yes, if the LLC is single-member and foreign-owned, Form 5472 + 1120 is mandatory.
2. Can I avoid U.S. tax by claiming the U.S.-India tax treaty?
Yes, under Article 7 or 12, but Form 8833 must be filed to claim treaty relief.
3. What’s the penalty for missing Form 5472?
$25,000 per year per missing form. Can increase if IRS finds willful negligence.
4. Does an Indian LLP qualify as a U.S. LLC member?
Yes, but you must disclose foreign ownership and follow PFIC/5471 rules if holding shares in a U.S. entity.
5. Can I operate a U.S. LLC from India without triggering U.S. tax?
Yes, if you qualify under Article 7 (no U.S. PE), but filings must be made properly.