Freelancer3 min read
Does a non-resident freelancer's US LLC create ECI?
This is the single most consequential and least settled question for a non-resident with a US LLC. It is also the one most confidently answered wrongly on the internet, in both directions.
Published
The question
A non-resident alien is taxed by the United States on income effectively connected with a US trade or business, and separately on certain US-source passive income. So there are really two questions: is there a US trade or business, and if so, is this income effectively connected with it?
What the analysis is *not* about: where the LLC is registered. A Wyoming LLC does not create a US trade or business by existing, and forming in Delaware rather than New Mexico changes nothing here.
Where the work is performed is the central fact
For personal services, the source of the income generally follows where the services are performed. A developer sitting in Lisbon writing code for a New York client is performing services in Portugal. That is the starting point, and for a genuinely remote freelancer with no US presence it is a strong one.
| Fact | Direction it pushes |
|---|---|
| You perform all work from outside the US | Away from ECI. The core fact in your favour. |
| Your clients are US businesses | Largely neutral. Client location is not where the work happened. |
| The LLC is US-registered | Neutral on its own. |
| You have a US office or fixed place of business | Strongly toward ECI. |
| You have US-based employees or contractors doing the work | Strongly toward ECI. |
| A dependent agent in the US concluding contracts for you | Strongly toward ECI. |
| You travel to the US to work with clients | Toward ECI for the work performed there. Count the days. |
| You hold inventory or equipment in the US | Toward ECI, and a different analysis again. |
Treaties add a second layer
Where a treaty applies, business profits are typically taxable in the United States only if attributable to a permanent establishment there. That can protect income that would otherwise be effectively connected — but it requires a treaty between the US and your country of residence, and it requires you to actually claim it, on a return, with the relevant disclosures.
The filing obligation exists regardless
This is where people lose money for no reason. A foreign-owned single-member US LLC must file Form 5472 with a pro-forma Form 1120 every year, reporting transactions between the LLC and its foreign owner. The penalty for failing to file is $25,000, and it applies whether or not any tax was due.
- Concluding that you owe no US tax is not a reason to file nothing. The penalty attaches to the missing form, not to the missing payment.
- Where the analysis says there is ECI, a Form 1040-NR is required and the income is taxed on a net basis at graduated rates.
- Where a treaty position is being taken, it generally has to be disclosed on a return to be effective.
Your own country has not gone anywhere
A US LLC is often transparent for US purposes and may be treated as something entirely different — an opaque company, a partnership, or nothing at all — by the country you live in. Mismatches produce double taxation or unexpected corporate-level charges. Controlled foreign company rules may attribute the profits to you personally at home.
The US analysis is only half the picture, and for most non-resident freelancers the home-country half is where the actual tax gets paid.
The company and the person, tracked together
Founders 8 holds the entity and its filings alongside your own residency and day counts, because for a freelancer abroad the second half decides the bill.
Build your workspaceThis is one section of the freelancer structure guide, which covers the entity choice itself.
Founders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.