Can a US LLC Be Owned by a Foreign Company?

How it works

A foreign parent company is simply the member of the US LLC. The operating agreement names the parent, the parent’s authorised signatory signs, and the EIN application names a responsible party — which must be an individual with authority over the entity, not another company.

That last point catches people. The IRS wants a human being as the responsible party even when the owner is a corporation.

What the reporting looks like

• Form 5472. A US LLC wholly owned by one foreign corporation is a disregarded entity with a foreign owner, so it files the pro-forma Form 1120 with Form 5472 — and transactions between the US LLC and its foreign parent are exactly what the form exists to report. Inter-company charges, loans and management fees all belong on it.
• BOI reporting. FinCEN looks through to the individuals who ultimately own or control the reporting company. Putting a holding company in the chain does not remove the obligation to identify the people at the end of it.
• Transfer pricing. Charges between related companies are expected to be at arm’s length. A parent invoicing its US subsidiary an arbitrary amount is a position that has to be defensible.

When it is worth doing

Good reasons: consolidating US operations under an existing group, ring-fencing US liability from the parent, or holding US contracts and IP in a US entity because customers require it.

Poor reasons: adding a layer in the belief that it obscures ownership. It does not — FinCEN, the IRS and any bank’s know-your-customer process all look through. What it does add is a second set of filings, in two jurisdictions, with an arm’s-length pricing question attached.

If the group structure has a genuine purpose, this is routine. If the purpose is opacity, it is expensive and it does not work.