US Citizens Living Abroad: What You Must Know Before Owning a Company Overseas (and a US LLC)

It seems more and more US citizens are wishing to move abroad, set up a business locally, keep a US LLC for invoicing, and assume their US tax obligations become simpler. But unfortunately, as a few of our clients have found out, they do not.

The United States taxes its citizens on worldwide income regardless of where they live. Once a foreign company and a US entity are both involved, reporting complexity increases quickly.

This guide outlines what applies when a US citizen lives abroad and owns:

• A foreign company

• A US LLC

• Or both

1. The Starting Point: US Citizens are Taxed on Worldwide Income

Under Internal Revenue Code §1 and §61, US citizens are taxed on worldwide income regardless of residency.

Living in Japan, South Africa or the UK, does not remove the obligation to file:

• Form 1040 – U.S. Individual Income Tax Return
  https://www.irs.gov/forms-pubs/about-form-1040

The filing requirement depends on income thresholds, but for most business owners abroad, filing is mandatory every year.

2. Living Abroad Personally: Core US Filing Obligations

Form 1040

Required annually.

Form 2555 – Foreign Earned Income Exclusion (FEIE)

Allows exclusion of qualifying foreign earned income (up to annual limit, indexed yearly).
https://www.irs.gov/forms-pubs/about-form-2555

From IRS website "If you qualify, you can use Form 2555 to figure your foreign earned income exclusion and your housing exclusion or deduction. You cannot exclude or deduct more than your foreign earned income for the year."

It is important to note that this applies to earned income only, does not eliminate reporting of foreign companies and does not apply to corporate profits retained overseas.

Form 1116 – Foreign Tax Credit

Used instead of (or alongside) FEIE to claim credit for foreign taxes paid.
https://www.irs.gov/forms-pubs/about-form-1116

From IRS - "File Form 1116 to claim the foreign tax credit if you are an individual, estate, or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession."

FBAR – FinCEN Form 114

Required if aggregate foreign bank account balances exceed $10,000 at any time during the year.
https://bsaefiling.fincen.treas.gov/main.html

Applies to Personal accounts and Foreign company accounts if the individual has signature authority

Form 8938 – Statement of Specified Foreign Financial Assets

Filed with tax return if FATCA thresholds are met.
https://www.irs.gov/forms-pubs/about-form-8938

From IRS - "Use Form 8938 to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold. This overlaps with FBAR but is separate."

3. Owning a Foreign Business

This section depends entirely on the legal structure.

Scenario A: Foreign Sole Proprietorship

If the foreign business is not incorporated:

• Income is reported on Schedule C of Form 1040.

• No Form 5471 required.

• FBAR and possibly Form 8938 still apply.

https://www.irs.gov/forms-pubs/about-schedule-c-form-1040

Scenario B: Foreign Corporation (e.g., UK Ltd)

If the business is a Limited Company under foreign law, it is generally treated as a foreign corporation for US tax purposes.

If a US citizen owns more than 50%, the company is likely a Controlled Foreign Corporation (CFC) under IRC §957. This triggers:

Form 5471 – Information Return of U.S. Persons With Respect to Certain Foreign Corporations

https://www.irs.gov/forms-pubs/about-form-5471
From IRS - "Certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations file Form 5471 and schedules to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations."

Failure to file carries a $10,000 penalty per form, per year, with continuation penalties possible.

Depending on structure, additional consequences may include:

• Subpart F income inclusion (IRC §§951–965)

• GILTI (Global Intangible Low-Taxed Income) under IRC §951A

GILTI can apply even if no dividends are distributed.

IRS guidance on GILTI:
https://www.irs.gov/pub/fatca/int_practice_units/global_intangible_low_taxed_income.pdf

Small businesses are not exempt from filing Form 5471.

4. Owning a US LLC While Living Abroad

Default Treatment: Single-Member LLC (Disregarded Entity)

If no election is made, a single-member LLC is disregarded for federal income tax purposes. Income is reported directly on Schedule C of Form 1040.

No separate Form 1120 is required unless corporate election is made.

However, if the LLC has transactions with a related foreign entity, reporting may be required.

Form 5472 – Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

https://www.irs.gov/forms-pubs/about-form-5472
From IRS: "Corporations file Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur with a foreign or domestic related party."

A domestic disregarded entity with foreign ownership or foreign related-party transactions may trigger Form 5472 filing requirements.

Penalty for failure to file: $25,000 per year.

Many general CPAs do not regularly file 5472. It is specialized international reporting. Also note the requirements for how you file a form 5472.

If the LLC Elects Corporate Tax Treatment

If the LLC elects to be taxed as a corporation (Form 8832 election):

• Form 1120 must be filed
  https://www.irs.gov/forms-pubs/about-form-1120

• Dividends paid to owner may create double taxation.

Corporate classification interacts differently with foreign corporation ownership and GILTI calculations.

5. Owning Both a US LLC and a Foreign Corporation

This is where complexity increases significantly.

Common structures:

• US LLC as merchant of record

• Foreign company delivering services

• Revenue sharing arrangements

• Management fee structures

Issues that arise:

• Transfer pricing documentation (IRC §482)

• Withholding taxes on cross-border payments

• FX gains and losses

• Accrual vs cash mismatches

• Retained earnings in foreign entities

• Double taxation exposure

Money sitting in a foreign bank account does not determine taxability.
Income recognition depends on legal structure and accounting method.

6. Foreign Bank Accounts and Signature Authority

FBAR applies if:

• Aggregate foreign account balances exceed $10,000 at any time during the year.

This includes:

• Personal accounts

• Foreign company accounts

• Accounts where the individual has signature authority

Failure to file can result in significant civil penalties.

FinCEN FBAR reference:
https://www.fincen.gov/report-foreign-bank-and-financial-accounts

7. Withholding Taxes on Cross-Border Payments

When a foreign company pays service fees, management fees or commission payments, local withholding tax may apply. Whether tax treaties reduce withholding depends on the specific country and whether a treaty exists.

US tax treaties:
https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

Failure to structure intercompany payments properly can result in double taxation.

8. Common Mistakes US Expats Make

1. Assuming living abroad removes US filing obligations.

2. Ignoring Form 5471 because profits are “small.”

3. Failing to file FBAR for business accounts.

4. Using revenue sharing without transfer pricing documentation.

5. Mixing personal and company funds.

6. Assuming their CPA “handles international” without verifying specific form experience.

7. Expanding internationally before defining principal vs agent structure.

9. When Complexity Outpaces the Business

International structures are not inherently wrong. But every additional entity adds:

• Compliance cost

• Reporting obligations

• Penalty exposure

• Administrative burden

Sometimes a single entity is sufficient and sometimes a dual-entity structure is justified.
The correct answer depends on operational risk, local law, and long-term growth plans.

What is risky is expanding across borders without understanding reporting obligations first.

Final Antravia Thoughts

If you are a US citizen:

• Living abroad

• Owning a foreign company

• Operating a US LLC

• Or planning to expand internationally

You are in cross-border territory whether you intended to be or not. Compliance is not optional, and penalties are not theoretical.

The earlier the structure is clarified, the simpler the long-term reporting becomes.

See our our other articles:

US Citizens Abroad: Tax Rules for Owning Foreign Companies & US LLCs
U.S. Expat Tax Rules 2026: Why Moving Abroad Rarely Lowers Tax
PFIC Rules for U.S. Expats: Why Small Foreign ETFs Cause Tax Problems
Why U.S. Expats in Europe End Up Building DIY ETF Portfolios
U.S. Expat Tax Guide 2025 | How to File Taxes While Living Abroad
State Residency for U.S. Expats | How U.S. States Tax Americans Abroad in 2025
Streamlined Filing for U.S. Expats | Catch Up on Missed Tax Returns 2025
FBAR & FATCA Explained | Reporting Foreign Bank Accounts as a U.S. Expat
U.S. Citizens Living Abroad with a Company | GILTI, Form 5471, and U.S. Tax Reporting for Foreign Companies
Foreign Earned Income Exclusion FEIE vs Foreign Tax Credit | 2025 Expat Guide

References

Internal Revenue Service (IRS)
Foreign Earned Income Exclusion (FEIE)
https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

Internal Revenue Service (IRS)
Self-Employment Tax for Businesses Abroad and Totalization Agreements
https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad

Internal Revenue Service (IRS)
International Information Reporting Penalties (Forms 5471, 8938, FBAR)
https://www.irs.gov/payments/international-information-reporting-penalties

Internal Revenue Service (IRS)
Tax Inflation Adjustments for Tax Year 2026
https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

Internal Revenue Service (IRS)
Additional Medicare Tax
https://www.irs.gov/taxtopics/tc560

Internal Revenue Service (IRS)
Passive Foreign Investment Companies (PFICs)
https://www.irs.gov/forms-pubs/about-form-8621

Internal Revenue Service (IRS)
Expatriation Tax Provisions (IRC §877A)
https://www.irs.gov/individuals/international-taxpayers/expatriation-tax

Internal Revenue Service (IRS)
Revenue Procedure 2025-32 (Annual Inflation Adjustments, including expatriation thresholds)
https://www.irs.gov/pub/irs-drop/rp-25-32.pdf

Social Security Administration (SSA)
Contribution and Benefit Base (Social Security Wage Base)
https://www.ssa.gov/oact/cola/cbb.html

California Franchise Tax Board (FTB)
Residency and Domicile for Individuals
https://www.ftb.ca.gov/file/personal/residency-status/index.html

New York State Department of Taxation and Finance
Nonresident and Part-Year Resident Income Tax Guidance
https://www.tax.ny.gov/pit/file/nonresident-faqs.htm

Virginia Department of Taxation
Tax Commissioner Rulings on Domicile and Residency
https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner

U.S. Code (Cornell Law School – Legal Information Institute)
26 U.S. Code §951A – Net CFC Tested Income (formerly GILTI)
https://www.law.cornell.edu/uscode/text/26/951A

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
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