🇺🇸 Guide to Formation, Tax, Banking, Sanctions & Compliance for Foreign Entrepreneurs
For foreign entrepreneurs—especially those from Russia, Ukraine, Kazakhstan, and other ex-USSR countries, as well as Europe—establishing a U.S. LLC can be a strategic move. The U.S. offers a robust legal system, global payment processor access (Stripe, PayPal), and credibility with international clients.
Many of my clients are surprised by how fast and inexpensive it is to form a U.S. company compared to bureaucratic processes in their home countries. However, "easy to form" does not mean "simple to operate." This guide covers everything you need to know.
A Limited Liability Company (LLC) is a flexible U.S. business entity that combines the liability protection of a corporation with the tax flexibility of a partnership. Key characteristics:
A U.S. entity enhances credibility with American and international clients. Many businesses prefer contracting with U.S. companies for legal predictability and payment simplicity.
Stripe, PayPal, and other major payment processors often work more smoothly with U.S. entities. Many international merchants struggle with payment processor restrictions in their home countries.
U.S. contract law is well-developed and enforced. Commercial disputes have predictable resolution mechanisms. Asset protection structures are respected.
Operating in U.S. dollars protects against currency volatility in home countries. U.S. bank accounts provide SWIFT access and stability.
| ❌ Myth | ✅ Reality |
|---|---|
| "I need to visit the U.S. to form an LLC" | No. The entire formation process can be done remotely. You never need to set foot in the U.S. |
| "A Wyoming LLC means I pay zero tax worldwide" | Wrong. Wyoming has no state income tax, but you may still owe U.S. federal tax (depending on ETBUS/PE) and definitely owe tax in your home country. |
| "Owning a U.S. LLC gives me a visa" | No. LLC ownership provides no immigration benefits by itself. E-2 investor visas require treaty nationality, substantial investment, and operational business—not just LLC formation. |
| "My LLC is anonymous and private" | Partially true at state level (in some states), but banks always require beneficial owner disclosure, and the IRS knows who you are via EIN application. |
| "I don't need to file anything with the IRS" | False. Foreign-owned single-member LLCs must file Form 5472 + pro-forma Form 1120 annually. Penalties for non-filing start at $25,000. |
| Feature | LLC | C-Corporation |
|---|---|---|
| Default tax treatment | Pass-through (disregarded/partnership) | Double taxation (corporate + dividend) |
| Management flexibility | High (Operating Agreement controls) | Lower (board, officers, formalities) |
| Raising investment | More complex (membership units) | Standard (stock issuance) |
| Non-resident eligibility | ✅ Yes | ✅ Yes |
| S-Corp election | ❌ Not for non-resident owners | ❌ Not for non-resident owners |
| Best for | Most non-resident businesses | VC fundraising, IPO plans |
For most non-resident entrepreneurs running e-commerce, SaaS, consulting, or freelance businesses, an LLC is the right choice. Corporations make sense primarily if you're planning to raise venture capital or pursue an IPO, where the stock structure and institutional investor familiarity become important.
YES: Form in that state. You'll owe state taxes there anyway, so forming elsewhere just adds extra fees and complexity.
NO: You have flexibility. Consider the factors below.
Yes → New Mexico. $50 formation, no annual report, no annual fee. The cheapest option for maintenance.
Wyoming is second-best: $100 formation + $60/year minimum.
Yes → Delaware. Investors, lawyers, and sophisticated counterparties are familiar with Delaware law. The Court of Chancery handles business disputes efficiently. This matters when you're signing significant contracts or taking investment.
For simple e-commerce or consulting businesses without complex deals, this is less important.
Wyoming, New Mexico, or Nevada don't require public disclosure of members in state records.
Important caveat: Banks will still require beneficial owner information during account opening. The IRS knows who you are via EIN application. State-level privacy is real but limited.
| State | Formation | Annual Cost | Privacy | State Income Tax |
|---|---|---|---|---|
| Delaware | $90 | $300 | High | None (no operations) |
| Wyoming | $100 | $60+ | Very High | None |
| New Mexico | $50 | $0 | Very High | Only if operating there |
| Nevada | $425+ | $350+ | High | None |
| California | $70 | $800+ | Low | Yes (if nexus) |
Wyoming is the best balance for most non-resident entrepreneurs running online businesses: reasonable costs ($100 + $60/year), excellent privacy, no state income tax, and efficient filing processes. Delaware makes sense if you're raising investment or dealing with sophisticated contracts. New Mexico is cheapest but has less developed LLC case law.
Classification: "Disregarded entity" — the LLC is ignored for tax purposes, and income flows directly to the owner.
For non-residents: You report income on Form 1040-NR if you have ECI. You must also file Form 5472 + pro-forma 1120 for information reporting.
Classification: Partnership — the LLC files Form 1065 and issues K-1s to members.
For non-residents: Each foreign partner reports their share on Form 1040-NR. The partnership may need to withhold tax under §1446 on ECI allocable to foreign partners.
Classification: Corporation — file Form 8832 to elect corporate taxation.
Consequence: Double taxation — the LLC pays corporate tax, and distributions to foreign owners are subject to 30% withholding (reduced by treaty).
This is the pivotal determination for U.S. tax liability. If you're not ETBUS, your business profits are generally not taxable in the U.S.
The IRS looks at whether you have continuous, considerable, and regular activities in the U.S. Key factors:
Typically NOT ETBUS:
If your country has a tax treaty with the U.S., the treaty's Permanent Establishment article may protect business profits from U.S. taxation even if you technically have ETBUS.
PE typically requires:
No PE = business profits generally not taxable in U.S. (under treaty), even if you have U.S. customers.
Business income connected to U.S. trade or business.
Passive income: interest, dividends, royalties, certain rents.
| Country | U.S. Tax Treaty? | Status Notes |
|---|---|---|
| 🇷🇺 Russia | ⚠️ SUSPENDED | Treaty exists but benefits suspended by Russia in 2023; U.S. has not formally responded. Practical benefits uncertain. |
| 🇺🇦 Ukraine | ✅ Yes | Full treaty in effect. Reduced withholding rates available. |
| 🇰🇿 Kazakhstan | ✅ Yes | Full treaty in effect since 1996. |
| 🇬🇪 Georgia | ❌ No | No treaty. 30% FDAP withholding applies. |
| 🇦🇲 Armenia | ✅ Yes | Treaty in effect since 2005. |
| 🇦🇿 Azerbaijan | ✅ Yes | Treaty in effect since 2001. |
| 🇺🇿 Uzbekistan | ❌ No | No treaty. Full withholding applies. |
| 🇧🇾 Belarus | ⚠️ SANCTIONED | Treaty exists but practical utility limited by comprehensive sanctions. |
| 🇩🇪 Germany | ✅ Yes | Comprehensive treaty with favorable rates. |
| 🇬🇧 United Kingdom | ✅ Yes | Comprehensive treaty with favorable rates. |
| 🇳🇱 Netherlands | ✅ Yes | Treaty in effect; new protocol updated some provisions. |
| 🇪🇪 Estonia | ✅ Yes | Treaty in effect since 2000. |
| 🇱🇻 Latvia | ✅ Yes | Treaty in effect since 2000. |
| 🇱🇹 Lithuania | ✅ Yes | Treaty in effect since 2000. |
| 🇵🇱 Poland | ✅ Yes | Treaty in effect. |
| 🇮🇱 Israel | ✅ Yes | Comprehensive treaty in effect. |
Many countries (especially in the EU) determine corporate tax residence based on where "central management and control" is exercised—not just where the company is formed.
If you run your U.S. LLC from Moscow, Berlin, or Tbilisi, your home country may treat the LLC as tax-resident there, potentially subjecting it to local corporate tax. This varies by country and requires local tax advice.
For most non-residents running online businesses entirely from outside the U.S. with no U.S. employees or offices: You likely have no U.S. federal income tax liability because you're not ETBUS and have no PE. However, you must still file Form 5472 + pro-forma 1120 with the IRS, and you must report income to your home country. Consult with professionals in both jurisdictions.
The Office of Foreign Assets Control (OFAC) administers U.S. sanctions programs. If you're on the Specially Designated Nationals (SDN) list, or if you're significantly owned or controlled by someone on that list, you generally cannot access the U.S. financial system.
Entities owned 50% or more (in aggregate) by one or more blocked persons are themselves treated as blocked, even if the entity isn't directly listed. This extends sanctions to subsidiaries and affiliated companies.
Example: If an SDN-listed individual owns 50% of your LLC, the LLC itself is effectively blocked from U.S. banking.
Executive Order 14024 and subsequent measures have created extensive Russia-related sanctions. Key points:
Countries: EU, UK, Canada, Australia, Israel, etc.
Banking prospects: Good. Expect standard KYC (passport, proof of address, business description). Many banks work with non-residents from these countries.
Timeline: 2-6 weeks typical
Countries: Russia (non-sanctioned individuals), Turkey, certain Middle Eastern countries
Banking prospects: Difficult. Banks apply enhanced due diligence. Many will decline. Some fintech options may work.
Timeline: Weeks to months; multiple rejections common
Countries: Belarus, Iran, North Korea, Syria, Cuba, Crimea/Donetsk/Luhansk
Banking prospects: Extremely limited to impossible. Most banks will decline immediately.
Alternative: May need to explore structures through non-sanctioned partners or wait for sanctions relief.
Status: If you or any 50%+ owner is on the SDN list
Banking prospects: Zero in the U.S. banking system. Assets may be frozen.
Reality: Cannot legally form or operate U.S. entities.
Examples: Chase, Bank of America, Wells Fargo, Citi
Pros: Full-service banking, FDIC insured, wide acceptance
Cons: Often require in-person visit; strict KYC; may decline non-residents entirely
Best for: Non-residents who can visit the U.S. or have existing relationships
Examples: Mercury, Relay, Brex, Novo
Pros: Remote application; designed for startups; often more flexible with non-residents
Cons: May have country restrictions; less robust for complex needs
Best for: Online businesses, tech startups, e-commerce
Examples: HSBC, Citi (international arm), Barclays
Pros: Experience with cross-border clients; may leverage existing relationship
Cons: Higher minimum balances; complex requirements
Best for: Established businesses with existing international banking relationships
If you're from a non-sanctioned country, banking is achievable with patience and proper documentation. If you're Russian, expect significant difficulty—not because you're personally sanctioned, but because banks over-comply with sanctions to avoid risk. If you're from Belarus or comprehensively sanctioned jurisdictions, U.S. banking is effectively unavailable until sanctions change.
Single-member LLCs are "disregarded" for tax purposes—they don't file their own tax returns. But for Form 5472 purposes, they're treated as corporations.
This means you file a "pro-forma" Form 1120 (corporate tax return) that only includes:
The 1120 is basically just a cover sheet for Form 5472.
| Form | Purpose | Who Files |
|---|---|---|
| Form 1040-NR | Non-resident individual income tax return | Non-residents with ECI (effectively connected income from U.S. trade or business) |
| Form 1065 | Partnership return | Multi-member LLCs (taxed as partnerships) |
| Form 8865 | Information return for U.S. persons with interests in foreign partnerships | Generally not applicable to pure non-residents |
| FBAR (FinCEN Form 114) | Report foreign bank accounts | U.S. persons only—pure non-residents generally don't file |
| Form 8938 | FATCA foreign financial assets | U.S. persons only—pure non-residents generally don't file |
"Foreign reporting companies"—entities formed under foreign law that register to do business in the U.S.—still have BOI obligations.
This means: If you have a BVI, Cypriot, or other foreign company that registers in a U.S. state, you may need to file BOI for that entity. But a plain Wyoming or Delaware LLC formed by a non-resident is domestic and currently exempt.
Caveat: This regulatory landscape has been volatile. Check current FinCEN guidance before relying on exemptions.
Most states require annual or biennial reports confirming company information. Deadlines and fees vary by state.
Penalty: Administrative dissolution if not filed.
Some states impose annual franchise or privilege taxes regardless of income. Delaware: $300/year. California: $800/year minimum.
You must maintain a registered agent in your formation state. Most non-residents use professional registered agent services ($50-150/year).
Generally YES if: You sell physical goods shipped to U.S. customers (e.g., Amazon FBA, drop-shipping, e-commerce).
Generally NO if: You sell only services or digital products (though some states tax SaaS).
Marketplace facilitator rules: If you sell through Amazon, eBay, Etsy, or similar marketplaces, the marketplace typically collects and remits sales tax for you.
| Filing | Deadline | Penalty for Non-Filing |
|---|---|---|
| Form 5472 + 1120 | April 15 (or extended) | $25,000+ per year |
| State Annual Report | Varies by state | Administrative dissolution |
| State Franchise Tax | Varies by state | Penalties + interest |
| Registered Agent Renewal | Annual | Loss of good standing |
| Sales Tax Returns | Monthly/Quarterly/Annual by state | Varies by state |
The single most important compliance item for foreign-owned single-member LLCs is Form 5472 + pro-forma 1120. Missing this carries $25,000+ penalties. Beyond that, stay current on state annual reports and franchise taxes to avoid administrative dissolution. Consider hiring a U.S. accountant familiar with non-resident LLC compliance to handle annual filings.
Before formation, clarify:
Based on the State tab analysis, select your state. For most non-residents:
Your LLC name must be unique in the state and include "LLC" or "Limited Liability Company."
Every LLC must have a registered agent with a physical address in the formation state. As a non-resident, you'll use a professional registered agent service.
This is the official formation document filed with the state. Most states have online filing systems.
The Operating Agreement is the internal governance document. Even single-member LLCs should have one.
The EIN is your LLC's tax identification number, required for banking and tax filing.
This is often the hardest step for non-residents. Be prepared with all documentation.
Once banking is established, connect payment processors.
Don't forget ongoing obligations!
Formation Costs (One-Time):
Annual Ongoing Costs:
Legally, yes—ordinary Russian citizens are not prohibited from forming U.S. LLCs unless they're personally on the SDN sanctions list or majority-owned by blocked persons.
Practically, it's extremely difficult. Russian passport holders face intense KYC scrutiny, and most U.S. banks will decline to open accounts due to sanctions-related de-risking. Payment processors like Stripe and PayPal also have restrictions. You may need to explore alternative structures or wait for the sanctions environment to improve.
No. LLC ownership provides no immigration benefits by itself. You cannot work physically in the U.S. based solely on LLC ownership.
However, if you make a substantial investment in a U.S. business and your country has an E-2 treaty with the U.S., you may qualify for an E-2 investor visa. This requires treaty nationality, a substantial investment (typically $100,000+), active management, and a real operating business—not just an LLC with minimal activity. Consult an immigration attorney.
The location of your customers doesn't determine U.S. tax liability—what matters is whether you're "engaged in a U.S. trade or business" (ETBUS) with effectively connected income.
If you operate entirely from outside the U.S. with no U.S. employees, offices, or dependent agents, you likely have no U.S. income tax liability regardless of where your customers are located. However, you still have U.S. reporting obligations (Form 5472), and you'll owe taxes in your home country on worldwide income.
Delaware: Best known corporate law, respected Court of Chancery, preferred by investors and sophisticated counterparties. $300/year franchise tax, no annual report for LLCs.
Wyoming: Stronger privacy protections, lower annual costs ($60+ minimum), simple annual report. Less developed case law but excellent asset protection statutes.
For most non-residents running online businesses without significant investor involvement, Wyoming offers better value. Delaware makes sense if you're raising investment or dealing with complex corporate structures.
The penalty for failing to file Form 5472 is $25,000 per form, per year. If the IRS sends you a notice and you still don't file, the penalty increases by $25,000 for each 30-day period of continued failure (up to $150,000 per form).
These penalties are real and enforced. Even if you owe no U.S. taxes, you must file the information return. Many non-resident LLC owners discover this too late. Don't be one of them.
Yes, in most cases. Both Stripe and PayPal work with U.S. LLCs owned by non-residents, provided you meet their requirements and your country isn't on their restricted list.
You'll need a U.S. bank account connected to your U.S. LLC. Stripe Atlas specifically helps non-residents form LLCs and set up banking. Check each processor's current country restrictions—they change over time, especially for sanctioned or high-risk countries.
Non-residents without SSN or ITIN can obtain an EIN by completing Form SS-4 and submitting it via fax or mail to the IRS. You cannot use the online application without an SSN/ITIN.
Process: Complete Form SS-4, write "Foreign" where it asks for SSN, and fax to the IRS (304-707-9471). Processing takes approximately 4-6 weeks. You'll receive the EIN by mail to your U.S. registered agent address or via fax callback.
Don't pay third-party services excessive fees for this—it's a free IRS service.
You need a registered agent address in your formation state (which can be a professional registered agent service). You don't need a physical office.
For banking and payment processors, you'll provide your registered agent's address or a virtual office address as your U.S. business address. Your personal address can remain in your home country.
If you sell taxable goods (physical products) shipped to U.S. customers, you may have sales tax obligations in states where you exceed "economic nexus" thresholds (typically $100,000 in sales or 200 transactions per year per state).
If you sell through marketplaces like Amazon, eBay, or Etsy, the marketplace generally handles sales tax collection. For direct sales, you may need to register for sales tax permits and file returns in multiple states. Software like TaxJar or Avalara can help manage this complexity.
State-level: In states like Wyoming and New Mexico, member/owner names are not publicly listed. Only the registered agent appears in state records.
Federal-level: The IRS knows who you are through EIN application. Banks know through KYC. As of 2025, domestic LLCs are exempt from FinCEN BOI reporting, but this could change.
Practical reality: Your LLC is not truly anonymous. Creditors with subpoena power, the IRS, and anyone conducting proper due diligence can identify you. Privacy is relative, not absolute.
Yes, your U.S. LLC can hire U.S. employees or contractors. However, this has significant tax and compliance implications:
Many non-residents use U.S. independent contractors instead of employees to avoid these complexities, though misclassification is a real risk.
LLCs can be converted to corporations through statutory conversion (in most states) or by forming a new corporation and merging/transferring assets. This is common when raising venture capital, as investors prefer the stock structure of corporations.
The conversion has tax implications—it may be treated as a taxable event. Plan with a tax advisor before converting. Delaware and Wyoming both have efficient statutory conversion procedures.
As a California-licensed attorney (CA Bar #279869) with over 13 years of experience serving international clients, I help non-resident entrepreneurs from around the world—especially Russia, Ukraine, Kazakhstan, and other ex-USSR countries—establish and operate U.S. businesses. I understand the unique challenges you face with banking, sanctions, and cross-border compliance.
Or email directly: owner@terms.law