Glossary
Effectively connected income (ECI)
Income connected with the conduct of a US trade or business, taxed to a non-resident at the same graduated rates as a US person, reported on Form 1040-NR.
The question every non-resident owner of a US LLC eventually asks is whether they owe US income tax. The answer turns on whether the LLC's activity amounts to a US trade or business. Selling to US customers from abroad through a website, with no US staff, office or inventory, often does not; a US warehouse, a US-based contractor doing the core work, or an office usually does. Where a tax treaty applies (India, the UK and most of Europe have one), the test becomes whether there is a permanent establishment, which is narrower.
The Form 5472 filing is required either way. ECI decides whether a 1040-NR is also due and tax is owed. Facts, contracts and where the work physically happens decide the answer, not the state of formation.
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