A growing number of Indian freelancers, SaaS founders and digital service providers are registering Limited Liability Companies (LLCs) in the United States to access international payment infrastructure and banking services, but many are unaware of the compliance obligations that follow formation, according to tax professionals and formation service providers. The trend, driven largely by social media marketing and YouTube tutorials, has created an entire services industry catering to Indian entrepreneurs seeking US business entities, with formation packages typically priced between USD 500 and USD 2,000.

According to data from LLCBuddy, which tracks LLC formation requirements and costs across all 50 US states, state filing fees range from USD 40 to USD 500. The states most commonly chosen by non-US residents-Wyoming, Delaware and New Mexico-charge state fees of approximately USD 100, USD 90–110 and USD 50 respectively.

Compliance obligations Tax professionals say the primary risk for Indian-owned US LLCs lies not in formation but in the compliance requirements that follow. Steve Goldstein, founder of US-based LLC formation resource LLCBuddy, said the gap between formation marketing and compliance reality is the central problem facing non-resident LLC owners. "Most founders budget for registration. Very few budget for year two," he said.

Every single-member LLC owned by a non-US person is required to file IRS Form 5472 annually, reporting all transactions between the LLC and its foreign owner. According to IRS instructions revised in December 2024, the penalty for failure to file is USD 25,000 per form. If non-compliance continues beyond 90 days after IRS notification, additional penalties of USD 25,000 apply for each subsequent 30-day period, with no statutory maximum. The form cannot currently be filed electronically and must be submitted by mail or fax to the IRS processing centre in Ogden, Utah.

Tax professionals who work with Indian clients holding US entities say awareness of Form 5472 among small business owners and freelancers remains low, with many learning about the requirement only after receiving IRS notices or consulting a chartered accountant well after formation.

Indian regulatory obligations Beyond US compliance, forming a foreign entity may trigger obligations under the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India’s Overseas Direct Investment (ODI) framework, according to legal professionals.

India taxes its residents on worldwide income. Income earned through a US LLC by an Indian tax resident is generally liable to be reported and taxed in India, irrespective of where the business entity is registered or where the funds are held.

The Income Tax Act, 2025, which received Presidential assent in August 2025 and is set to take effect from April 1, 2026, retains the provision-originally introduced by the Finance Act, 2020-under which Indian citizens with domestic income exceeding Rs 15 lakh who are not tax residents of any other country may be deemed Indian tax residents. This deemed residency provision has been in effect since the 2020–21 assessment year under the existing Income Tax Act, 1961, and will continue under the new Act.

US beneficial ownership reporting exemption In a development that reduces one layer of compliance for US-formed entities, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an interim final rule in March 2025 exempting domestic entities-including LLCs formed in any US state-from Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act. Only entities formed under foreign law and registered in a US state are now required to file BOI reports.

The exemption does not affect the Form 5472 filing requirement, which remains in effect for all foreign-owned single-member LLCs.

Formation services industry The formation services industry has expanded significantly to serve Indian clients. Companies offering LLC registration, Employer Identification Number (EIN) procurement, registered agent services and US bank account assistance have emerged as a distinct market segment.

State filing fees are publicly available and vary by jurisdiction. EIN applications submitted directly to the IRS are free of cost, though some formation services charge separately for EIN procurement. Registered agent services, which are mandatory for all US LLCs, typically cost USD 50 to USD 200 per year.

Goldstein estimated that the annual cost of maintaining a US LLC - including registered agent fees, state annual filing requirements, Form 5472 preparation and basic accounting - ranges from approximately USD 1,000 to USD 3,000 per year, though costs vary significantly based on state of formation and complexity of the business.

Factors driving adoption Tax and business professionals point to several factors behind the trend, including limited access to global payment processors for Indian entities, currency conversion costs on cross-border transactions, and the perception that a US business entity provides greater credibility with international clients.

Goldstein said the core driver is payments infrastructure. Small Indian businesses exporting digital services face genuine friction in receiving international payments, and a US entity with a US bank account removes much of that friction.

However, he cautioned that the decision to form a US LLC should be based on a careful assessment of both the benefits and the full compliance costs across both jurisdictions. For individuals earning USD 1,000–2,000 a month from occasional international clients, the compliance costs alone may exceed the benefits, making the structure financially impractical.

Professional guidance recommended Tax and legal professionals have emphasised the importance of seeking qualified advice before forming foreign business entities. FEMA compliance, overseas investment reporting and cross-border tax obligations require case-specific assessment that cannot be adequately addressed through general online content, according to professionals in the field.

Tax professionals recommend that Indian residents considering a US LLC consult a chartered accountant with experience in international taxation and FEMA compliance before formation, rather than after, to ensure all obligations in both jurisdictions are understood from the outset.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax or financial advice. US and Indian tax laws, FEMA regulations and state-level LLC requirements are subject to change. Readers should consult qualified professionals before making business formation or tax planning decisions.

(Disclaimer: The above press release comes to you under an arrangement with NRDPL and PTI takes no editorial responsibility for the same.). PTI PWR

Foreign owned US LLC compliance: nonresident owners face mandatory IRS reporting and parallel Indian tax and FEMA obligations. Nonresident ownership of US single member LLCs triggers an annual IRS Form 5472 filing obligation with steep per form penalties for non filing; this filing must be submitted by mail or fax. The US FinCEN BOI exemption for domestically formed entities does not remove Form 5472 duties. Indian residents must report and tax worldwide income and may face FEMA and Overseas Direct Investment reporting requirements, so professional cross border tax and FEMA advice is recommended before formation.