Quick answer — US citizens abroad owning a company. US citizens are taxed on worldwide income wherever they live. Owning 10% or more of a foreign corporation requires Form 5471, and controlled foreign corporation rules (Subpart F and GILTI, reworked from 2026) can tax its profits every year. A US LLC is usually transparent: its profits count as self-employment income, and the Foreign Earned Income Exclusion does not remove the 15.3% self-employment tax unless a totalization agreement applies.
Executive Summary & Context
For most location-independent founders, leaving a country means leaving its tax system. Americans are different. The United States taxes its citizens and green card holders on their worldwide income no matter where they live, so a US founder in Lisbon, Bali or Mexico City still files a US return every year — and the choice of company structure has a direct effect on the US tax bill.
The main tools that reduce double taxation — the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit and tax treaties — work very differently depending on whether you operate as a sole proprietor, through a US LLC or through a foreign company. Choose wrongly and you can face US self-employment tax on income your new country also taxes, annual US tax on undistributed foreign company profits, or five-figure penalties for missing information returns.
Who this guide is for
- US citizens and green card holders working as freelancers, consultants or founders while living abroad.
- American founders setting up a company in their new country, such as a Portuguese Lda, an Estonian OÜ or a UAE free zone company.
- US expats with an existing US LLC or S corporation who are reconsidering the structure after moving.
Who it is not for
This guide is not for non-US founders (see our US LLC guide for non-residents instead), for employees with a single foreign employer, or for settled expats with only salary income.
For the general framework of moving with a company, see our overview on relocating your business abroad.
Legal Entities & Comparison Matrix
| Structure | US tax treatment | Key US forms | Self-employment tax | Works best when |
|---|
| Sole proprietor (no entity) | Profits on Schedule C | Form 1040, Schedule C, Schedule SE | Yes, 15.3% up to the wage base, unless a totalization agreement applies | Simple freelancing with low admin |
| US single-member LLC | Disregarded; profits on Schedule C | Same as sole proprietor | Yes, same as above | You want liability protection and US banking |
| US S corporation | Pass-through; salary plus distributions | Form 1120-S, K-1 | Only on reasonable salary | US-resident owners; can be awkward abroad with foreign taxes |
| Foreign corporation (e.g. OÜ, Lda, free zone company) | Controlled foreign corporation if US persons own more than 50% | Form 5471, plus 8992 / 8993 as applicable | Generally no, on corporate profits | Your new country requires or rewards a local company |
| Foreign entity elected as disregarded | Treated like a branch | Form 8858 | Yes on business profits | When CFC rules would be worse than direct taxation |
How CFC rules reach your foreign company
A foreign company is a controlled foreign corporation (CFC) when US shareholders together own more than 50%. If you own it alone, it is a CFC. Each year, you may have to include in your US income:
- Subpart F income — mainly passive income and certain related-party income; and
- GILTI, renamed net CFC tested income from 2026 — most other active profits, after the 2025 tax law changes.
Individuals are taxed on these inclusions at ordinary rates unless they make a section 962 election, which allows corporate-style treatment with credit for foreign taxes. A high-tax exception can exclude income taxed abroad at more than 90% of the US corporate rate (i.e. above 18.9%).
Non-US founders with similar questions should compare the Canadian departure tax on shares and the UK Ltd with a non-resident director.
Substance, Residence & Compliance Governance
The tools that limit double taxation
- Foreign Earned Income Exclusion (FEIE, Form 2555): excludes earned income up to an annual limit (about $130,000 for 2025, indexed each year) from US income tax if you pass the physical presence test (330 full days abroad in any 12-month period) or the bona fide residence test. It does not apply to self-employment tax, dividends or CFC inclusions.
- Foreign Tax Credit (Form 1116): credits income tax paid abroad against US tax on the same income. Often better than the FEIE if you live in a country with higher tax rates.
- Totalization agreements: the US has social security agreements with around 30 countries. With a certificate of coverage, a self-employed American can pay into only one system, avoiding double social contributions.
Self-employment tax: the trap of the US LLC abroad
Profits of a sole proprietorship or single-member US LLC are subject to US self-employment tax of 15.3% (up to the social security wage base, then 2.9%), even when the FEIE removes the income tax. If your new country also charges social contributions and has no totalization agreement with the US, you can pay both.
CFC and information returns for foreign companies
Owning a foreign company brings annual information returns with steep penalties:
| Form | When it applies | Penalty for not filing |
|---|
| Form 5471 | You own 10% or more of a foreign corporation, or control it | $10,000 per form, per year, plus extended statute of limitations |
| Form 8858 | You own a foreign disregarded entity | $10,000 per form, per year |
| FBAR (FinCEN 114) | Foreign accounts total more than $10,000 at any time | Up to $10,000 per non-wilful violation, more if wilful |
| Form 8938 (FATCA) | Specified foreign assets above thresholds (for those living abroad, $200,000 at year-end or $300,000 at any time if single) | $10,000, rising with continued failure |
Also watch the passive foreign investment company (PFIC) rules if you hold foreign investment funds personally or through a company with mostly passive assets.
State tax
Some US states keep treating you as a resident after you move abroad if you keep a home, a driver's licence or other ties there. Cut ties clearly with your last state before relying on federal rules alone.
Setup Costs & Economic Model
| Cost item | Indicative amount (2026) | Notes |
|---|
| US expat tax return (1040, 2555 or 1116, FBAR) | $500–1,500 a year | Simple self-employed case |
| Form 5471 (and 8992 where needed) | $1,000–3,000 a year per company | Required for most foreign companies you own |
| US LLC upkeep | $300–2,000 a year | State fees and registered agent |
| Accounting in your country of residence | Varies | For a local company or local self-employed filings |
| Totalization certificate of coverage | Free | Applied for from the relevant social security agency |
Amounts are indicative.
The economic model: $120,000 of net consulting profit, living abroad
| Structure | US income tax | US self-employment tax | Main exposure abroad |
|---|
| US LLC, FEIE claimed, no totalization agreement | Largely excluded | About $17,000 | Local income tax and social contributions on the same profit |
| US LLC, totalization agreement and certificate of coverage | Largely excluded | Nil if covered by the foreign system | Local social contributions instead |
| Foreign company paying you a salary | Salary may be excluded by FEIE; CFC inclusion on remaining profits unless high-taxed | Generally nil on corporate profits | Local corporate tax and payroll |
The self-employment tax figure assumes 15.3% on 92.35% of profit. For founders in countries without a totalization agreement, the US LLC can be the most expensive option despite being the simplest. For founders in high-tax countries, a local company combined with the high-tax exception or a section 962 election often works better.
Step-by-Step Formation & Business Banking
- Confirm your tax residency abroad and how your new country taxes self-employed people, local companies and foreign entities such as US LLCs.
- Check for a totalization agreement between the US and your new country, and apply for a certificate of coverage if one applies.
- Choose FEIE or the Foreign Tax Credit based on your new country's tax rates; the choice can lock you in for several years if you revoke the FEIE.
- Choose the structure: sole proprietor, US LLC, or foreign company, using the comparison above.
- Form the entity and make any elections in time, such as a check-the-box election (Form 8832) for a foreign entity, or plan a section 962 election for CFC inclusions.
- Set up the annual calendar: Form 1040 (automatic extension to 15 June for Americans abroad, further on request), FBAR by 15 April with automatic extension to 15 October, and Forms 5471, 8858 and 8938 attached to the return.
- Cut ties with your last US state if you want to stop state taxation.
Banking as an American abroad
US banks may restrict or close accounts when you change your address to a foreign country, and many foreign banks limit accounts for US persons because of FATCA reporting. Keep at least one US account that accepts foreign residents, and choose a local bank used to American clients.
The US Expat Founder Guide lists the forms, deadlines and structure options for American founders abroad — get it when you plan your structure with Heavnn.
Frequently Asked Questions (FAQ)
Do I still pay US taxes if I live abroad?
Yes. US citizens and green card holders are taxed on worldwide income wherever they live. The Foreign Earned Income Exclusion, the Foreign Tax Credit and tax treaties reduce or eliminate double taxation, but you must still file a US return every year.
Does the Foreign Earned Income Exclusion cover self-employment tax?
No. The FEIE only excludes earned income from US income tax. Self-employment tax of 15.3% still applies unless a totalization agreement exempts you through a certificate of coverage.
What is Form 5471?
It is an IRS information return for US persons who own 10% or more of a foreign corporation or control it. The penalty for not filing is $10,000 per form, per year.
Should an American abroad use a US LLC or a foreign company?
A US LLC is simpler and keeps US banking, but exposes you to self-employment tax. A foreign company can avoid self-employment tax on corporate profits but brings CFC rules and Form 5471. The right choice depends on your new country's taxes and social security agreement.
What is GILTI, now net CFC tested income?
It is a category of a controlled foreign corporation's income that US shareholders must include in their income each year, even if not distributed. The 2025 tax law renamed and modified it from 2026. Income taxed abroad above 18.9% can often be excluded under the high-tax exception.
Choose the Right Structure with Heavnn
For Americans abroad, the company structure decides how many tax systems touch your income. Heavnn compares the options for your country before you form anything.
- Get the US Expat Founder Guide for the forms, deadlines and structure options.
- Then find the structure that minimises your US filings and tax in your new country.
Plan your structure with Heavnn →
This guide is general information, not tax or legal advice. Rules are summarised as of October 2026.
