Who this is for
- Mainland China residents forming or owning a one-owner US LLC
- Mainland China residents owning a US C corporation
- Owners moving money between mainland China and a US company
Not covered here
- Chinese income tax, foreign exchange and outbound investment rules
- Forming a company in mainland China or Hong Kong
- US visas or permission to work in the US
- US LLCs with two or more owners
Can a Chinese citizen living in China open an LLC in the USA?
Yes. A person living in mainland China can own all of a US LLC or corporation; owning one needs no US visa, green card or Social Security number. The company keeps a registered agent at an address in its state to accept legal papers; the agent must be there, the owner need not be (Delaware: 6 Del. C. § 18-104). The IRS issues EINs to applicants abroad by phone or fax (Form SS-4 instructions) and has a yearly filing written for a US LLC wholly owned by one foreign person (Form 5472 instructions).
Owning the company is the easy part. Three things need judgment:
- US filings with no US tax. A one-owner LLC can owe no US income tax and still owe Form 5472; missing it costs $25,000.
- US activity. A US office, staff, stock in a US warehouse, or work you do while in the US can make the profit taxable in the US.
- Two countries. A corporation's dividends are taxed as they leave the US, money leaving China follows Chinese rules, and China may tax you as well.
Gather from day one: the formation papers, the EIN notice, every bank and payment-platform statement and payout report, and a dated list of every transfer between you and the company, including company fees you paid from your own card.
LLC or corporation: how does the US tax a China resident?
With no US office, staff, stock or work done in the US, a one-owner LLC generally owes no US income tax, though it may still have to file. A C corporation pays its own tax on all its profit, and the treaty then caps US tax on the dividends it pays you. The LLC is ignored for income tax (the IRS calls it a disregarded entity), so its business profit is yours and is taxed in the US when it is effectively connected with a US trade or business.
| One-owner LLC (default) | C corporation | |
|---|---|---|
| Who the IRS taxes | You, as if you ran the business yourself (IRS) | The corporation, at 21% of taxable income (26 USC 11) |
| Profit with no US office, staff, stock or work in the US | Generally no US income tax | Taxed at 21%, wherever the customers are |
| Money paid to you in China | A draw: not a dividend, no US withholding | A dividend: 30% withheld, or 10% under treaty Article 9 |
| Company's yearly federal filing | Pro forma Form 1120 with Form 5472, for any year with a transfer between you and the LLC | Form 1120 every year, plus Form 5472 for a year with reportable transactions with you |
| Your own US return | Form 1040-NR if you are engaged in a US trade or business | Generally none if the right tax was withheld |
A foreign person is in a US trade or business when its US business activity is "considerable, continuous and regular", such as regularly selling goods in the US (IRS: effectively connected income); personal services you perform while in the US generally count on their own, even on a short trip (26 USC 864(b)). US-source investment income, such as interest or royalties, is taxed by withholding instead (when foreign owners owe US tax). Why a corporation run from abroad still pays US tax on all its profit is covered in a US corporation run from abroad.
If the LLC's profit is effectively connected, treaty Article 7 lets the US tax only profit attributable to a US permanent establishment, such as an office, staff providing services in the US for more than six months in a twelve-month period, or a dependent agent who habitually concludes contracts in the business's name; goods kept in the US only for storage, display or delivery are not one by themselves (Articles 5 and 7, US–China treaty). The treaty covers only federal income tax (Article 2), so a state can still tax the profit under its own rules. Whether a China resident can rely on Article 7 for profit earned through a one-owner LLC is unsettled: US law allows treaty benefits to be denied on income earned through an entity the US ignores but the owner's country treats as a separate company (26 USC 894(c)), and how China treats a US LLC is a Chinese-law question. Get advice before counting on it. Claiming it means filing Form 1040-NR with Form 8833; failing to disclose the position costs $1,000 (Form 8833). For the choice in general, see owning a US LLC or corporation from abroad.
How do I register a US company from China, step by step?
Do the steps in this order; the step-by-step guide covers each one in depth.
- Choose the state. Formation fees and yearly reports differ by state; see choosing a state for a non-resident LLC.
- Hire a registered agent in that state to accept legal papers (registered agents).
- File with the state: articles of organization for an LLC, or a certificate of incorporation, bylaws and a share issue for a corporation (Delaware corporation setup).
- Get the EIN by phone or fax, with no SSN needed; the online application is only for applicants with a US residence or principal office (Form SS-4 instructions; EIN without an SSN). An ITIN is not needed for the EIN; you may need one later to file Form 1040-NR (ITIN for a foreign owner).
- Open a US bank or payment account in the company's name (address and bank documents). When a payer asks a one-owner LLC for a tax form, the foreign owner gives a Form W-8, usually Form W-8BEN in the owner's own name, never a Form W-9 (Form W-9; which form to give payers).
- Calendar the first deadline. For a calendar tax year, the first Form 5472 is due April 15 of the next year, even for an LLC formed in December if you paid its formation fees yourself (Form 5472 instructions; filing for the year you formed).
How do I send money from China to my US company?
Decide before each wire whether the money is a capital contribution (yours, staying in the company) or a loan (the company must repay it), and record it that day. For a one-owner LLC, every transfer between you and the LLC is reportable on Form 5472: money in, money out, and company costs you pay personally, such as formation and agent fees (Form 5472 instructions, Part V). For a corporation, loans from you and the interest on them go on Form 5472; how shares are paid for and recorded is covered in putting money into a US corporation from abroad.
Keep each wire confirmation and, for a loan, a signed note; what else to keep is in records for a foreign-owned LLC. Form 5472 reports amounts in US dollars with a schedule of the exchange rates used, so note the rate for any transfer made in yuan.
Money leaving mainland China to invest in a foreign company can fall under Chinese outbound investment and foreign exchange registration rules, often called ODI and Circular 37. Which of them applies to you is a Chinese-law question; ask a mainland adviser or your bank before the first large transfer.
How do I get money out of the US company to China?
The label on the payment decides the US tax, not where the money lands.
| Payment to you | US tax and withholding | Company files |
|---|---|---|
| Draw from a one-owner LLC | Not a dividend, so no US withholding; any US tax is on the LLC's effectively connected profit, drawn or not | Form 5472 |
| Dividend from a corporation | 30% withheld from the gross dividend, or 10% with a valid treaty claim before payment (Publication 515) | Forms 1042 and 1042-S by March 15 |
| A corporation's pay for work you do in China | Foreign-source income, so not taxed or withheld in the US (IRS: personal service income) | Form 5472 |
To get the treaty rate on dividends, give the corporation Form W-8BEN before the payment, naming China as your treaty country on line 9 and giving your mainland tax identification number on line 6a or a US ITIN on line 5 (Form W-8BEN instructions). Without the form, the corporation must withhold 30%; it is liable for any tax it fails to withhold (26 USC 1461), and an officer who willfully fails to collect it can owe the same amount personally (26 USC 6672). Tax withheld above the treaty rate can be claimed back on Form 1040-NR (Form 1040-NR instructions).
A one-owner LLC is not separate from you for income tax, so money it pays you is a draw, not a salary. Pay for work you do while in the US is US-source income, and the work can put you in a US trade or business, which means filing Form 1040-NR (26 USC 864(b)). If you work for yourself, including through a one-owner LLC, treaty Article 13 lets the US tax that pay only if you have a fixed base regularly available in the US or stay more than 183 days in the calendar year; claim it with Form 8833 (and Form 8233 to stop a US client withholding), subject to the same hybrid-entity question as Article 7. A salary from your own US corporation for US work stays taxable in the US: Article 14's short-stay exemption needs an employer that is not a US resident (US–China treaty; Form 8833; Publication 515). Each route, including loans, is covered in paying yourself as a foreign owner.
What does a China-owned US company file every year, even with no income?
A US company owned from China files a federal return whether or not it owes tax. Your own return depends on US activity.
| Who | What | Due for a calendar year |
|---|---|---|
| One-owner LLC | Pro forma Form 1120 (name, address and items B and E only) with Form 5472, for any year with a reportable transaction, by fax or mail; it cannot be e-filed | April 15; Form 7004 extends it |
| Corporation | Form 1120 every year, income or not (Form 1120 instructions), with Form 5472 when a foreign person owns 25% or more and the two had reportable transactions, such as a loan, interest or pay for services | April 15; Form 7004 extends it |
| Corporation that paid you dividends | Forms 1042 and 1042-S | March 15 |
| You | Form 1040-NR if you were engaged in a US trade or business, even if a treaty exempts the income (Form 1040-NR instructions) | June 15 if you had no US wages |
| The company, with the state | Annual report or franchise tax | Set by the state |
Either company files Form 5472 only for a year with a reportable transaction; for a one-owner LLC, paying any of its costs from your own pocket is one. A missing Form 5472 costs $25,000 per form, per year, plus $25,000 for each 30-day period, or part of one, that the failure continues more than 90 days after an IRS notice (Form 5472 instructions). See one-owner LLC filing and corporation filing.
Does the company file a BOI report?
No. Under FinCEN's final rule, companies created in the United States are exempt from beneficial ownership information reporting; only certain companies formed abroad and registered to do business in a US state still report (FinCEN: BOI). A US LLC or corporation owned from China is a US company. See who still files a BOI report.
What about tax in China?
How China taxes you on the company's profit, dividends or draws is a Chinese-law question that needs its own advice from a mainland adviser; keep every Form 1042-S and US return, since the treaty has China credit US tax payable under it, up to the Chinese tax on the same income (US–China treaty, Article 22). See Chinese tax on overseas income.
Example
These examples are illustrative; figures are in US dollars.
A Shenzhen designer's Wyoming LLC
A designer in Shenzhen owns a one-owner Wyoming LLC that bills clients, including US clients, for design work she does in China. She never works in the US, and the LLC has no US office, staff or stock. Its profit is US$60,000. During the year she wires US$4,600 into the LLC, pays US$400 of formation and agent fees from her own card, and draws US$40,000.
- Work done in China is foreign-source income, so on these facts she likely owes no US income tax and files no Form 1040-NR.
- The LLC still files a pro forma Form 1120 with Form 5472 by April 15, listing US$5,000 of contributions (the wire plus the fees) and US$40,000 of distributions.
A Shanghai founder's Delaware corporation
A founder in Shanghai owns all of a Delaware C corporation that earns US$200,000 of profit.
- Federal tax at 21%: US$42,000.
- The corporation pays him a US$100,000 dividend. He gave it a Form W-8BEN claiming Article 9 first, so it withholds 10%, US$10,000, and he receives US$90,000; federal tax in all is US$52,000, before Delaware's yearly franchise tax (8 Del. C. § 501). Without the form it would withhold 30%, US$30,000.
- The corporation files Form 1120, with Form 5472 if it had reportable transactions with him such as a loan or pay, and Forms 1042 and 1042-S for the dividend. With the right tax withheld and no US business of his own, he files no US return.
A Beijing seller with stock in the US
A seller in Beijing runs a one-owner LLC that keeps inventory in a US warehouse and pays a US contractor to run it, selling US$300,000 a year to US buyers.
- Selling inventory in the US can make the LLC a US trade or business, so its profit may be effectively connected income.
- Storage and delivery alone are not a permanent establishment under the treaty, but a contractor who habitually concludes contracts in the LLC's name, and is not an independent agent, can be one.
- If the LLC is in a US trade or business, she must file Form 1040-NR even if the treaty exempts the profit, with Form 8833 for the treaty claim. She gets advice before year-end, not at the filing deadline.
Different for you?
- The first Form 5472 is due and transfers were never tracked, or a year was missed: see missed Form 5472 and penalties and rebuilding the books; get catch-up bookkeeping or cross-border tax help.
- Your first year with US customers, a US warehouse, staff or a contractor: check when foreign owners owe US tax and your own nonresident return; a treaty claim here turns on facts; get cross-border tax help.
- Money is stuck between China and the US, or a transfer could be a loan or capital: see putting money into a US corporation from abroad and get cross-border tax help.
- A payment platform wants a US company or a tax form: see a US company for online selling from abroad.
- Your Chinese company, not you, will own the shares: the dividend cap is still 10%, but the forms and setup differ; see a US subsidiary for a foreign company.
- You want the LLC taxed as a corporation: see electing corporate tax for a foreign-owned LLC.
- A second owner joins: see an LLC owned by two non-residents.
- You hold a green card, spend long stretches in the US, or plan to move there: you may be a US tax resident (IRS: substantial presence test); then the company is not foreign-owned for these rules and different returns apply. See a green card holder with a company in China and moving to the US with your US company.
- You live in Hong Kong, Macau or Taiwan: the US–China treaty covers only territory where Chinese tax laws are in force (Article 3, US–China treaty), so do not count on its dividend rate; get cross-border tax help before the first dividend.
- You would rather own a Canadian company: see a Canadian company for a China resident.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| US federal corporate income tax rate Flat rate on taxable income of domestic corporations; foreign corporations pay the same rate on effectively connected income (Instructions for Form 1120-F, Section II). | 21% | IRS: Instructions for Form 1120 Checked |
| US-China treaty general dividend withholding rate for an individual General dividend column for China in IRS Tax Treaty Table 1; treaty eligibility and residence must be confirmed | 10% | IRS: Tax Treaty Table 1 Checked |
| Form 5472 penalty for failure to file or keep records For tax years beginning after December 31, 2017. Per reporting corporation, per tax year. A substantially incomplete Form 5472 counts as a failure to file. IRC 6038A(d)(1); Treas. Reg. 1.6038A-4(a). | $25,000 | IRS: Instructions for Form 5472 Checked |
| Withholding rate on US-source FDAP income paid to foreign persons Applies to the gross amount of US-source FDAP income not effectively connected with a US trade or business; a treaty may lower it. Also the rate on pay to non-resident independent contractors for services performed in the US. | 30% | IRS: Fixed, determinable, annual, or periodical (FDAP) income Checked |
| Penalty for not disclosing a treaty-based return position Per failure, under section 6712; applies to taxpayers other than C corporations. | $1,000 | IRS: Form 8833 (Rev. December 2022) Checked |
| Foreign ownership that makes a US corporation a Form 5472 reporting corporation At least this share of vote or value held by one foreign person, directly or indirectly, at any time in the tax year. A single-member LLC wholly owned by one foreign person is treated as such a corporation. | 25% | IRS: Instructions for Form 5472 Checked |
| Form 5472 added penalty when a failure continues after IRS notice For tax years beginning after December 31, 2017. For each 30-day period (or part) the failure continues after 90 days from the IRS notice, per related party. No statutory cap. IRC 6038A(d)(2); Treas. Reg. 1.6038A-4(d). | $25,000 | US Code: 26 USC 6038A Checked |
| US-China treaty corporate dividend withholding ceiling Article 9(2); qualifying treaty resident and beneficial owner | 10% | IRS: US-China income tax convention Checked |
Primary sources
- IRS: United States–People's Republic of China income tax convention
- IRS: Instructions for Form 5472
- IRS: Instructions for Form SS-4
- IRS: Effectively connected income (ECI)
- IRS: Single member limited liability companies
- IRS: Publication 515
- IRS: Instructions for Form W-8BEN
- IRS: Form W-9 (March 2024)
- IRS: Source of income – personal service income
- IRS: Instructions for Form 1040-NR
- IRS: Instructions for Form 1120
- IRS: Form 8833 (Rev. December 2022)
- US Code: 26 USC 11, tax imposed on corporations
- US Code: 26 USC 864, trade or business within the United States
- US Code: 26 USC 894, treaty benefits through hybrid entities
- US Code: 26 USC 1461, liability for withheld tax
- US Code: 26 USC 6672, failure to collect and pay over tax
- IRS: Substantial presence test
- FinCEN: Beneficial ownership information
- Delaware Code: Title 6, Chapter 18, Subchapter I
- Delaware Code: Title 8, Chapter 5, corporation franchise tax
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.