HOW THE ZEROTAX LLC ACHIEVES 0% FEDERAL TAX

A single-member US LLC is what the IRS calls a 'disregarded entity.' This means the LLC is not treated as a separate taxable entity for US federal income tax purposes. Instead, the LLC's income is treated as the direct income of its sole owner.

If the owner is a US citizen or resident, that income is taxed in the US. But if the owner is a non-US resident with no US tax obligations, the LLC's income is also not subject to US federal income tax. This is the legal foundation of the ZeroTax LLC.

For a US LLC to be tax-exempt in the US, three conditions must be met:

1. The LLC has only one owner (a natural person or a legal entity). 2. The owner is not a US citizen, US resident, or otherwise subject to US tax. 3. The LLC has no 'permanent establishment' in the United States.

All three conditions must be satisfied simultaneously. If any one of them is not met, the LLC may become subject to US taxation.

A permanent establishment (PE) is a fixed place of business through which a company conducts its operations. Common examples include an office, a factory, a warehouse, or a branch.

For a US LLC owned by a non-resident, having a PE in the US would trigger US tax liability. Activities that typically create a PE include: having employees in the US who regularly perform core business functions; operating a physical office or facility in the US; or having a dependent agent with authority to conclude contracts on behalf of the LLC.

Activities that do NOT create a PE include: having a US bank account; using a US registered agent; having a US mailing address; using Amazon FBA or other third-party logistics providers; or selling products to US customers through a website.

Related to the PE concept is the IRS concept of being 'Engaged in a Trade or Business in the United States' (ETBUS). If your LLC has ETBUS status, its income becomes 'Effectively Connected Income' (ECI) — and ECI is taxed at regular US income tax rates.

For most digital service businesses, consulting firms, and online businesses run by non-US residents, avoiding ETBUS is straightforward. The key is to ensure that all significant business activities — client meetings, service delivery, decision-making — take place outside the United States.

Although a ZeroTax LLC owes no US federal income tax, it does have annual reporting obligations with the IRS:

• IRS Form 1120 (short form): An annual information return confirming the LLC's status and reporting basic financial information. • IRS Form 5472: A disclosure form required for foreign-owned single-member LLCs that have reportable transactions with related parties. The penalty for non-filing is $25,000 per form. • BOI Report: As of March 2025, FinCEN has exempted all US-formed LLCs (including foreign-owned ones) from BOI reporting requirements. Your ZeroTax LLC is currently not required to file a BOI report. We monitor this for any future regulatory changes.

ZeroTax LLC handles all of these filings as part of the all-inclusive service package.

The ZeroTax LLC is tax-exempt in the US — but you are still responsible for taxes in your country of residence. The LLC's profits flow through to you as the owner and are typically treated as business income in your home country.

This structure is most beneficial for individuals who are tax-resident in a low-tax or territorial-tax jurisdiction — countries that either have low income tax rates or that exempt foreign-source income from taxation. Digital nomads and perpetual travelers with no fixed tax residence are also well-positioned to benefit.