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Aug 21, 2026
Many Vietnamese entrepreneurs running an online business choose to form a US LLC to take advantage of the favorable business environment. However, owning a US LLC also comes with strict tax obligations. If regulations aren’t followed correctly, the owner can be penalized by the US Internal Revenue Service (IRS) with very large fines, the most common of which can reach up to $25,000, related to failing to file mandatory tax forms required for a foreign-owned LLC.
The article below explains why this $25,000 penalty exists, and how to avoid it by clearly and simply complying with tax regulations. It also covers other common tax mistakes made by Vietnamese businesses owning a US LLC, along with the accompanying penalties.
The main cause of this $25,000 penalty is failing to fully file Form 5472 together with Form 1120 for a foreign-owned single-member LLC. Under rules that took effect in 2017, even though a foreign-owned single-member LLC is treated as a “disregarded entity” for income tax purposes, it isn’t exempt from the information-reporting requirement. The US Treasury Department treats a foreign-owned LLC as a domestic corporation for tax-reporting purposes, meaning it’s required to file Form 5472 just like companies with foreign ownership.
Form 5472 is used to report financial transactions between a US company and related foreign parties (holding 25% or more ownership, or having a special relationship). Previously, this form mainly applied to C-Corporations with foreign shareholders, but as of January 1, 2017, foreign-owned single-member LLCs must also comply with this requirement. If the form isn’t filed, or is filed incompletely, the minimum penalty is $25,000 per form not filed on time. If there are multiple related parties, the fine can multiply accordingly.
In addition, once the IRS sends a notice and the company still hasn’t filed the form within 90 days, the penalty increases by an additional $25,000 for each 30-day period of delay, with no maximum cap, meaning the total fine can grow very large if the delay continues. Additionally, failing to keep records of transactions with related foreign parties carries a similar penalty.
Every single-member LLC that is 100% foreign-owned has an obligation to file Form 5472 along with a simplified corporate tax return (pro forma Form 1120) once a year. Specifically:
Failing to file on time or filing incomplete information results in a $25,000 penalty per form. This penalty doesn’t depend on whether the LLC has income or not — as long as there’s a transaction with a foreign owner, it must be fully reported. Criminal law can also apply in cases of serious deliberate evasion, though this is very rarely applied just for forgetting to file a form.
Beyond Form 5472, an LLC owner may also need to comply with the following tax obligations, depending on the business’s structure and activities:
An LLC with 2 or more members is by default treated as a partnership under federal tax law and must file Form 1065, reporting revenue, expenses, and profit allocation to each member. The return must be filed by March 15 each year and can be extended to September 15 using Form 7004.
The penalty for filing Form 1065 late is calculated per month and per member, ranging from $220-$245 per month (up to 12 months) depending on the year. For example, a two-member LLC that files 6 months late in 2024 could face a penalty of about $2,820.
If the LLC owner chooses to reclassify as a C Corporation, the LLC must file a full Form 1120 and pay corporate tax at a flat rate of 21%. The deadline to file Form 1120 is April 15 of the following year, with a 6-month extension available. The penalty for late filing and underpayment can reach up to 25% of the unpaid tax, plus minimum penalties if the delay exceeds 60 days.
At the same time, if the company pays dividends or income to a foreign owner, it needs to withhold 30% tax at the source unless a special tax treaty applies.
The owner of a foreign LLC may need to pay US personal income tax if their income is considered “income effectively connected with a US trade or business” (ECI). For example, if you use an Amazon FBA warehouse in the US, the profit is considered ECI and must be reported using Form 1040-NR by June 15 (or can be extended to October 15). The tax rate applies under the regular progressive tax bracket.
If you don’t pay tax or file Form 1040-NR on time, the IRS can fine 5% of the tax owed for each month late, plus a 0.5% monthly penalty and interest on the unpaid tax.
Each US state has its own regulations on tax and reporting obligations for an LLC. For example, Delaware requires an annual $300 fee to be paid by June 1 each year, with a $200 penalty for late payment plus 1.5% monthly interest; Wyoming requires an annual report with a minimum $50 fee; California levies a minimum $800 tax per year on an LLC operating in the state.
Foreign LLC registration reporting is also required when an LLC operates in multiple states. Sales tax in states where you sell products also needs attention, since states apply economic nexus rules if sales exceed a certain threshold.
Starting in 2024, most LLCs in the US must comply with Beneficial Ownership Information (BOI) reporting to FinCEN to increase transparency and combat money laundering. Late filing can result in a high administrative fine of up to $500 per day, capped at $10,000, along with the risk of criminal penalties.
For LLCs formed before 2024, the first report deadline is January 1, 2025; for newly formed companies, the report deadline is within 90 days of formation.
Owning a US LLC brings many favorable business opportunities but also comes with the responsibility to strictly comply with tax and legal regulations. To avoid heavy fines from the IRS and state tax authorities, be sure to:
Below is a summary table of forms, deadlines, and related penalties for easy reference:
| Form / Obligation | Deadline (fiscal year ending 12/31) | Penalty for Non-Compliance |
|---|---|---|
| Form 5472 + Pro Forma 1120 (foreign-owned single-member LLC) | April 15 of the following year; extendable to October 15 | $25,000 per form filed late or with incomplete information; +$25,000 per 30 days after 90 days from notice, with no cap |
| Form 1065 (LLC with ≥2 members, partnership) | March 15 of the following year; extendable to September 15 | About $220-$250 per month per member (up to 12 months); $235/member/month in 2024 |
| Form 1120 (C-Corp or LLC electing C-Corp status) | April 15 of the following year; extendable to October 15 | 5% of unpaid tax per month late (up to 25%); if late >60 days, minimum penalty of $485 (2024) or $510 (2025); plus 0.5% monthly penalty on late-paid tax |
| Form 1040-NR (foreign individual with ECI) | June 15 of the following year if no W-2 wages (automatic 2-month extension); extendable to October 15 | 5% of tax owed per month late (up to 25%) + 0.5%/month late-payment penalty + interest on tax owed |
| LLC annual fee (Delaware) | June 1 each year | $200 fixed penalty if late + 1.5%/month interest on unpaid fee; company loses “good standing” status until fully paid |
| BOI report (Beneficial Owners, FinCEN) | January 1, 2025 (for companies formed before 2024); 30-90 days after formation (for new companies) | $500 per day late, up to $10,000; can face criminal prosecution (fine up to $10,000 and 2 years’ imprisonment for willful violation) |
Proactively complying with tax regulations and legal paperwork will help you avoid unnecessary penalties, letting you focus on growing your business effectively in the US market.
