US LLC Owned From South Africa: Form 5472, Taxes and Filing

Getting your South African owner details ready

About you. Your passport, your address in South Africa and your tax ID. For a resident of South Africa, this is usually your income tax reference number issued by the South African Revenue Service (SARS) (OECD tax ID sheet).

About the money. Every amount that moved between you and the LLC in the year, with dates. If you funded the LLC from an account in rand, the statement from that account helps us convert it to US dollars.

About the LLC. Formation papers, the EIN letter and the state where it was formed (state fees).

The US tax treaty with South Africa and your LLC

South Africa is on the IRS list of countries that have an income tax treaty with the United States (IRS treaty list). For an LLC owner, the treaty matters in two places.

Business profits and a permanent establishment

US treaties generally tax a treaty resident's business profits in the US only if they are attributable to a permanent establishment in the US, such as an office or a dependent agent. Taking that position on a US return is a treaty-based return position, disclosed on Form 8833; failing to disclose it carries a US$1,000 penalty (IRS Form 8833). Whether you qualify depends on the treaty's text, including any limitation on benefits article, so we read the actual treaty for your facts.

Treaty rates on Form W-8BEN

If a US payer pays you US-source income such as dividends, interest or royalties, the treaty claim on Form W-8BEN, naming South Africa as your country of residence, is how you claim a lower withholding rate (IRS). Without a valid treaty claim, the general rate on that kind of income is 30% (IRS).

Treaty and law references for owners in South Africa

Plain-language summaries; follow the links for the official text. Article numbers are from the treaty text on irs.gov.

Treaty

• The IRS lists the 1997 income tax treaty. General effective date (IRS Table 3): treaty Jan. 1, 1998 (IRS treaty documents for South Africa; treaty text; IRS Table 3).
• Article 4 (Residence), which decides who counts as a resident for treaty benefits.
• Article 5 (Permanent Establishment), which defines a US permanent establishment.
• Article 7 (Business Profits), under which business profits are taxed in the US only if attributable to a permanent establishment.
• Article 10 (Dividends), on dividends.
• Article 11 (Interest), on interest.
• Article 12 (Royalties), on royalties.
• Article 22 (Limitation on Benefits), which sets the tests a resident must meet to claim benefits.
• Article 23 (Elimination of Double Taxation), on relief from double taxation.
• Treaty benefits for income earned through a fiscally transparent entity, such as a single-member LLC, are decided under section 894 and Treas. Reg. section 1.894-1(d) (IRS Pub 515, Form 8833).

US law

• Form 5472: Internal Revenue Code section 6038A and Treas. Reg. section 1.6038A-1; final regulations T.D. 9796 treat a foreign-owned US disregarded entity as a corporation for this purpose (IRS Form 5472 instructions).
• US trade or business and effectively connected income: Code sections 864 and 871 (IRS Pub 519).
• Treaty disclosure: Code section 6114, Treas. Reg. section 301.6114-1, and the section 6712 penalty (IRS Form 8833).
• BE-13: 15 CFR 801.7 (eCFR).

The tax law of South Africa itself also applies to you; check it with a local adviser.