Short answer: the claim “a US LLC pays 0% tax” is a fact about the United States being sold as a fact about you. The US generally does not tax the business profit of a non-resident-owned LLC with no US-connected activity. Your country of residence does, under its own rules, and it is not asking the US for permission. The structure moves where the conversation happens. It does not delete it.
The grain of truth it is built on
Every durable myth has a true statement inside it, and this one is unusually respectable.
A single-member LLC owned by a non-resident is a disregarded entity for US federal tax purposes. There is no entity-level tax. If the owner is not engaged in a trade or business in the United States (no US premises, no US staff, work performed abroad), then the business profit is generally outside the US federal income tax net.
That is genuinely how it works. A Wyoming LLC owned by a consultant in Portugal, serving US clients from Lisbon, ordinarily owes no US federal income tax on its profit.
The myth is what happens to that sentence next. “The US does not tax this” becomes “this is not taxed,” and the second sentence is only true if you have no tax residence anywhere, which almost nobody genuinely has, however much they would like to.
Where the bill actually is
Your tax residence is the country that gets to tax your income. For most people reading this it is one of three situations.
A worldwide-income country. Spain, Portugal, most of Europe, most of Latin America. Your global income is taxable there, including profit earned through a foreign entity. The LLC is visible to them, reportable to them, and taxable by them.
A territorial country. Some countries tax only locally-sourced income. Here the position can genuinely be favourable, and this is where the honest version of the “low tax” story lives. But it is the residency doing the work, not the LLC. The same person with the same LLC in a worldwide country pays full tax.
No settled residency. Usually a fiction. Most people who believe this are still resident in the country they left, because leaving is harder than arriving and the tests that keep you resident are about connection rather than presence.
Notice what determines the answer in all three cases: where you live. Not which state you formed in, not the entity type, not how the operating agreement is worded.
The rules that close the remaining gaps
People who understand the above sometimes move to a second position: keep the profit inside the LLC and take nothing out. Several mechanisms make this less clever than it sounds.
Transparency cuts both ways. Because the LLC is disregarded for US purposes, a number of countries look through it too and treat the income as yours as it is earned, whether or not you distributed anything.
Controlled foreign company rules. Many countries attribute the profits of a foreign entity you control to you personally, precisely to prevent this. They were written for exactly this behaviour.
Automatic information exchange. Financial account information moves between jurisdictions as a matter of routine. The assumption that a foreign account is invisible has been out of date for years.
Disclosure obligations independent of tax. Many countries require you to report ownership of a foreign entity and foreign accounts on their own forms, with their own penalties, regardless of whether any tax is owed. It is entirely possible to owe no tax and still be in breach for not filing a declaration.
What it costs to believe it
The cost is rarely the tax itself. It is everything attached to discovering the position late.
Back tax with interest, calculated from when it was due rather than when you found out.
Penalties for non-declaration, which in several countries are assessed separately from the tax and can exceed it.
A structure built on a false premise. If you formed the LLC to achieve something it cannot achieve, you now hold an entity with annual costs and filing obligations that solves a problem you do not have. That is the most common thing we unwind.
The US filings you also did not make. People who believed the profit was untaxed frequently also believed there was nothing to file. The Form 5472 carries a $25,000 penalty and applies to companies with no income at all.
The time. Reconstructing three years of records, filing amended returns in two countries and explaining a structure to an adviser who did not design it takes months and costs more in fees than the original advice would have.
Why the myth is so well funded
It is worth being direct about the mechanics, because understanding them makes the claim easier to spot.
The people who repeat it usually earn money when you form the company. Formation providers, affiliates, and creators with referral links all get paid at the moment of purchase, and none of them are paid based on whether the structure was right for you. The incentive is not to lie: it is simply that nothing in the model rewards the sentence “you should not buy this.”
There is also a selection effect in what you see. The person who formed an LLC, discovered it did not do what they expected and quietly unwound it does not make a video about it. The content you encounter is written by the winners and the sellers, which makes the strategy look more reliable than it is.
And the claim is genuinely hard to falsify quickly. Nothing bad happens in year one. The consequences arrive in year two or three, by which point the video has a hundred thousand views and the comments are full of people who also had no problems yet.
What honest advice sounds like
Not “you will pay 0%.” Something closer to:
- Here is what the US does and does not tax in your situation, and why.
- Here is what your country of residence does with a foreign entity, and what you have to report there.
- Here is what the structure genuinely gives you: dollar banking, vendor credibility, a liability line, access to US payment rails.
- Here is what it costs every year, including the filings.
- And here is the case for not doing it, if your revenue does not carry the cost or your residency question is unresolved.
That version does not sell as well. It is also the version that is still true in three years.
If you want the reasoning applied to your own numbers, the assessment gives you a written result including the outcome where the answer is no. And if you are choosing between structures rather than between providers, where to set up your company compares the six real options with the same honesty.
Frequently asked questions
So is the 0% claim a complete lie?
It is a true statement about one country presented as a true statement about your life. A non-resident-owned LLC with no US-connected activity generally owes no US federal income tax on its profit. That sentence is accurate. Turning it into 'your income is tax free' requires quietly deleting the country where you actually live, which is where your bill comes from.
But I know people paying nothing. Are they lying?
Some are. Some have genuinely relocated to a territorial or low-tax country and their position is real and legal, built on moving their residency rather than on the LLC. And some have simply not been asked yet, which is a different thing from being compliant. The first two are honest answers. The third is a timing difference.
Does it become true if I never take the money out?
Rarely. Many countries tax you on the profit of a foreign entity you control whether or not you distribute it, under controlled foreign company rules. And because a single-member LLC is transparent for US purposes, several countries treat the income as yours as it is earned. Leaving money in the account is not a deferral strategy in most of Europe and Latin America.
What about people selling this on YouTube?
Most of them make money from the formation, not from your outcome. That is not automatically dishonest, but it does mean the incentive runs toward the version of the story where you buy. Ask any provider to describe a case where they told someone not to form one. The answer tells you more than the tax explanation did.