Mayank Malik · 11/5/2026
Expanding into the US sounds great until someone mentions tax forms. Suddenly, your big dream comes with a mountain of paperwork and a headache. So, let's keep it simple and answer one question: What is a disregarded entity and should your business use one when expanding into the US? By the end of this post, you'll know what it is, how it works and whether it's right for you.
Let's start with the name. It sounds rather cold, as if the tax office is ignoring you at a party. In fact, it's far friendlier than that. A disregarded entity is a business structure that the IRS doesn't treat as separate from its owner for federal income tax purposes. The classic example is a single-member LLC. An LLC (Limited Liability Company) is one of the most common types of business structures in the US. "Single-member" simply means there's one owner. So, when the IRS looks at your LLC, it essentially says, "Oh, that's just you." The business income is treated as the owner's income. In most cases, there's no separate federal income tax return for the LLC. This is known as pass-through taxation. Here's the good news. The IRS may disregard the LLC for tax purposes, but the law doesn't ignore its legal protection. You still get limited liability protection. Your personal assets are generally kept separate from the debts and liabilities of the business.
Imagine you're a software company based in the UK and want to sell to US customers. You decide to set up a Delaware LLC. Delaware is a popular state for business registration because its laws are well-established. You're the only owner, so your LLC is generally treated as a disregarded entity by default. You don't need to complete a special form to get this default tax treatment for a single-member LLC. If you want it to be treated differently, you can file Form 8832 to elect a different tax classification. Most founders leave the default classification unchanged. The LLC will still need its own EIN (Employer Identification Number), which is essentially your business's tax identification number. You'll need it to:
Now for the part where we have to be a little serious. If you're a foreign-owned LLC (meaning the owner lives overseas), there's one extra rule you simply mustn't ignore. The IRS wants to know who owns the company and what money is flowing between you and the LLC. So, you generally need to file Form 5472 each year along with a pro forma Form 1120. "Pro forma" in this context simply means a basic tax return submitted to accompany the form. This filing is not optional when the requirements apply. The penalty for missing it starts at $25,000, which is a very expensive way to miss a deadline. Set a reminder and treat it like your birthday (just less fun).
Here's why many founders like this route:
There is no such thing as a perfect structure, and this one has a few weak spots.
A disregarded entity is usually a good choice if:
A disregarded entity can be a relatively simple and cost-effective way to enter the American market, especially for solo founders. It offers liability protection and straightforward federal tax treatment, although foreign-owned LLCs still have important reporting obligations. Just remember the annual foreign-owner filing requirements and speak with a qualified tax professional before getting started. Do that, and your US expansion should feel a lot less scary and a lot more like progress.