US LLC and Paraguay tax residency: what actually works

First, which camp are you in? The split that decides everything

US tax law taxes people, not just companies, and it treats a single-member LLC as invisible for income tax by default. So the question is never really "how is the LLC taxed", it is "how is the owner taxed". And that depends entirely on whether the owner is a US person.

A US person means a US citizen or a lawful permanent resident (green-card holder). The US taxes US persons on their worldwide income no matter where they live. A non-US person (for example a European who is a genuine Paraguay tax resident) is taxed by the US only on US-connected income. Same LLC, opposite result. The two parts below are written for these two audiences separately, so read the one that is yours and be careful not to borrow conclusions from the other.

Part A: non-US owner of a US LLC, Paraguay tax resident

This part is for a non-US person (for example an Austrian, German or Swiss national with no green card) who owns a US single-member LLC and is a genuine Paraguay tax resident.

[VERIFIED] A US LLC with a single owner is by default "an entity disregarded as separate from its owner" for federal income tax, unless it elects corporate treatment on Form 8832. A disregarded LLC is not itself an income taxpayer; the income flows to the owner. For a non-resident-alien owner, the LLC neither shields income nor creates a separate US tax layer.

[VERIFIED] The US taxes a non-resident alien's business profit only if two conditions are both met: the person is engaged in a US trade or business (ETBUS), and the income is US-source income effectively connected to that business (ECI). [REPORTED] If the LLC is not engaged in a US trade or business and has no US-source income, no US federal income tax is due. Services performed entirely from outside the US, even for US clients, are generally not US-source income, so a remote consultant or agency owner working from Paraguay typically has no ECI.

[REPORTED] What can create ETBUS and drag you out of the 0% zone: a dependent agent in the US (an employee or exclusive contractor who negotiates and closes contracts), a fixed US place of business (office or warehouse), or holding inventory that transfers title on US soil. A genuinely independent contractor serving multiple clients, or a virtual office, generally does not create ETBUS. Whether your specific business is ETBUS is fact-specific, and this is exactly where a US international-tax professional is required. Do not treat the 0% as automatic.

Part A continued: the passive-income 30% trap and the mandatory filings

[VERIFIED] Even without ETBUS, a non-resident alien faces a flat 30% US withholding tax on most US-source passive income (US dividends, certain interest, rents, royalties), unless a treaty reduces it. [REPORTED] Paraguay has essentially no double-tax treaty with the US, so a Paraguay-resident owner generally cannot reduce that 30% via treaty. Practical takeaway: an LLC holding US stocks or US ETFs is a different and worse case than an LLC doing foreign-source services. If your plan involves US dividends inside the LLC, price in the 30% before you build it.

[VERIFIED] Now the filing you cannot skip even at zero tax: a foreign-owned US disregarded entity must file a pro forma Form 1120 with Form 5472 attached if it had any "reportable transaction" during the year. [VERIFIED] The penalty for failure to file, or for a substantially incomplete filing, is 25,000 USD per Form 5472, with a further 25,000 USD if the failure continues beyond 90 days after IRS notice. [REPORTED] "Reportable transactions" are read broadly and include capital contributions to and distributions from the LLC and dealings between you and the LLC, so most active LLCs trigger the filing even with zero US tax.

[VERIFIED] Filing is by mail or fax only (IRS Ogden, Utah, or fax), not standard e-file. The deadline tracks the Form 1120 due date: for calendar-year 2025, that is April 15, 2026, extendable to October 15, 2026 via Form 7004. [VERIFIED] Separately, under FinCEN's interim final rule of March 2025, entities created in the United States (including US LLCs with foreign owners) and their beneficial owners are exempt from filing Beneficial Ownership Information (BOI) reports. Note the date: this rule was politically contested and is an interim rule, so treat it as current-but-subject-to-change and re-check it before you rely on it.

Part A: where the Paraguay side fits (and its condition)

[REPORTED] Paraguay taxes only Paraguayan-source income. Foreign-source income of a resident is not taxed regardless of amount, and income received from foreign companies by a Paraguay tax resident is 0%. So a non-US person who is a genuine Paraguay tax resident, running foreign-source-only business through a US disregarded LLC with no ETBUS and no ECI, can reach roughly 0% income tax on both sides at once.

The word "genuine" is load-bearing. That 0% on the Paraguay side only holds if you are a real Paraguay tax resident, which means respecting the residency-certificate requirements (Cédula plus the presence or center-of-life test) rather than just holding a residency card. And even at 0% income tax on both sides, the US information-return duties above still apply. Zero tax is not zero paperwork.

Part B: US citizen (or green-card holder) moving to Paraguay

Now the other camp, and the harder one. [VERIFIED] The US taxes its citizens on worldwide income regardless of where they live. [REPORTED] Moving to Paraguay does not change that; only renouncing citizenship does, and there is no US-Paraguay tax treaty to relieve double taxation. So the LLC's "0% in Paraguay" result simply does not carry over to you. The income still hits your US return in full and can be reduced, if at all, by the FEIE or foreign tax credits, not by Paraguay's territoriality.

[VERIFIED] The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, lets a qualifying person exclude up to 130,000 USD of foreign earned income for tax year 2025 (2024 was 126,500 USD). [REPORTED] For tax year 2026 the figure is 132,900 USD. [VERIFIED] But the FEIE covers only foreign earned income (wages, salary, self-employment income for services performed abroad). It does not cover passive income like dividends, interest, rent, capital gains or pensions. [VERIFIED] And where both personal services and capital are material income-producing factors in your business, only a "reasonable" amount counts as earned income, capped at 30% of your share of net profit. A capital-heavy LLC therefore cannot exclude all of its profit as "earned".

Part B: does a paper Paraguay residency get you the FEIE? Usually no

This is the point that catches people, so read it slowly. To use the FEIE you must clear one of two tests, and an overarching tax-home requirement on top.

[VERIFIED] The physical presence test needs at least 330 full days in a foreign country (or countries) during a 12-month period, where a "full day" is 24 consecutive hours from midnight to midnight spent in a foreign country. [VERIFIED] The bona fide residence test needs you to be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year (a full January 1 to December 31 for calendar-year filers). [VERIFIED] Crucially, bona fide residence is not granted on paperwork. Holding a residency permit or status under foreign law does not by itself make you a bona fide resident. The IRS looks at the facts: your intention, the nature and length of your stay, whether you built a genuine home abroad, your activities there, and whether you paid foreign income tax.

[VERIFIED] On top of either test sits the tax-home requirement: your tax home must be in a foreign country, and you do not have a foreign tax home if your "abode" (your home, family, economic and personal ties) stays in the US. [REPORTED] The plain consequence: a Paraguay residency card obtained on a short trip, while you still actually live and keep your home elsewhere, generally does not satisfy bona fide residence and can fail the tax-home and abode test even if you rack up 330 days somewhere else. Buying a paper residency is not a route to the FEIE.

Part B: the sting the FEIE does not fix (self-employment tax, FBAR, FATCA)

[VERIFIED] Here is the trap even people who qualify for the FEIE miss: the FEIE reduces income tax only. It does not reduce self-employment (SE) tax. The IRS is explicit that you must take all your self-employment income into account when figuring net earnings from self-employment, even income excluded by the FEIE. [VERIFIED] A single-member disregarded LLC owner who runs a trade or business pays SE tax the same way a sole proprietor does. [VERIFIED] The SE tax rate is 15.3% total (12.4% Social Security up to the wage base, which is 176,100 USD for 2025, plus 2.9% Medicare with no cap, and a 0.9% Additional Medicare Tax above thresholds).

[REPORTED] Paraguay has no totalization (Social Security) agreement with the US, so there is no bilateral way to exempt or offset that 15.3%. This is the practical sting: a US citizen can wipe out income tax with the FEIE and still owe roughly 15.3% SE tax on active LLC earnings. [REPORTED] SE tax hits active (trade or business) income, not genuinely passive income, but whether a given LLC's income is active or passive is itself fact-specific.

[VERIFIED] Then the reporting on your Paraguay accounts. FBAR (FinCEN Form 114) is required if the total value of all your foreign financial accounts exceeds 10,000 USD at any point in the year; it is filed with FinCEN, due April 15 with an automatic extension to October 15. [VERIFIED] FATCA (Form 8938) is filed with the IRS; for a taxpayer living abroad the thresholds are over 200,000 USD in specified foreign financial assets at year-end (single), or 400,000 USD (married filing jointly). [VERIFIED] They are separate and can both apply the same year. The catch for this audience: a Paraguay bank account, which you need in practice for the Cédula and residency, can itself trigger FBAR at that low 10,000 USD threshold. The residency step creates a new US reporting duty.

What our service does and does not cover

To be clear about scope: our service helps you obtain Paraguay residency, and nothing on this page is US tax advice, LLC-setup advice, crypto advice or Paraguayan tax advice. We do not form your LLC, we do not prepare Form 5472, Form 1120, Form 2555, FBAR or FATCA filings, and we do not assess whether your business is ETBUS or whether you qualify for the FEIE. Our packages (Standard, Business and Business Complete, from 1,890 to 2,690 EUR) are about the residency itself.

The reason this article exists is that a Paraguay residency is often one piece of a larger US-tax picture, and the worst outcomes come from mixing up the two camps or from treating a residency card as a tax result. A genuine Paraguay tax residency can matter a great deal for a non-US owner and can be part of a compliant plan for a US citizen, but in both cases the US-side and Paraguay-side tax work belongs with the right professionals. We get you the residency; a US tax professional and a Paraguayan tax adviser get you the tax outcome.