US Tax for Pakistani Founders Running US LLCs

For a Pakistan-resident owner, the US side follows the standard non-resident pattern: an LLC operated from Pakistan with no US office, employees, or dependent agent generally has no US trade or business and no effectively connected income, so no US federal income tax on business profits, with Form 5472 plus pro-forma Form 1120 due as information reporting (USD 25,000 penalty, IRC Section 6038A). One Pakistan-specific trap on US-source dividends: the 1957 US-Pakistan treaty's reduced 15% rate applies only to a company holding more than 50% of the payer's voting power, so an individual owner gets no reduction and faces the full 30% withholding.

On the Pakistan side, a resident (183 days or more in the tax year, Income Tax Ordinance 2001 Section 82) is taxed on worldwide income. Pakistan classifies the LLC under its own law as a foreign company, so profits are in principle taxed when distributed as a dividend — except that the Controlled Foreign Company rules in Section 109A (Finance Act 2018) can tax undistributed profits currently. A 100% individual owner clears the control test (more than 40% held by a single resident), and an LLC paying no US tax fails the safe harbour (foreign tax must be at least 60% of the Pakistani charge), so Section 109A attribution is in play unless the active-business carve-out applies — passive income under 20% of total, and the income principally classified as business income — and the attributable amount is treated as zero below PKR 10 million. The top personal rate is 35%, with a 9% surcharge on high earners taking the effective ceiling to roughly 38%. A foreign tax credit is available under Section 103, capped at the Pakistani tax on the same income; with little or no US tax to credit, the Pakistani charge largely stands. Pakistan's classification of a single-member US LLC is not settled by a published ruling and is best confirmed with local tax counsel.

**Sources cited above:** IRC Section 6038A (Form 5472), US-Pakistan Income Tax Treaty (1957) Articles II–III and VI (15% dividend rate for >50% corporate holders only); Income Tax Ordinance 2001 Sections 82 (residence), 109A (CFC, Finance Act 2018), 103 (foreign tax credit); Finance Act 2025 individual rates (35% top + 9% surcharge). Last verified 2026-06-01.