How Do I Start a Business Overseas as a U.S. Citizen?
- What Business Structure Should I Choose?
- How Do I Set Up Banking for My Foreign Business?
- What Are My U.S. Tax Obligations as a Business Owner?
- What About Foreign Bank Account Reporting?
- Should I Choose a Specific Country for Tax Benefits?
- What Ongoing Compliance Do I Need to Maintain?
- What Should I Know Before I Start an Overseas Business?
- Next Steps: Get Your Business Started Right
- Related Resources
Yes, you can start a business overseas as a U.S. citizen, and many expats do. According to the U.S. Small Business Administration, over 300,000 American entrepreneurs operate businesses outside the United States. The key is choosing the right business structure, securing proper banking, and staying compliant with both U.S. and local tax obligations.
The good news? Starting a business abroad can be more financially rewarding than operating in the U.S., especially if you structure it correctly from the start. You’ll have different filing requirements depending on whether you’re self-employed or running a corporation, but with the proper guidance, you can build a successful international business while staying compliant.
Check Your U.S. Tax Obligations Before You Launch.
Here’s what you need to know to get started for the 2025 tax year (filing in 2026).
What Business Structure Should I Choose?
Your business structure determines your tax filing requirements, liability protection, and administrative burden. Choose carefully, as changing structures later can create complications.
Self-Employed (Sole Proprietor)
If you’re working for yourself without forming a separate legal entity, you’re self-employed. This is the simplest structure.
Tax Requirements:
- File Schedule C (Profit or Loss from Business) with your Form 1040
- Pay self-employment tax (15.3% on net earnings)
- File if you earn $400 or more in a tax year
- Make quarterly estimated tax payments
Best For: Freelancers, consultants, digital nomads with straightforward income
Drawback: No liability protection, and you pay self-employment tax on your full income before applying the Foreign Earned Income Exclusion
Foreign Limited Liability Company (LLC)
A foreign LLC can provide liability protection while maintaining simpler tax treatment.
Tax Requirements:
- File Form 8832 once to elect “disregarded entity” status
- File Form 8858 annually to maintain this status
- Report income on Schedule C (flows through to your personal return)
- No separate corporate tax return required
Best For: Solo entrepreneurs or small teams wanting liability protection without corporate complexity
Without the disregarded entity election, the IRS treats your foreign LLC as a corporation, triggering Form 5471 filing requirements.
Foreign Corporation
If you form a corporation abroad, you face the most complex filing requirements.
Tax Requirements:
- File Form 5471 annually (required for anyone owning 10% or more)
- Potential Controlled Foreign Corporation (CFC) rules
- Subpart F income and GILTI provisions may apply
- Separate corporate tax returns
Best For: Larger operations with multiple employees or significant revenue
Drawback: Complex compliance requirements and potential double taxation without proper planning
How Do I Set Up Banking for My Foreign Business?
Finding the right bank is critical because many foreign banks avoid American clients due to FATCA reporting requirements.
What to Look For:
- Banks that work with American expats and business owners
- Business banking services (merchant accounts, credit cards, wire transfers)
- Multi-currency capabilities if you operate internationally
- Reasonable fees for international transactions
- Online banking access from anywhere
Before Opening Accounts:
- Research banks in your country that accept U.S. citizens
- Prepare documentation (passport, proof of address, business registration)
- Understand local banking requirements and minimums
- Ask about FATCA compliance procedures
You’ll need to report these accounts to the IRS through FBAR if your combined account balances exceed $10,000 at any point during the year.
What Are My U.S. Tax Obligations as a Business Owner?
As a U.S. citizen, you must file U.S. taxes regardless of where you live or operate your business. Here’s what that means for your foreign business.
Self-Employment Tax
If you’re self-employed, you’ll pay 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) on your net earnings.
2025 Tax Year Thresholds:
- Social Security tax applies to the first $176,100 of earnings
- Medicare tax (2.9%) applies to all earnings
- An additional 0.9% Medicare tax on high earners
Key Point: Self-employment tax is calculated on your full income BEFORE applying the Foreign Earned Income Exclusion. This surprises many newly self-employed expats.
Exception: If your host country has a Totalization Agreement with the U.S. and you pay equivalent self-employment tax there, you may claim an exemption. The Social Security Administration maintains a list of countries with which these agreements are in effect.
Foreign Earned Income Exclusion (FEIE)
You can exclude up to $130,000 (2025 tax year) of foreign earned income from U.S. taxation if you meet either:
- Physical Presence Test: Outside the U.S. for 330 days during any 365-day period
- Bona Fide Residence Test: Established residence in a foreign country for a full tax year
Example: If you earn $150,000 in self-employment income in 2025:
- Pay self-employment tax on the full $150,000
- Exclude $130,000 through FEIE
- Pay U.S. income tax on the remaining $20,000
Foreign Tax Credit (FTC)
If you pay income taxes to your host country, you can claim a dollar-for-dollar credit against your U.S. tax liability. Many expats combine FEIE and FTC to minimize taxes.
Business Expense Deductions
Ordinary and necessary business expenses reduce your taxable income. Common deductions include:
- Advertising and marketing
- Professional services (legal, accounting)
- Office supplies and equipment
- Software and subscriptions
- Business travel
- Home office expenses
- Contract labor
- Business insurance
- Website hosting and domain fees
Save Documentation: Keep receipts and records for a minimum of three years. The IRS may question deductions that seem unreasonable for your business type.
What About Foreign Bank Account Reporting?
FBAR (Foreign Bank Account Report) is mandatory if your foreign accounts exceed $10,000 combined at any point during the tax year.
FBAR Requirements:
- File FinCEN Form 114 electronically by April 15
- Automatic extension to October 15 if you miss the deadline
- Includes both personal and business accounts
- $10,000 threshold is the aggregate of ALL foreign accounts
- Penalties start at $12,921 per year for non-willful violations
Critical: The threshold can be met “even for one minute” during the year. If multiple accounts briefly total $10,001 or more, you must file.
FATCA Reporting
If you have significant foreign financial assets, you may also need to file Form 8938 with your tax return. Thresholds vary based on filing status and residency.
Should I Choose a Specific Country for Tax Benefits?
Your country of residence has a significant impact on your business taxes. Consider these factors:
1. Tax Environment:
- Corporate tax rates
- Individual income tax rates
- Value-added tax (VAT) or goods and services tax (GST)
- Tax treaties with the U.S.
2. Business Climate:
- Ease of business registration
- English proficiency and language barriers
- Access to banking and financial services
- Stable political and economic environment
3. Cost Considerations:
- Cost of living
- Office space or coworking availability
- Hiring costs if you need employees
- Healthcare and insurance costs
Examples:
- United Arab Emirates: No individual or corporate income tax, but high cost of living
- Portugal: Moderate taxes with Non-Habitual Resident program benefits
- Singapore: Business-friendly with reasonable corporate tax rates
- Mexico: Lower cost of living with proximity to U.S. time zones
Research tax treaties between your host country and the U.S. to maximize benefits and avoid double taxation.
What Ongoing Compliance Do I Need to Maintain?
Starting the business is just the beginning. Ongoing compliance helps you avoid trouble.
Quarterly Requirements:
- Estimated tax payments (if self-employed earning over $1,000)
- Review profit and loss statements
- Track business expenses
Annual Requirements:
- File U.S. tax return (Form 1040 + Schedule C or corporate forms)
- File FBAR if foreign accounts exceed $10,000
- File Form 8858 (if you have a foreign LLC)
- File Form 5471 (if you have a foreign corporation)
- Maintain business licenses and registrations in your host country
- File local country tax returns
Deadlines for Expats:
- Automatic extension to June 15 for U.S. tax filing
- Can request an additional extension to October 15
- FBAR deadline: April 15 (automatic extension to October 15)
Set calendar reminders for quarterly estimated payments and annual filing deadlines. Missing deadlines creates penalties that add up quickly.
What Should I Know Before I Start an Overseas Business?
Work with Professionals Who Understand Expat Business
Not all accountants understand the unique challenges of running a foreign business. You need professionals who know:
- How foreign business structures interact with U.S. tax law
- When to use FEIE vs. FTC
- How to handle foreign currency reporting
- Country-specific tax treaty provisions
Start with Clean Records
Establish proper bookkeeping from day one:
- Separate business and personal accounts
- Use accounting software that handles multiple currencies
- Track every business expense with receipts
- Document business mileage and travel
- Save all contracts and invoices
Plan for Currency Fluctuations
If you earn in a foreign currency but file U.S. taxes in dollars, exchange rates affect your reported income and expenses. Use consistent conversion methods and document your approach.
Consider Buying an Existing Business
Building a business from scratch takes time and capital. Buying an established business can:
- Provide immediate cash flow
- Give you established systems and procedures
- Include existing customer relationships
- Offer mentorship if you buy from another expat
Evaluate carefully: Review financial records, understand local market dynamics, and verify all legal registrations thoroughly before making a purchase.
Next Steps: Get Your Business Started Right
Starting a business overseas offers incredible opportunities for financial growth and personal fulfillment. The key is to structure it correctly from the beginning and stay on top of your compliance obligations.
The most common mistake expat entrepreneurs make is assuming their foreign business doesn’t trigger U.S. tax obligations or waiting until tax season to organize their finances. Starting with proper structure and systems prevents costly corrections later.
At Greenback, we specialize in helping foreign business owners with the unique tax challenges of running a company abroad. From choosing the right structure to handling complex forms like 5471 and 8858, our CPAs and Enrolled Agents have the expertise to keep your business compliant while minimizing your tax burden.
Get Help Filing U.S. Taxes for Your Foreign Business.
This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently. Consult with a qualified tax professional about your specific situation.
Related Resources
