Something odd is happening in India’s digital economy. A growing number of freelancers, SaaS founders, and digital agency operators-people building globally competitive businesses from Bengaluru, Pune, and Jaipur-are quietly registering Limited Liability Companies in US states they have never visited. Wyoming is popular. So is Delaware. New Mexico has a following too. The formation costs are modest-state filing fees range from about $50 in New Mexico to $110 in Delaware, according to LLCBuddy, which tracks LLC formation requirements across all 50 US states. Add a registered agent, and the total rarely exceeds $500.
The trend is visible in the content ecosystem that has sprung up around it-YouTube channels with hundreds of thousands of views walking Indian audiences through US business registration, formation services specifically marketing to South Asian entrepreneurs, and Reddit threads dissecting the comparative merits of Wyoming versus New Mexico for privacy protections. This is not a niche phenomenon anymore. It is a pattern, and patterns demand explanation.
The standard explanation-that these founders are chasing tax advantages-is mostly wrong. A single-member US LLC owned by an Indian resident does not, by default, reduce the founder’s tax burden. India taxes its residents on worldwide income regardless of where a business is registered. The more accurate explanation is less dramatic but more revealing: India’s own regulatory and financial infrastructure makes it unnecessarily difficult to run a small, globally-oriented digital business.
The infrastructure gap nobody wants to talk about
India has built world-class digital public infrastructure. UPI processes billions of transactions. Aadhaar enables identity verification at scale. The India Stack is studied and admired globally. But this infrastructure was designed primarily for domestic transactions. The moment a small Indian business needs to receive a $2,000 payment from a client in Chicago or a subscriber in Berlin, the experience degrades sharply.
Cross-border payment options for small Indian businesses remain limited. Major global payment processors have either restricted access for Indian entities or operate on an invite-only basis. Those that are available often charge processing fees and currency conversion markups that can consume several percentage points of every transaction. For a freelancer invoicing $3,000 a month, depending on the payment method used, the cumulative cost of processing fees, conversion spreads, and intermediary charges can run into thousands of rupees per month-not trivial for a small business.
A US LLC, with a US bank account, sidesteps much of this friction. Clients pay in dollars to a US account. Payment processors work normally. The experience is indistinguishable from that of a US-based business. This is not regulatory arbitrage in any sophisticated sense. It is plumbing. Indian founders are registering US companies because India’s cross-border payment plumbing does not work well enough for small digital service exporters.
FEMA and the compliance paradox
Here is the uncomfortable irony. Many of the Indian founders forming US LLCs may be creating compliance obligations they do not fully understand-on both sides of the arrangement.
On the US side, every single-member LLC owned by a non-US person must file IRS Form 5472 annually, reporting all transactions between the entity and its foreign owner. Per IRS instructions (revised December 2024), the penalty for failing to file is $25,000 per form. Additional penalties of $25,000 may apply for each 30-day period of continued non-compliance after an IRS notice. The form cannot currently be e-filed-it must be mailed or faxed to an IRS processing centre in Utah.
On the Indian side, forming a foreign entity may trigger obligations under the Foreign Exchange Management Act and the RBI’s Overseas Direct Investment framework. The specifics depend on the nature of the investment, the amounts, and the founder’s residency status-all of which require professional legal assessment rather than a YouTube tutorial. India’s worldwide income taxation means the LLC’s earnings are reportable and taxable in India regardless of where the money sits.
The result is a peculiar situation: India’s regulatory environment is complex enough to push entrepreneurs toward foreign structures, but those foreign structures come with their own compliance burdens that many founders are ill-equipped to handle. Goldstein calls it a “compliance sandwich” – founders squeezed between US filing obligations they didn’t anticipate and Indian reporting requirements they weren’t told about. The net effect may be worse compliance, not better. Founders who might have operated transparently within a simpler Indian framework are instead navigating two regulatory systems, often with inadequate professional guidance.
What the formation industry reveals about demand
An entire services industry has emerged to sell US LLCs to Indian entrepreneurs. This is worth pausing on, because the existence of an industry tells you something about the scale and persistence of unmet demand.
These formation services handle state registration, EIN procurement, registered agent provision, and sometimes US bank account setup. Bundled packages typically cost $500–2,000. The economics are revealing: state filing fees are public (Wyoming charges $100, for instance), EIN applications to the IRS are free, and registered agent services cost $50–200 per year. The margin exists because Indian founders face enough friction with the US system to pay a premium for someone to handle it. Steve Goldstein, who runs LLCBuddy – one of the larger LLC formation resources tracking requirements across all 50 states – says the demand pattern from India has shifted noticeably: “Three years ago, most of the inquiries we saw from Indian founders were from VC-backed teams. Now it’s freelancers, solo SaaS builders, and agency owners earning $3,000 to $10,000 a month. The profile has completely changed.”
But the deeper point is this: if India’s own system made it straightforward for a freelancer in Indore to receive international payments, maintain simple compliance, and operate with the same ease as a counterpart in Lisbon or Tallinn, much of this demand would not exist. The formation industry is, in a sense, a subsidy that Indian digital exporters are paying to compensate for gaps in India’s own business infrastructure.
What other countries have done differently
Estonia’s e-Residency programme, launched in 2014, allows anyone in the world to register and manage an EU-based company entirely online. The programme was designed explicitly to attract digital entrepreneurs who wanted access to the European market without physical relocation. It includes integrated banking, digital signatures, and compliance infrastructure. As of late 2025, over 130,000 e-residents from more than 180 countries had registered.
The UAE’s freezone model offers a different approach-streamlined entity formation, reduced or zero corporate tax for qualifying structures, and a clear regulatory environment designed for foreign operators. Singapore’s business registration framework, managed by its corporate regulator ACRA, allows foreign entrepreneurs to set up and manage companies with minimal friction, backed by world-class banking infrastructure.
India, despite having a far larger domestic digital workforce than any of these countries, has not built an equivalent framework for its own citizens to operate globally. The irony is sharpest here: India exports some of the world’s best software talent, yet its regulatory architecture makes it harder for a solo developer in Kochi to bill a client in Kansas than it is for a developer in Tallinn to bill the same client. This is not a technology problem. India has the technology. It is a regulatory design problem.
A small piece of good news from the US side
One compliance layer that briefly threatened to make the US LLC path even more burdensome has since been narrowed. Under the Corporate Transparency Act, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) had planned to require most LLCs to file Beneficial Ownership Information reports disclosing their ultimate owners. However, a March 2025 interim final rule exempted domestic entities-meaning LLCs formed in any US state-from this requirement. Only entities formed under foreign law and registered in a US state now face BOI obligations. For Indian-owned US LLCs, this removes one layer of paperwork, though the far more consequential Form 5472 obligation remains.
The Income Tax Bill 2025 signals the direction
India’s proposed Income Tax Bill 2025 retains the 2020 amendment under which Indian citizens with domestic income exceeding ₹15 lakh who are not tax residents of any other country can be deemed Indian tax residents. If enacted, this provision, combined with tighter reporting requirements, signals that the government’s approach to offshore structures is to expand the net of Indian tax jurisdiction rather than simplify the reasons founders look offshore in the first place.
This is a choice, and it has consequences. Tighter enforcement without corresponding simplification of the domestic framework risks pushing more activity into informal or non-compliant arrangements. A founder who faces a $25,000 IRS penalty on one side and opaque FEMA obligations on the other may simply stop filing on both sides-the worst possible outcome for both tax authorities.
What a serious policy response would look like
The policy response to the US LLC trend cannot be simply to tighten enforcement on Indian residents who form foreign entities. That treats the symptom. The underlying condition is that India’s business formation and cross-border payment infrastructure does not serve its growing class of digital service exporters.
A more productive approach might address three areas. First, cross-border payment infrastructure: streamlining access to international payment processors for small Indian businesses, reducing forex conversion costs, and building compliance-friendly rails that don’t require founders to become FEMA experts. Second, entity simplification: creating a lightweight entity structure-something between a sole proprietorship and a private limited company-designed specifically for single-person or small-team digital service exporters. India’s existing LLP and One Person Company structures carry compliance overhead that is disproportionate to businesses earning ₹20–50 lakh a year in international revenue. Third, regulatory clarity: publishing clear, plain-language guidance on what a freelancer or small SaaS founder actually needs to do to receive and report international income legally. The current system assumes a level of professional advisory access that most small operators simply do not have.
None of this is technologically difficult. India has already demonstrated with UPI that it can build world-beating financial infrastructure when it decides to. The missing ingredient is not capability but priority. Digital service exports are not yet large enough to command the policy attention that goods exports or IT services outsourcing receive. But they are growing, and the founders involved are exactly the kind of entrepreneurial talent that Make in India was supposed to support.
The signal in the noise
Every Indian founder who registers a company in Wyoming is sending a signal, whether they intend to or not. The signal is not “I want to evade taxes.” The signal is “India’s system does not make it easy enough for me to do business with the world.”
These are not large corporations engaged in aggressive tax planning. They are freelancers, micro-SaaS founders, and small agency owners – many earning less than ₹30 lakh a year. Goldstein’s platform data tells the same story: the median Indian founder exploring US LLC formation through LLCBuddy is not a funded startup but a solo operator earning between $2,000 and $8,000 a month and looking for cleaner payment infrastructure. They are India’s digital middle class, and they are solving a regulatory problem with a market solution. The market solution works, up to a point. But it comes with risks that most founders do not fully understand, compliance obligations they often do not meet, and costs that eat into margins that are already thin.
The better question is not why Indian entrepreneurs are forming US LLCs. That part is obvious. The better question is why, in 2026, India has not built a domestic alternative that makes the US LLC unnecessary.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. US and Indian tax laws, FEMA regulations, and state-level LLC requirements are subject to change. Readers should consult qualified professionals before making business formation or tax planning decisions.
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