- Can we use the disregarded entity tax classification
No.
The fact that all the LLC owners live and work outside the US is irrelevant for this question. The relevant issues in determining if your LLC is a disregarded entity are:
- The number of owners (members)
- Has your LLC filed Form 8832 Entity Classification Election to be treated as a corporation for federal tax purposes
The fact that you are saying "we" implies that the LLC has more than one owner. Only single member LLCs can be considered a disregarded entity, therefore this automatically disqualifies your LLC from being a disregarded entity. (I won't discuss the second issue I mentioned above since we have already determined that you cannot be a disregarded entity.)
In fact, the IRS forms you mentioned in your question state this. From page 3 of Form W-8BEN (instructions) and page 2 of Form W-8ECI (instructions), under definitions:
Disregarded entity. A business entity that has a single owner and is not a corporation under Regulations section 301.7701-2(b) is disregarded as an entity separate from its owner.
From Single Member Limited Liability Companies (IRS website):
A multi-member LLC can be either a partnership or a corporation, including an S corporation. To be treated as a corporation, an LLC has to file Form Form 8832, Entity Classification Election (PDF), and elect to be taxed as a corporation. A multi-member LLC that does not so elect will be classified under federal law as a partnership.
A single member LLC (SMLLC) can be either a corporation or a single member “disregarded entity”. Again, to be treated under federal law as a corporation, the SMLLC has to file Form 8832 and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the existing federal guidance as a “disregarded entity” which is taxed as a sole proprietor for income tax purposes.
Also from the IRS website:
Section 301.7701-2(a) provides that a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code. A business entity with two or more owners is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.
Section 301.7701-2(c)(1) provides that, for federal tax purposes, the term “partnership” means a business entity that is not a corporation under § 301.7701-2(b) and that has at least two owners.
Section 301.7701-2(c)(2)(i) provides, in general, that a business entity that has a single owner and is not a corporation under § 301.7701-2(b) is disregarded as an entity separate from its owner.
Section 301.7701-3(b)(1) provides generally that in the absence of an election otherwise, a domestic eligible entity is (a) a partnership if it has at least two members, or (b) disregarded as an entity separate from its owner if it has a single owner.
From Wikipedia:
Unless an election is made on Form 8832, a domestic eligible entity will be classified by default as:
- A partnership if it has two or more members.
- Disregarded as an entity separate from its owner if it has a single owner.
Unless an election is made on Form 8832, a foreign eligible entity will be classified by default as:
- A partnership if it has two or more members and at least one member does not have limited liability.
- An association taxable as a corporation if all members have limited liability.
- Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.
The effect of these rules is that a U.S. limited liability company (LLC) or limited liability partnership (LLP) is treated by default as a partnership (or disregarded entity if it has only one owner), whereas a foreign LLP is treated by default as a corporation (if, as is generally the case, all its members have limited liability).
The following page from the IRS website may also be helpful: Classification of Taxpayers for U.S. Tax Purposes.
