Skip to content
WyomingLLC logoWyomingLLC

ECI Effectively Connected Income Explained

Effectively Connected Income (ECI) is income from a US trade or business that triggers US federal income tax for non-residents. Most non-resident Wyoming LLC owners do not have ECI. This guide explains the test and common scenarios.

Answer

Effectively Connected Income is income from a US trade or business under Internal Revenue Code Section 864. Non-resident Wyoming LLC owners owe US federal income tax only on ECI. The IRS applies a fact-specific test: physical office or fixed place of business in the US, US-based employees, dependent agents acting in the US, substantial US-based equipment or inventory, and personal services performed within the US. Most non-resident digital businesses (SaaS, dropshipping, freelance, content) do not meet ECI factors and owe $0 US federal income tax. FBA inventory in US warehouses is a grey area; conventional position argues against ECI.

By Zawwad, Founder & CEO, WyomingLLC by Topslice LLC.

Last updated May 20, 2026

ECI indicators

  • Physical office or fixed place of business in the US
  • US-based employees on W-2
  • Dependent agents (not independent contractors) acting in the US
  • Substantial US-based equipment or inventory
  • Personal services physically performed within the US
  • Regular continuous economic activity in the US

Non-ECI examples

  • SaaS sold to US customers from servers and team outside the US
  • Dropshipping with no US employees or office
  • Freelance services performed from your home country
  • Content monetization (YouTube, Patreon) with no US studio or staff
  • Affiliate marketing with no US-based operations
  • Holding company with no operating activity

Grey areas

  • Amazon FBA: inventory in US warehouses. Conventional position argues against ECI (Amazon is independent contractor; no US office or employees; mere inventory location does not create ECI under Tax Court cases).
  • Dropshipping with US-based 3PL: similar to FBA, depends on whether the 3PL is an independent contractor.
  • US-based contractors: independent contractors are typically not ECI triggers; dependent agents are.
  • Trade shows and short US visits: brief US presence typically does not create ECI but check facts.

Frequently asked questions

Do most non-resident LLC owners have ECI?
No. Most digital business operators (SaaS, freelance, dropshipping, content) do not meet ECI factors.
Does FBA inventory create ECI?
Grey area. Most FBA sellers argue against ECI. Consult a US CPA for your specific case.
If I have ECI, what is the tax rate?
Graduated US individual rates (10% to 37%) on net ECI after deductions, plus possibly state tax.
How do I document my non-ECI position?
Maintain records showing no US office, no US employees, no fixed US presence. Form 5472 + 1120 alone does not declare ECI status; you would need 1040-NR if you had ECI.

Related guides

Form your Wyoming LLC in 24 hours.

$397. EIN, registered agent (1 year), and Mercury/Relay/Wise bank introductions included.

Start for $397Questions? WhatsApp us