SaaS, Services & Servers in the U.S.: A Tax Guide for IT Startups and Developers

Developing software outside the U.S. but serving American clients? Be careful — the IRS is watching.

Every year, more Ukrainian startups, freelance teams, and product companies target the U.S. market. Selling software, building SaaS platforms, or providing custom dev work for a client in California — it all sounds like a tech success story. But did you know that even renting a server in AWS on U.S. soil can trigger a major tax headache?

At the webinar “How to Pay Taxes in the USA Correctly?”, international tax planning experts broke down how the IRS views the activities of non-U.S. IT businesses. Here are the top takeaways and practical recommendations:

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1. Full IP Transfer = Tax “Safe Zone”

Selling IP (e.g., software or a module) under a perpetual exclusive license is almost ideal from a U.S. tax perspective. If:

rights are transferred fully and permanently;
the seller is a non-U.S. person (individual or entity);
there’s no continued use or control by the seller —

then the transaction is not considered U.S.-sourced income, and thus not taxed in the U.S.

Important: All documentation must clearly confirm the complete transfer of rights. Any ambiguity may lead the IRS to reclassify the deal as a license — triggering unexpected taxes.

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2. SaaS = High-Risk Zone

If you’re offering access to your software via a cloud platform (SaaS model), the situation gets complicated. To the IRS, this isn’t a software sale — it’s a service. That means:

the source of income is U.S.-based if your customers or infrastructure are in the U.S.;
hosting on U.S. servers (even rented AWS ones) may be viewed as having a U.S. trade or business;
even if your team is in Kyiv and the servers are in Virginia — the IRS may still see U.S.-taxable presence.

It’s especially risky if your company is registered in a country without a tax treaty with the U.S. In that case, even a cloud subscription may be your entry point into the U.S. tax system.

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3. Transparent Entities (LLCs) = Opaque Consequences

LLCs with foreign members are popular among startups — but they carry tax traps:

The IRS requires each member to file a personal U.S. tax return;
You must determine which part of the income is U.S.-sourced (based on server location, client base, etc.);
Complex reporting and high risk of fines (up to $25,000+) make LLCs not always the best choice.

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4. Key Strategies for Ukrainian Startups & Dev Teams

To avoid falling into the IRS's net, follow these core principles:

Avoid physical presence in the U.S. — no office, no U.S. staff, no on-site servers.
Host servers outside the U.S., even with AWS or Google Cloud. Use regions like Frankfurt or Warsaw for safer options.
Use full IP transfer models — not license agreements — when selling modules or full products.
If you’re using an LLC with foreign members, consider switching to a C-Corp as you scale — it’s easier to manage tax planning.
If you're a citizen of a country without a U.S. tax treaty (like Ukraine), make sure your structure avoids even indirect creation of a U.S. tax presence.

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5. What Happens If You Ignore These Rules?

You may be taxed on all U.S.-sourced revenue
Mandatory filing with the IRS
Penalties for late or incorrect forms (up to $25,000+)
Blocked payments from U.S. clients (e.g., due to W-8BEN-E/W-8ECI issues)
Reduced appeal to investors and acquirers

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Conclusions

Tax planning for U.S.-facing IT businesses isn’t a luxury — it’s a necessity. The IRS is increasing scrutiny on non-residents earning from the U.S. — especially through SaaS, licensing, IP payments, and outsourced development.

To stay compliant and stress-free: