A semiconductor device has a substrate comprising a carrier and an interposer disposed on the carrier. An electrical component is disposed over a first surface of the interposer. An interconnect structure is disposed over the first surface of the interposer. An encapsulant is deposited over the electrical component, interconnect structure, and substrate. A trench is formed through the encapsulant and interposer into the carrier. A shielding layer is formed over the encapsulant and into the trench. The carrier is removed after forming the shielding layer.