🇺🇸 A Guide to USA LLCs for Non-Residents

Introduction

For foreign entrepreneurs seeking to expand their business horizons, establishing a Limited Liability Company (LLC) in the United States can be a strategic move. The U.S. offers a robust economic environment, a well-established legal system, and a wealth of opportunities for growth and expansion. An LLC, in particular, provides a flexible and efficient business structure, making it an attractive option for international businesspersons.

Interestingly, many of my clients from ex-USSR countries and Europe are often surprised to learn about the ease and speed of forming a company in the U.S. They are accustomed to dealing with extensive red tape in their home countries, so they assume the process will be similarly complex in the U.S. However, the reality is quite the opposite. In many cases, it is quicker for a non-resident to form a company in the U.S. than in their own countries. This guide aims to provide a comprehensive understanding of the benefits, considerations, and processes involved in setting up an LLC in the U.S. as a non-resident.

Advantages of the USA as a Jurisdiction

Reputation

The United States holds a prominent position in the global economy. It is recognized for its strong economic stability, advanced technological infrastructure, and a well-regulated business environment. Operating a U.S.-registered business can significantly enhance your company’s credibility, fostering trust among customers, suppliers, and investors alike. This credibility can open up new business opportunities, facilitate partnerships, and provide a competitive edge in the global marketplace.

Privacy

Certain states in the U.S., such as Delaware and Wyoming, offer a high level of privacy for LLC owners. In these states, you are not required to disclose the identities of the LLC’s owners to the government. This anonymity can be a significant advantage for business owners who value privacy and confidentiality.

Low Costs

Despite its high-ranking economic status, the cost of maintaining an LLC in the U.S. is surprisingly affordable. Initial filing fees in many states are around $100, and the cost for a registered agent, which is a requirement for an LLC, can be as low as $50 per year. Furthermore, the annual tax or fee can range from $100 to $300 per year, making it a cost-effective option for many entrepreneurs. The U.S. also offers a wide range of professional services, including legal, accounting, and business consulting, often at competitive rates. This affordability, coupled with access to high-quality services, makes the U.S. an attractive option for entrepreneurs worldwide.

Low Bureaucracy and Fast Company Formation

One of the key advantages of the U.S. as a jurisdiction is its low level of bureaucracy, especially when it comes to company formation. The process is straightforward and efficient, often taking just a few days to complete. This speed and ease of company formation can be a pleasant surprise for many foreign entrepreneurs, particularly those accustomed to dealing with extensive red tape in their home countries.

Tax Obligations of Non-Resident Owners

Understanding the U.S. tax obligations is a critical aspect of establishing and operating an LLC as a non-resident. Determining the US presence or economic substance, also known as nexus, is crucial for understanding your tax obligations as a non-resident alien (NRA) conducting business in the United States.

Single-Member LLCs

For single-member LLCs, the Internal Revenue Service (IRS) considers the company a “disregarded entity” for tax purposes. This means the LLC’s income is treated as the personal income of the owner. As a non-resident owner, you are responsible for reporting this income on your personal tax return in your home country. Depending on the tax laws and any existing tax treaty between the U.S. and your home country, you may be able to avoid double taxation.

As a non-resident alien (NRA), your U.S. tax obligations primarily revolve around income that is “effectively connected” with a U.S. trade or business. However, the tax implications can vary significantly depending on the nature of the income and the tax treaty between the U.S. and your home country.

Here’s how it works:

Engaged in a Trade or Business in the United States (ETBUS)

As an NRA, you are subject to US tax on business income if you are considered “engaged in a trade or business in the United States” (ETBUS). To meet the ETBUS requirement, two conditions must be satisfied:

(1) Dependent Agent: You must have at least one “dependent agent” in the US. Dependent agents can be employees or companies that work almost exclusively for you, representing your business interests in the US.

(2) Substantial Activity: The dependent agent must perform substantial activities that further your business in the US. Purely administrative or minor tasks typically do not meet the substantial activity requirement.

Permanent Establishment (PE) under Tax Treaty

If you can benefit from an applicable tax treaty between the US and your home country, your US tax liability may depend on operating through a “permanent establishment” (PE) in the US. A permanent establishment generally refers to a fixed place of business, such as an office or other physical location, where you conduct business activities.

If you meet the ETBUS requirement and operate through a permanent establishment in the US, you may be subject to US taxation under the provisions of the tax treaty. However, if you do not have a permanent establishment in the U.S., such as a physical office or a dependent agent, you generally do not owe U.S. taxes on business profits. This principle can significantly reduce the U.S. tax burden for non-resident LLC owners.

Non-Taxation of US-Generated Income

Even if your LLC generates income in the US by offering services or selling products to US customers, that income may not be subject to US taxation if you do not meet the ETBUS and permanent establishment criteria. In such cases, the income generated in the US may be taxed in your home country, depending on the tax laws and regulations there.

 

Best States for Non-Resident LLC Registration

When considering the best state for an LLC, several criteria come into play. Here are some factors to consider:

1. LLC Formation Cost: The cost of forming an LLC varies from state to state. It typically involves a one-time fee paid to the state. Research the formation costs in different states to find a cost-effective option that aligns with your budget.
2. Annual Franchise Tax: Many states impose an annual franchise tax or fee to maintain an LLC’s compliance and good standing. Failure to pay this fee can result in the state dissolving the LLC. Consider the annual franchise tax requirements of each state to factor in ongoing costs.
3. Anonymity: If maintaining anonymity is important to you, select states that offer anonymous LLCs. These states allow you to keep the owners’ identities private. However, it’s important to note that registered agents will have access to this information and may be required to disclose it to the state upon request.
4. Other Laws and Regulations: Different states have varying business laws and regulations. Some states may have more favorable legal environments for businesses, such as offering strong protections against lawsuits. Research states like Wyoming, which is known for its business-friendly laws and limited liability protections.

Now, let’s explore the best states for an anonymous LLC:

a. Wyoming, Delaware, and New Mexico: These three states allow you to form LLCs while keeping your name out of public records. However, it’s important to note that the registered agent is aware of the LLC’s owners and may disclose this information to the state upon request.

b. Delaware: Delaware does not require listing the names of LLC members and managers in public records. However, it does require listing a registered agent and the incorporator/organizer. To maintain complete privacy, you may need to engage third-party providers for these services.

c. New Mexico: New Mexico does not collect information about LLC members and managers. Additionally, there is a lack of annual reports, fees, or taxes. To ensure complete privacy, consider utilizing third-party providers.

d. Nevada and Wyoming: Both Nevada and Wyoming allow the use of “nominee services.” When utilizing these services, a nominee will appear in public records instead of the real owners, providing an additional layer of privacy.

It’s important to note that even with an anonymous LLC, certain entities, such as the IRS, will require you to disclose your information when obtaining an Employer Identification Number (EIN). However, this information remains confidential and is not made public.

 

Note on California.

California, while known for its vibrant business environment and opportunities, may not be the most cost-effective option for non-resident LLC registration. The state has higher taxes and more stringent regulatory requirements compared to other states. However, if you plan to operate your business primarily in California or target the local market, registering an LLC in the state may be a strategic choice.

 

 

Guide to Opening Your Own LLC

 

Determine the State for Your LLC

The first step in opening your own LLC is to determine the state in which you want to register your business. Consider factors such as the business environment, privacy, costs, tax regulations, and legal requirements specific to each state. Research and select the state that best suits your business needs.

Choose a Name and Check Database Availability

Choose a name for your LLC that reflects your business identity and brand. Before finalizing the name, check the availability of the name in the state’s database. This will ensure that your chosen name is unique and not already in use by another business entity.

Use a Service Provider to Act as a Registered Agent

Engage a reliable service provider that specializes in LLC formation to assist you with the registration process. They will guide you through the necessary paperwork and ensure compliance with state regulations. Additionally, they can act as your registered agent, which is a requirement for LLCs. The registered agent receives official correspondence and legal documents on behalf of the LLC.

Apply for an Employer Identification Number (EIN)

An EIN, also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the IRS to identify your business for tax purposes. You will need an EIN to open bank accounts, file tax returns, and conduct certain business transactions. You can apply for an EIN online through the IRS website or by mail.

Open Bank Accounts and Apply for Payment Systems

Once you have your LLC and EIN, you can proceed to open bank accounts for your business. Many banks offer remote account opening options, allowing you to complete the process online. Research and compare banking services, fees, and features to find the best fit for your business’s financial needs.

Additionally, set up payment processing systems such as Stripe and PayPal. These platforms enable you to securely process customer payments, set up recurring billing, and manage your finances efficiently. Follow the application process provided by each payment system to integrate them into your business operations.

By following these steps, you can successfully establish your own LLC, obtain the necessary identification and documentation, open bank accounts, and set up payment processing systems. This will enable you to invoice your clients and manage your business transactions smoothly. Remember to consult with professionals and review state-specific requirements to ensure compliance with all legal and regulatory obligations.

 

Reporting Requirements for Nonresident LLCs

Foreign-owned, single-member LLCs in the United States have specific filing and reporting requirements to ensure compliance with tax regulations. The three primary filing requirements for such LLCs are as follows:

1. Form 5472 and Form 1120

Form 5472, “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business,” is required to be filed by foreign-owned, single-member LLCs that are treated as corporations for tax purposes. This form is used to report transactions between the LLC and its foreign owner or other related parties.

Additionally, if the LLC is classified as a corporation for tax purposes, it may be required to file Form 1120, “U.S. Corporation Income Tax Return.” Form 1120 is used to report the LLC’s income, deductions, and tax liability.

The due date for form 5472 is April 15th.

2. Report of Foreign Bank and Financial Accounts (FBAR)

If the foreign-owned LLC has a financial interest in or signature authority over one or more foreign financial accounts, and the aggregate value of these accounts exceeds a certain threshold, it may be required to file the Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is filed separately from the tax return and is submitted to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.

3. Form 1040-NR

For individual foreign owners of single-member LLCs, the filing requirement may include Form 1040-NR, “U.S. Nonresident Alien Income Tax Return.” This form is used to report income, deductions, credits, and tax liability for nonresident aliens conducting business in the United States through an LLC.

It is important to note that these filing requirements may vary based on the specific circumstances of the foreign-owned LLC and the tax classification chosen for the LLC (e.g., partnership, corporation, or disregarded entity). It is recommended to consult with a tax professional or CPA who specializes in international tax matters to ensure compliance with the appropriate filing requirements and reporting obligations for your specific situation.

 

 

FAQ

 

How does a non-resident open a business bank account for a US LLC remotely?

Banks have specific requirements to open an account for an LLC owned by non-residents:

• Apply for an EIN from the IRS and submit confirmation. This functions as the TIN.
• Provide a copy of the articles of organization showing LLC registration status.
• Submit valid ID such as a scanned passport, driver’s license from home country, and proof of your current address.
• Corporate documents like LLC operating agreement and resolutions naming authorized signers.

Many banks now facilitate online account opening, so you do not need to visit the US in person. Look for banks that specifically mention capabilities for non-resident account opening. Be prepared to provide the above documents. The bank will also ask about your business activities, transactions, and expected account usage.

What licenses and permits does my LLC need to operate?

Requirements vary widely based on your industry, business activities, and geographic locations where you plan to operate. Some common examples include:

• Sales tax permit if selling physical products, either wholesale or direct to consumer. You collect and remit sales tax.
• Local business license from city or county for any office locations. Some professions require state-level licenses too.
• Health permits for restaurants, catering, food trucks etc.
• Liquor license to sell alcohol.
• Professional licenses like contractors license for construction companies.

Thoroughly research the rules and regulations that apply to your LLC’s specific business activities in all jurisdictions where you plan to have a presence. Stay compliant as laws change.

Here are some additional questions and detailed answers for the FAQ:

What are the tax filing requirements for a non-resident LLC owner?

As a non-resident alien (NRA), your US tax obligations depend on whether you are considered to be engaged in a trade or business in the United States. The LLC itself is disregarded for federal tax purposes.

You need to file Form 1040NR to report your share of the LLC’s income or loss. This must be done even if you pay taxes on the same income in your country of residence to avoid penalties. Schedule C, E, and F are attached to 1040NR to report business income, rental real estate, and farm income respectively.

You may also need to file Form 5472 if the LLC had reportable transactions with related foreign parties. The deadline for Form 1040NR and 5472 is June 15th. Failure to file can lead to substantial penalties.

Can I use my LLC to obtain an E-2 investor visa? What are the requirements?

Yes, owning a substantial LLC in the US may make you eligible for an E-2 investor visa, allowing you to live and work in the US. The main requirements are:

• Your country of citizenship must have a qualifying treaty with the US
• You must invest a substantial amount of capital in the business – generally around $100,000 or higher
• You must have at least 50% ownership and active management of the LLC
• The LLC must be operating and engaged in significant trade, not just a passive investment.

An immigration attorney can help assess if your LLC investment and activities meet the eligibility criteria for an E-2 visa. This visa may allow spouses and children to also obtain E-2 dependent visas.

 

 

How is a single member LLC owned by a non-resident taxed?

For federal income tax purposes, the LLC is disregarded as a separate entity. Its income and expenses are reported directly on the foreign owner’s Form 1040NR tax return. The owner pays tax at the individual rates. Withholding tax may apply to fixed, determinable, annual, or periodic income paid to the LLC.

Is a multi-member LLC treated differently for federal taxes?

A multi-member LLC with at least one non-resident member is automatically classified as a partnership. It must file a Form 1065 partnership return. Each member then reports their share of income on separate 1040NR returns. Appropriate withholding applies.

Is there any way for an LLC to be taxed as a corporation?

Yes, a multi-member LLC can elect to be treated as a corporation by filing Form 8832. This can provide some tax advantages but double taxation would apply. An S-Corp election is not possible for LLCs with non-resident owners.

Does my foreign-owned LLC need to withhold US taxes on payments made?

LLCs making fixed, determinable, annual, or periodic payments to foreign persons may need to withhold income tax at varying rates depending on the recipient’s status and country of residence. Common examples include rents, royalties, and management fees. Ensure you comply with complex withholding requirements.

What if my home country also taxes my LLC’s income?

If your country of residence also taxes the LLC income reported on your US 1040NR, you can claim the foreign tax credit on Form 1116. This avoids double taxation but complex sourcing and limitation rules apply when calculating the allowable credit amount.

 

How do I maintain personal limited liability protection with an LLC?

• Keep finances separate from personal funds
• Formalities like annual meetings, minutes and resolutions
• Ensure adequate capitalization for the nature of business activities
• Proper insurance coverage in case of claims or lawsuits
• Avoid mingling personal and business transactions
• Keep the LLC in good standing by filing necessary reports/fees

Is a registered agent required for my LLC? What do they do?

Yes, every LLC must designate a registered agent, which must have a physical address in the state of formation. The registered agent receives official correspondence and service of process on behalf of the LLC and forwards it to the owners. They also remind about annual filing deadlines.

How do I stay compliant with business licenses and permits?

• Research requirements based on your business activities and locations
• Check state, county, and municipal rules for necessary licenses
• Examples include sales permits, health permits, liquor licenses, etc.
• Set reminders for renewal dates, which are typically annual
• Display permits publicly as required at business premises
• Keep licenses current as regulations change over time

 

What are the ongoing filing requirements for a non-resident owned LLC?

• Annual report and franchise tax payment to state of formation
• Income tax returns – Form 1040NR for individual owners, Form 1065 and 1040NR for multi-member LLC
• Form 5472 if LLC has transactions with foreign related parties
• FBAR reporting if LLC has foreign bank accounts over $10,000
• Form 8858 for LLCs acting as holding companies owning US corporations
• Form TDF 90-22.1 if LLC has signatory authority over foreign trusts
• State tax returns if operating in additional states like California

How can I fund my US LLC as a non-resident?

• Wire transfer from your bank account in home country to the LLC business account
• services like Wise (Transferwise) to transfer at better FX rates
• Peer-to-peer payment apps like PayPal for smaller amounts
• Credit cards but may incur higher processing fees
• Retained earnings can be reinvested into the business
• C corporation structure opens options like issuing stock

What accounting and record keeping practices should my LLC follow?

• Keep detailed records of all financial transactions and receipts
• Well organized accounting software like QuickBooks
• Accurately track LLC assets, liabilities, income and expenses
• Maintain register of equity members and respective interests
• Proper invoices, statements, and bookkeeping for revenue and expenses
• Support documentation for all tax returns and IRS/state filings