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Regardless of your residency status or nationality, you can establish a business in the United States. Limited Liability Companies (LLCs) are an ideal choice due to their simplicity and ease of formation.
While the steps involved in starting an LLC remain the same for non-citizens, there may be additional requirements to satisfy regarding documentation and information. Once you ensure that everything aligns with the regulations set by the state and country, you can register your business in the United States as a foreigner.
For foreigners looking to start an LLC, most of the process is identical to that followed by U.S. citizens. However, there are some minor differences. The entire procedure is outlined below.
8 Steps To Start an LLC for Non-US Residents
1. Choose a State
When starting a business in another country, the usual practice of starting it in your state may not apply. If your business requires a physical presence or an office, establish an LLC in that particular state to avoid unnecessary complications. However, if this isn’t the case, you can choose any state.
It’s advisable to select a state that doesn’t impose state taxes so that you only have to focus on filing federal taxes. Popular choices for this reason include Wyoming, Nevada, Florida, and Delaware. Remember that each state has its own tax rates and laws governing businesses which also include licensing requirements.
2. Name Your LLC
Different states have varying regulations regarding the naming of businesses, but it’s a universally accepted rule that you cannot use a name already in use. To ensure that your chosen name is unique, it’s advisable to check the registry maintained by each state and search for any existing names.
It can be beneficial to verify URL availability and nationwide trademark registrations. When forming an LLC, it’s mandatory to include the term “Limited Liability Company” or its abbreviation in the official name.
3. Find a Registered Agent
A registered agent refers to an individual or company responsible for handling the transmission and receipt of legal documents and various paperwork on behalf of a business. Typically, the person who initiates an LLC assumes the role of being the registered agent.
However, if you’re not physically present in the country, this may not be feasible. In such situations where you lack a contact residing in that specific state where your filing takes place, using a registered agent service becomes an option to hire one on your behalf.
4. File your LLC With the State
To establish a legitimate business, submit the necessary paperwork to your state government. The most frequently used documents are an Article of Organization or Certificate of Formation. These documents will detail the structure of your organization and include all the essential information required by the state.
5. Create an LLC Operating Agreement
While it’s not obligatory for most states to include an operating agreement when filing for an LLC, it’s highly advisable to have one in place. An operating agreement serves as a legal document that outlines the ownership and operational procedures of the LLC, ensuring unanimous consent and minimizing the chances of future disputes. This becomes particularly crucial if some members are physically absent while others are present.
6. Obtain an EIN
An Employer Identification Number (EIN) is a unique nine-digit code provided by the IRS to identify businesses for federal tax purposes. Obtaining an EIN online is a straightforward process, although it necessitates providing either a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), as well as a valid US address.
If you’re not a US resident and own a business, you have the option of applying via fax or mail. This alternative enables you to designate yourself as a foreigner and bypass the usual requirements.
7. Get a US mailing address
Many business-related tasks necessitate a physical mailing address. If you have a physical office in the state, you can utilize this address for all essential paperwork. However, if you do not possess an office, obtaining an address becomes necessary. In such cases, a P.O. box can fulfill this requirement adequately.
Certain online services like Earth Class Mail offer the provision of a genuine address and even provide mail scanning services so that you can conveniently view your incoming mail.
8. Open a US Bank Account
Navigating this particular step can be quite intricate and may involve making a trip to the United States. This is because banks have stringent measures in place to steer clear of any potential money laundering schemes, and they have specific requirements that must be fulfilled for this purpose.
After obtaining your EIN (Employer Identification Number) and successfully establishing your business, it’s crucial to reach out to the bank of your choosing to inquire about the necessary documents needed for opening an account. You will likely need to visit the United States to complete this process personally.
In certain cases, if you possess a personal bank account within the United States, your bank may allow you to open a business account without physically traveling there; however, this cannot be guaranteed.
It’s important to note that you don’t need to use a bank located within the same state as your Limited Liability Company (LLC), thus providing some flexibility in terms of options available.
How to Open an LLC for Non-US Residents – Buyer’s Guide
Understand the Advantages of a Non-U.S. Resident LLC
Opening a U.S. LLC presents many benefits for non-U.S. individuals, making it an appealing choice. By forming an LLC in the United States, foreigners gain entry to the vast American market and can access American venture capitalists and investors. Having a U.S. base can enhance the reputation and credibility of international companies.
The advantages offered by an LLC aren’t exclusive to American business owners; they also extend to LLCs owned by non-U.S. residents. These advantages encompass several noteworthy benefits:
- Personal liability protection: When contemplating establishing a business in the United States, there are several options available. One relatively uncomplicated approach is to begin as a sole proprietor, as in many states, formal registration may not be necessary, and all earnings can flow directly into your personal bank account. However, operating as a sole proprietor also exposes personal assets to risk, as creditors can pursue the owner personally for any unpaid company debts.
- Limited Liability Company: An alternative business structure that offers personal liability protection is the LLC. An LLC represents a distinct legal entity, shielding the owner from being legally pursued for outstanding LLC obligations. The owner’s personal assets and bank accounts remain safeguarded from being leveraged or sold to settle LLC debts.
- Pass-through taxation: Another entity providing personal liability protection is a corporation. A U.S. corporation is also recognized as a separate business entity, insulating owners from legal action due to business debts. However, corporate profits are subject to taxation at the entity level (via corporate tax returns) and the individual level (via individual tax returns) for distributions.
In contrast, LLCs share some similarities with corporations but do not encounter double taxation. The LLC doesn’t file a business tax return and is disregarded by the IRS. Instead, all profits are distributed to the owner or owners, who pay taxes at the individual level. This approach is known as pass-through taxation.
- Ownership flexibility: An LLC can be owned by a single individual, known as a single-member LLC, although this isn’t a mandatory requirement. LLCs can have many owners, referred to as “members,” including individuals, corporations, trusts, IRAs, other LLCs, and pension plans.
- Management flexibility: Owners of an LLC have a range of options for managing the company. Members can actively manage it, hire a non-member manager, or establish a management structure involving a board of directors and corporate executives.
- Easy formation: While not as uncomplicated as sole proprietorships, establishing an LLC is a relatively straightforward process. It involves the creation and submission of a few documents. It’s worth noting that states may impose additional requirements for non-U.S. residents.
Taxes as a Foreign-Owned LLC
Every LLC operating in the United States must fulfill its federal tax obligations, regardless of the location of the entrepreneur. If a state imposes taxes at the state level, similar requirements may apply. The method of calculating these taxes can differ based on how the LLC is structured.
In an LLC with a single member, the business’s pass-through entity structure means that all profits and losses are reflected in the owner’s income tax statements. For citizens and resident aliens, this information is typically reported on IRS Form 1040, while non-resident aliens should use IRS Form 1040NR.
Non-resident aliens also have to submit two additional forms: Form 5472 and Form 1120. Although these forms are usually filed by corporations only, foreign-owned entities must also comply to allow close monitoring by the IRS. Even if there’s no income to report for a given year, these forms must still be submitted annually.
For tax purposes, a multi-member LLC is classified as a partnership. This means that the LLC must utilize Form 1065 and Schedule K-1 to disclose the profits and losses of each partner. These forms replace Forms 5472 and 1120.
In situations where the LLC generates income from a US trade or business, they may also be required to fill out additional forms such as 8804 and 8805. Each owner will still report their respective portion of profits on their personal tax returns.
Dealing with taxes as a foreign-owned LLC can be intricate, so it might be wise to seek guidance from a knowledgeable tax expert.
Who Can Own an LLC in The US?
The classification of individuals who aren’t citizens of the United States is broad, but there are certain criteria for foreigners who wish to establish an LLC in the country. Non-citizens have the option to form an LLC if they reside in the United States or any other nation and meet the guidelines set by the Internal Revenue Service (IRS).
According to IRS terminology, anyone who isn’t a US citizen is referred to as an “alien,” which encompasses individuals born outside of the country without US citizenship. This includes resident aliens living in America who pass either the green card test or substantial presence test. Both aliens can establish an LLC. However, there’s a distinction regarding tax payments.
To open a US-based LLC, physical presence in America or residency within its borders isn’t mandatory as long as all necessary steps are followed, and online forms can be accessed.
It’s crucial to note that owning an LLC solely grants permission to work within the United States if proper procedures have been completed for obtaining a visa and work authorization.
Why Choose an LLC for Non-US Residents?
LLCs are frequently chosen by these individuals because of the way they’re organized.
The primary attraction of an LLC is its ability to provide the business owner with personal asset protection. If your business becomes involved in a lawsuit, incurs substantial financial obligations, or declares bankruptcy, your personal funds and assets will not be used to satisfy these debts. This safeguard enables you to establish a business without assuming significant personal risks.
In contrast to a US corporation or a C corporation, the level of effort needed to manage a US company that’s structured as an LLC is significantly lower. There’s no requirement to appoint a board of directors, conduct shareholder meetings or document meeting minutes with an LLC.
Although there are additional prerequisites for foreigners looking to establish an LLC, the administrative burden and ongoing maintenance are comparatively minimal when compared to other business structures.
Starting an LLC in the United States presents a valuable opportunity to join the largest global economy and tap into its expansive market. Certain sectors can benefit from a formal presence in the US, as it imparts credibility that fosters business expansion and prosperity.
LLC Tax Structure
Although LLCs still enjoy certain advantages of corporations, such as asset protection, they can also take advantage of a pass-through taxation system. In this scenario, any profits and losses related to the business are passed on to the LLC members, effectively avoiding double taxation.
What State LLC Is Best for Non-US Citizens?
Delaware is frequently regarded as the optimal choice for individuals who aren’t US citizens and wish to establish an LLC, primarily because of its favorable legal framework, low tax rates, and the convenience it offers foreign owners in terms of management. If Delaware doesn’t appeal to you, other alternatives such as Nevada and Wyoming also boast business-friendly environments for non-US citizens.
How to Make Your Foreign-Owned Us LLC Tax-Free?
We trust that our long-winded speech has kept your attention. If you’re still perplexed, we can offer a few clever tricks to help you achieve a tax-free US LLC. Here are some essential considerations to remember, preventing any activation of US federal tax responsibilities:
- Do not employ people or have exclusive contractors in the US
- Do not have US persons as members of your LLC
- Do not reside in the US for over 120 days per year
Please note that the following guidelines serve as general advice and may not apply in every situation. For more complex cases, seek guidance from a qualified US accountant or attorney who specializes in international taxation.
How to Open an LLC for Non-US Residents – FAQs
Do Foreign Company Owners Pay US Taxes?
Indeed, every Limited Liability Company (LLC) established within the borders of the United States is obliged to fulfill its financial obligations by paying both federal and state income taxes that are relevant to its operations. This responsibility encompasses personal income taxes as well, regardless of whether an individual is typically mandated to file taxes in the United States.
All other obligatory filing requirements that American business proprietors must adhere to, such as submitting an annual report, are equally applicable.
Can I Work for Myself if I Start an LLC in the US?
To work legally in the United States, comply with the established regulations. This involves acquiring a green card or obtaining both a work authorization and a visa. Having an LLC enables you to pursue employment opportunities within the country and fulfill all necessary formalities for residing there.
Can Foreigners Start an LLC in the US?
Certainly! In the United States, it’s possible for anyone to establish an LLC. The procedures and tax obligations involved may differ depending on factors such as your location within the US, your citizenship or residency status, and the number of business owners involved.
It should be noted that forming an LLC in America doesn’t automatically grant permission for the owner to relocate here solely for business purposes.
How Long Does It Take To Form an LLC as a Non-resident, and What Is the Cost Involved?
The duration and expense required to establish an LLC as a non-resident vary based on the state of registration. Typically, the procedure spans from several days to a few weeks and entails payment of formation fees, along with additional costs like legal and filing fees.
Do I Need an SSN to Open an LLC Bank Account?
Non-American individuals rarely require a Social Security Number (SSN) to establish an LLC bank account. In the absence of an SSN, an Individual Taxpayer Identification Number (ITIN) can be used instead. If you meet the criteria and acquire an SSN, it can be used in place of the ITIN for opening a bank account specifically for your LLC.
Bottom Line – How to Open an LLC for Non-US Residents
To summarize, creating an LLC as a non-US citizen isn’t only possible but can also serve as a strategic move for entering the US market or safeguarding your assets. By following the guidelines provided in this manual, you can confidently navigate through the legal requirements, taxation procedures, and administrative tasks.
Seek advice from legal and financial professionals who have expertise in international business to ensure that you make well-informed decisions at each stage of the process. Establishing an LLC as a non-US resident may require some initial effort; however, the long-term advantages of limited liability, tax benefits, and access to the US market can make it a valuable pursuit for your business aspirations.
About the author
Dr. Alexander Sterling, Esq, a distinguished legal scholar with a business law degree and a Doctor of Juridical Science, is a leading expert in business registration and diverse business departments. Renowned for his academic excellence and practical insights, Dr. Sterling guides businesses through legal complexities, offering invaluable expertise in compliance, corporate governance, and registration processes.
As an accomplished author, his forthcoming book is anticipated to be a comprehensive guide for navigating the dynamic intersection of law and business, providing clarity and practical wisdom for entrepreneurs and legal professionals alike. With a commitment to legal excellence, Dr. Alexander Sterling, Esq, is a trusted authority dedicated to empowering businesses within the ever-evolving legal landscape.