Advantages and risks associated with the establishment of an LLC in the USA for non-US residents, paying attention to the hypothesis of tax inversion.
US LLCs can be one of the best legal corporate vehicles for non-US entrepreneurs to run their business. They allow access to all the benefits of an advanced jurisdiction such as the US (e.g. banking services, payment processing and good international reputation) while maintaining a low tax rate and manageable levels of bureaucracy and accounting.
Of course, you have to pay attention to the tax regulations that tie you to your country of tax residence. This is because in some countries of the world, especially in Europe, there are important provisions to avoid distorting phenomena related to corporate foreign investment. For this reason, I recommend that you read this article very carefully and consult with your trusted chartered accountant before planning anything.
The following article will tell you everything you need to know, to decide if an LLC is a good option for you, how you can open it quickly and cheaply, and everything else you need to pay attention to during execution.
The advantages of the United States as a jurisdiction
There are many good reasons to operate through a company registered in the United States.
Among these are:
- Excellent international reputation;
- Low costs of opening and annual management of a company;
- Easy access to a good banking and payment facility;
- Possibility to get to zero taxation.
It is quite funny to think that an American LLC is actually more interesting as a vehicle for your business when you are not a US citizen. This may actually be one of the best examples of how to flag theory can be used optimally.
LLCs are easy and inexpensive to incorporate. You can have everything up and running within a week, and for less than $ 500 if you choose to do some of the work yourself. The advice we can give you is to always use the help of a valid and trained US tax advisor on the subject.
The United States continues to be one of the leading economies in the world. Therefore, the companies registered here enjoy a high level of trust around the world. Your customers will have no problem deducting invoices from your company, which is not the case in many low-tax offshore jurisdictions.
Installation and maintenance costs of an llc
Thousands of LLCs are incorporated every day in the United States. As such, there is a competitive accounting consulting industry that aims to acquire your business, and most LLC related services can be obtained at very affordable rates.
Tax law for non-resident owners of a LLC in the USA
The tax implications of owning and operating an American LLC are clearly one of the most important questions we need to shed some light on. This is also one of the most often misunderstood questions in US international taxation.
The United States may be one of the largest tax havens in the world. A US-based LLC opened by a non-US citizen or non-resident can allow for completely tax-free earnings.
This type of optimization can be applied in many different business models. For example, we can mention some very frequent ones:
- Consulting and other personal services;
- Sale of digital products (info-products);
- Amazon FBA;
The single-member LLC
An LLC is a pass-through entity or a “transparent” tax entity. This means that the LLC is not taxed directly. On the contrary, the company’s tax obligations pass to the owners (members) of the LLC. They then report them on their personal tax returns to be made in the United States.
In cases where there are no tax obligations on the part of the United States and where the owner is a tax resident abroad or a resident in a country with a territorial tax system, there will be no tax to pay.
In order to determine the appropriate taxation by the United States, we examine the IRS taxation of non-resident aliens.
An American LLC must meet three criteria in order not to be subject to United States federal income tax. These are the following:
- Be 100% owned by non-US tax residents (individuals or entities);
- They have no presence in the United States or personal economic substance in the United States;
- The company’s income does not have to be generated by the United States.
Who is considered a non-resident alien?
You are considered a non-resident alien (“Non-Resident Alien”) if you are not in one of the following cases:
- An American citizen;
- A permanent resident of the United States (aka “green card holder”), or
- You have lived in the United States long enough to pass the “substantial presence test”.
If any of the above three categories are matched, any income generated by an LLC you own must automatically be subject to US tax.
What constitutes the US economic presence or substance (nexus)?
Here’s how the tied mechanism works:
- As a Non Resident Alien, you are subject to US corporate income tax if you are “engaged in a business or trade in the United States”, abbreviated to “ETBUS”.
- You are ETBUS only if two things are true:
- You have at least one “employee agent” in the United States. Employee agents are employees or companies that work almost exclusively for you. IS
- That employee agent does something substantial to promote your business in the United States. Purely administrative work is not included in this rule.
- Finally, suppose you can benefit from an applicable tax treaty. In that case, you are subject to US tax only if (in addition to being ETBUS) you operate in the United States through a “permanent establishment” (such as an office or other fixed place of business).
If you do not meet these conditions, you are not (automatically) subject to US tax on your business.
Even if the LLC generates income in the United States by offering services or selling products in the United States, that income is not taxed in the United States.
Determination of the source of income
|Type of entry||Linking Policy|
|Personal services||Where they are loaned|
|Sale of purchased inventory||Where they are sold|
|Dividends||Residence of the company|
|Rental or sale of real estate||Location of the property|
|Patents, Copyrights, etc.||Where the property is used|
Example n. 1: consulting agency with no employee office in the united states
A social media marketing agency is doing work for US clients. The owner is located in Panama, with some additional employees in the Philippines. It has no US offices or sales agents. All sales are made via telephone or automated sales systems.
The company opens an American LLC to bill its customers and receive USD payments to a US bank account. US customers have no problem claiming the services as a business expense. Since the work is done overseas and the owners are non-US citizens / residents, the income is not taxed in the United States.
Example n. 2: foreign fulfillment by the amazon seller (fba)
A foreign entrepreneur uses the Amazon market to sell products in the United States. He is using the “Amazon FBA” service to fulfill his orders. All marketing and shopping are handled online by the non-US citizen, who splits his time between Thailand, Bali and Colombia.
Its supplier ships the products directly to Amazon’s warehouses, where Amazon employees repackage them and ship them to customers throughout the United States.
Amazon acts as an independent agent with millions of other customers. Amazon does not primarily work for the foreign entrepreneur. Therefore, the foreign entrepreneur is not “engaged in a commercial or commercial activity in the United States”. It is therefore not subject to revenue from the sale of products in the United States.
Accounting and accounting for US companies
Regarding the accounting obligations with the LLC, there are no particular accounting obligations. Basically, from a practical point of view you only have to do it:
Request and keep invoices and / or receipts for each purchase;
Submit active invoices;
Prepare complete monthly VAT reports.
All you need is a simple profit and loss account, which shows your incoming and outgoing payments. You can do this by having simple account statements and screenshots from payment platforms like Paypal, Stripe, Clickbank, Digistore, and others.
Since you will have no tax obligations, when you run your LLC as a transparent entity, you won’t have to worry about fulfilling any particular accounting obligations. Basically, with a little attention and caution you can manage everything better.
What is the best state used to open an llc?
You can choose from any of the 50 US states when you register your LLC. As a non-resident with an LLC treated as a transparent entity, some of the differences between states become less important. Differences in state tax rates don’t matter, for example, since you’ll aim not to be required to pay them (all while complying with U.S. tax law).
However, there are still some criteria you can take into consideration when choosing which state to incorporate your LLC into. In particular you can take into consideration:
LLC Formation Cost: This is a one-time commission paid to the state to form your LLC;
Annual Franchise Tax: An ongoing commission paid to the state to keep your LLC in good standing and in good standing. Failure to pay this fee will usually result in the state terminating your LLC.
Anonymity: A limited number of states offer anonymous LLCs. Here the owners of the LLC are not made public;
Other Laws and Regulations: Some states have more advantageous business laws than others. Wyoming makes it very difficult, for example, to sue companies, which makes it a very attractive place for a non-resident LLC.
What is the best status for an anonymous llc?
There are only four states that allow anonymous LLCs. Therefore your options for these are limited. However, these states are also among the states with the simplest and cheapest incorporation processes.
Wyoming, Delaware, and New Mexico allow you to form LLCs, keeping your name out of public records. Keep in mind that these LLCs are obviously not 100% anonymous. The registered agent must always know who is behind an LLC and disclose this information to the state upon request.
Delaware does not require a list of the names of LLC members and managers. Requires a registered agent to be listed, as well as the incorporator / organizer. To maintain complete privacy it is necessary to hire third party suppliers for these services;
New Mexico does not collect information on LLC members / managers. There is also a complete lack of annual reports, commissions or fees. Similar to Delaware, you will need third party vendors to maintain complete privacy;
Nevada and Wyoming both allow “appointment services”. When using such services, a nominee will appear in the public records, rather than the real owners.