Discover everything you need to know about forming an LLC for non US residents in this informative blog post. Learn about the benefits, legal requirements, and step-by-step process of setting up an LLC.
As a non US resident, forming an LLC can provide you with important benefits and protections. Don’t miss out on this essential information that will help you make an informed decision about starting an LLC.
Whether you are an entrepreneur, investor, or simply looking to expand your business globally, this guide will give you all the information you need to get started. Read on to learn how you can form an LLC for non US residents today.
The United States is widely recognized as a welcoming destination for business, even to non US residents. With a highly competitive corporate tax structure and a relatively simple process for establishing an LLC, the US offers significant advantages, including lower start-up costs compared to other countries and the added prestige of having a US-based company.
In regards to this, the question that may arise is “Can non US residents start an LLC in the US?
Can A Non US Citizen Open A LLC?
It is a common misunderstanding that starting a US company requires US citizenship and possession of a Social Security Number (SSN).
This is untrue, as being a US citizen, resident or having a US SSN is not mandatory for starting a US LLC as a non resident, or a foreigner. As a non resident, you can acquire:
- A US LLC
- A US bank account
- A US Stripe account
- And other benefits.
As a non US resident starting a US LLC, one of the major advantages is the LLC’s classification as a “pass-through entity.” This means that taxes can pass through to the owners. Thus, if your LLC satisfies the following conditions, it will not be subject to US taxes:
- The LLC is entirely owned by non US tax residents, whether natural or legal persons.
- The LLC has no US presence or economic substance.
- The LLC’s income is not “effectively connected.
What Is A Limited Liability Company (LLC)?
In the United States, a limited liability company (LLC) is a type of business structure that shields its owners from personal responsibility for the company’s debts or liabilities.
LLCs are hybrid entities that blend the attributes of a corporation with those of a partnership or sole proprietorship.
Although the limited liability aspect is akin to that of a corporation, the flow-through taxation availability to LLC members is more aligned with a partnership than an LLC.
More About A Limited Liability Company (LLC)
State statutes permit the existence of Limited Liability Companies (LLCs), but the regulations governing them differ from one state to another. LLC owners are commonly referred to as members.
Ownership of LLCs is generally unrestricted in many states, allowing individuals, corporations, foreigners, foreign entities, and even other LLCs to become members. However, some entities such as banks and insurance companies are prohibited from forming LLCs.
To establish an LLC, formal business arrangements require filing articles of organization with the state. Compared to corporations, setting up an LLC is less complex and provides greater flexibility and protection for its investors.
LLCs have the option to not directly pay federal taxes. Instead, the owners report the LLC’s profits and losses on their personal tax returns. The LLC can also choose a different classification such as a corporation.
In the occurrence of fraud or failure to meet legal and reporting requirements, creditors may pursue the members for legal action.
Advantages And Disadvantages Of LLCs
One of the main motivations for business owners to register their businesses as Limited Liability Companies (LLCs) is to minimize personal liability for themselves, as well as their partners or investors.
LLCs are often seen as a combination of a partnership, a simple business agreement between multiple owners, and a corporation, which provides certain liability protections.
Despite their appealing characteristics, LLCs come with some drawbacks. Depending on the state’s regulations, an LLC might have to be terminated if a member passes away or files for bankruptcy. In contrast, a corporation can continue to exist indefinitely.
Types of LLCs
The three types of LLCs are single-member LLCs, multi-member LLCs, and LLCs taxed as corporations. Each type offers its own set of benefits and drawbacks, and business owners should carefully consider their options before choosing the best structure for their company.
Single-Member LLC
A single-member LLC is an LLC that has only one owner or member. This is the simplest form of LLC, and the owner is considered to be a separate legal entity from the LLC itself.
Single-member LLCs are not required to file a separate tax return, and their income is reported on the owner’s personal tax return. Single-member LLCs are popular among small business owners who want the liability protection of an LLC but do not want the formalities of a corporation.
Multi-Member LLC
A multi-member LLC is an LLC that has two or more owners or members. Each member’s share of the company’s profits and losses is determined by the operating agreement, which is a contract that outlines the rules and regulations of the LLC.
Multi-member LLCs are also not required to file a separate tax return, and their income is reported on each member’s personal tax return.
LLC As A Corporation
An LLC can also elect to be taxed as a corporation by filing Form 8832 with the IRS. This is known as an LLC taxed as a corporation. This option is often chosen by LLCs that want to take advantage of certain corporate tax benefits, such as deducting employee benefits and avoiding certain self-employment taxes.
LLCs taxed as corporations are required to file a separate tax return and pay corporate taxes on their profits.
If you are a non US resident, it is important to know that you choose the best state to form an LLC. That is what we will be diving into in the next section of this article.
LLC For Non US Residents – The Best State To Own An LLC
In most cases, forming your limited liability company (LLC) in your home state is the optimal choice. This is because your company operates primarily within that state, whether it is a physical or online enterprise.
However, there are two exceptions to this principle:
- You are a non US resident (in which case, you can select any state – Wyoming or Delaware are recommended).
- Your LLC is a real estate entity, in which case the “home state rule” does not apply.
States that offer additional advantages beyond your home state:
- Delaware: Provides business owners with anonymity by not requiring them to disclose their name on the entity formation documentation.
- Wyoming: Permits LLC owners to designate a “nominee” as the LLC’s owner rather than using their own name.
Which Is Better: Wyoming Or Delaware?
If you have intentions of transforming your LLC to a C Corp (to raise venture capital from US investors) or you are determined to claim your company is from Delaware, then we suggest Delaware. Some customers believe this is important, and if it is, it is entirely up to you!
Otherwise, our recommendation is Wyoming. Why? Wyoming is the most preferred state for non resident entrepreneurs who operate online businesses, ecommerce ventures, or are business owners seeking a simple and straightforward approach to establishing and administering their company. It has lower annual fees ($60 as opposed to $300 in Delaware), and a modest filing fee ($100).
Furthermore, Wyoming has a favourable business environment and has been dubbed “The Switzerland of the Rocky Mountains,” so do not underestimate Wyoming’s reputation.
Requirements For Non US Residents To Start An LLC In The USA
Foreign-owned limited liability companies (LLCs) operating in the USA must adhere to both federal and state laws, as well as any industry or location-related regulations.
To comply with these regulations, they need to acquire a tax identification number, enrol with relevant state agencies, and ensure they possess the appropriate business licenses and permits.
The rules for establishing an LLC differ depending on the state in which it is formed, and these requirements are influenced by the state’s business laws and tax codes. For instance, some states may mandate that an LLC must have a registered agent who is a resident of that state.
US Business Address As A Non Resident
As a non resident seeking to establish an LLC in the United States, it is essential to have a U.S. business address during the registration process.
However, this can prove difficult if you lack a physical presence in the country. Fortunately, non residents have several options at their disposal to acquire a U.S. address for their LLC.
One such option is engaging the services of a registered agent who can provide a business address for your LLC. A registered agent is a third-party service that receives legal and official documents on behalf of your LLC, and many also offer a U.S. business address.
Apart from providing a U.S. business address, a registered agent ensures that you receive all necessary legal or official documents intended for your LLC. Registered agent services are rendered by many LLC formation services.
Another viable option is to use a virtual office service that offers a physical address for your LLC. Virtual office services provide a range of amenities, including mail forwarding, physical mailing addresses, and access to office facilities and conference rooms as required.
Although virtual office services may be more expensive than a registered agent, they offer a more substantial physical presence in the United States and may be suitable if you intend to conduct business in the country.
Regardless of the option you choose, having a U.S. business address is crucial for the proper registration of your LLC and to avoid future legal complications.
Nonetheless, as a non resident, it is imperative to consider the tax and regulatory implications of starting an LLC in the U.S. and seek professional advice to ensure compliance with all relevant laws and regulations.
How To Open An LLC For Non Us Residents
Wyoming is an excellent state for non US residents who want to start an LLC. This is because it has a business-friendly environment, low fees, and straightforward procedures.
For the rest part of this blog article, we will walk you through the steps required to form an LLC in Wyoming as a non US resident.
Step 1: Choose A Name For Your LLC
The first step in forming an LLC in Wyoming is to choose a name for your business. The name must be unique and not already taken by another business in Wyoming. You can check the availability of your preferred business name on the Wyoming Secretary of State’s website.
Step 2: Appoint A Registered Agent
A registered agent is an individual or company that is authorized to receive legal documents and notices on behalf of your LLC. You must appoint a registered agent in Wyoming when forming an LLC in the state. This can be an individual who is a resident of Wyoming or a company authorized to do business in Wyoming.
Step 3: File Articles Of Organization
The next step is to file articles of organization with the Wyoming Secretary of State’s office. This is a legal document that outlines the basic details of your LLC, such as its name, registered agent, and the names and addresses of its members. You can file online or by mail, and the filing fee is $100.
Step 4: Create An Operating Agreement
An operating agreement is a legal document that outlines the ownership structure, management, and operations of your LLC. While Wyoming doesn’t require LLCs to have an operating agreement, it is a good idea to have one in place to avoid disputes among members and to provide clarity on the roles and responsibilities of each member.
Step 5: Obtain An EIN
The subsequent step after completing the preceding steps is to obtain an EIN (Employer Identification Number). This is a unique nine-digit number designated by the IRS to businesses for tax purposes. As a non US resident, you can apply for an EIN via the IRS website, mail, fax, or phone.
To apply for an EIN as a foreigner, you will need to complete Form SS-4, which is the application for an EIN. When filling out the form, ensure to provide your foreign address in the relevant section and gather all the required information, such as your LLC’s name, your name, your Individual Taxpayer Identification Number (which will be discussed below), and the name and address of your registered agent.
It is crucial to note that even if you don’t plan to hire employees, you may still require an EIN for tax purposes, such as opening a business bank account, filing tax returns, and applying for specific business licenses and permits. Also, an LLC with multiple owners must have an EIN.
Before applying for an EIN, it is imperative to review the tax requirements for non US residents and seek advice from a tax professional. You may be liable for federal and state taxes, and specific tax treaties between the U.S. and your home country may affect your tax obligations. Also, you may need to file additional forms, such as Form 5472, which is necessary for foreign-owned LLCs.
Step 6: Obtain Any Necessary Licenses And Permits
Depending on the type of business you are starting, you may need to obtain additional licenses and permits from the state of Wyoming or the federal government. You can check the Wyoming Business Council’s website to determine if your business requires any additional licenses or permits.
How To Individual Taxpayer Identification Number (ITIN) As Non US Residents
If you are a non US citizen seeking to establish an LLC in the United States, you may not possess a Social Security number, making it necessary to obtain an Individual Taxpayer Identification Number (ITIN) through Form W-7 to fulfil your tax responsibilities.
An ITIN is a tax processing number provided by the Internal Revenue Service (IRS) to those who require a U.S. taxpayer identification number but are unable to obtain an SSN from the Social Security Administration (SSA).
To acquire an ITIN, you must submit Form W-7, Application for IRS Individual Taxpayer Identification Number, to the IRS, along with your tax return or another approved reason for requiring an ITIN. It is worth noting that an ITIN isn’t a replacement for an SSN and cannot be used for employment purposes.
In conclusion, forming an LLC in Wyoming as a non US resident is a straightforward process that can be completed online using LLC formation services such as Incfile.
With its low fees, business-friendly environment, and simple procedures, Wyoming is an excellent choice for non US residents who want to start an LLC.
By following the steps outlined in this guide, you can establish your LLC and start running your business in no time.
The information presented on this page is solely intended for informational purposes and should not be construed as legal, tax, or accounting advice. If you have particular inquiries related to any of these subjects, it is advisable to seek guidance from a qualified professional.
LLC For Non US Residents FAQs
How Do I Form An LLC In The US As A Non-Resident?
Here are the steps to form an LLC in the US as a non resident:
- Choose a state where you want to form your LLC. Each state has different rules and requirements for forming an LLC.
- Choose a unique name for your LLC that complies with the rules of the state where you are forming your LLC.
- Hire a registered agent who is authorized to do business in the state where you are forming your LLC. A registered agent will receive legal documents on behalf of your LLC.
- File articles of organization with the state’s secretary of state. The articles of organization typically require information such as the name and address of your LLC, the name and address of your registered agent, and the purpose of your LLC.
- Obtain an employer identification number (EIN) from the Internal Revenue Service (IRS). An EIN is necessary to open a bank account, hire employees, and file taxes.
- Obtain any necessary licenses and permits required by the state where you are forming your LLC.
- Draft an operating agreement that outlines the ownership structure and operating procedures of your LLC. Although not required by all states, having an operating agreement is recommended to protect your personal assets and to avoid misunderstandings among LLC members.
- Open a business bank account for your LLC and obtain any necessary insurance coverage.
- Comply with all state and federal tax requirements, including filing tax returns and paying taxes.
Can A Non US Citizen Open A LLC?
Yes, non-US citizens can form an LLC in the US, but it is important to research the requirements and regulations specific to the state and seek professional advice to ensure compliance with all legal and tax obligations.
How Is A Non Resident US LLC Taxed?
A non resident US LLC is taxed based on its classification for tax purposes. By default, a single-member LLC is classified as a disregarded entity for tax purposes and taxed as a sole proprietorship, while a multi-member LLC is taxed as a partnership. However, a non-resident LLC can elect to be taxed as a corporation by filing Form 8832 with the IRS.
If the non resident LLC is taxed as a disregarded entity or a partnership, its income is not subject to US federal income tax. Instead, the income is passed through to the LLC’s owner(s) and taxed in their country of residence.
If the non resident LLC elects to be taxed as a corporation, it will be subject to US federal income tax on its income at the corporate tax rate, which is currently 21%. The LLC will also be subject to state income tax in any state where it does business.
It is important to note that tax laws are complex and can vary depending on the specific circumstances of the LLC and its owners. It is always a good idea to consult with a qualified tax professional to ensure compliance with all applicable tax laws and regulations.
