The basic rule is that the USA does not tax ‘non-resident aliens’ for most income earned in the US. Only so-called active income in the US is taxed! If you have no clients in the US, you can use an LLC without paying any tax in the US. And even if you have clients in the US we have solutions…
Who is an ‘alien’?
So you are on the safe side, if:
- you are not an American citizen
- you don’t have a green card
- you don’t have a ‘substantial presence’ in the US (no warehouse, no employees, you were not more than 182 days in any given year …).
A ‘disregarded’ tax entity?
The best is to use ‘a single’ entity (one member!). This means that your LLC is considered a ‘pass-through’ or ‘disregarded entity’. In other words the income is treated like it is earned by the member of the LLC. If the member lives outside the US, American taxes could be avoided in most cases! But if there are two or more members the LLC is considered as a partnership and then there is the obligation to fill in a tax return.
If you do not need to pay taxes in the US, because it is a ‘pass-through’ entity, could mean that you need to pay taxes in your home country…
So to have greater privacy, even better asset protection and better tax treatment, we have a solution. Let the USLLC be owned by an international trust. In this case, it is not you but the trust who will be listed as the owner of the LLC. If the trust is organized in a smart way, it is possible to avoid taxes legally in your home country. A Bahamian trust could be, for this purpose a great idea.
Why a US LLC?
10 facts to convince you!
Fact 1 — Liability.
An LLC stands for a ‘Limited Liability Company’. This means LLC members are not personally responsible for business debts or legal action taken against the company.
Fact 2 — Easy structure
It is a simple structure to incorporate. It does not take weeks!An
Fact 3 — Flexible tax status
An LLC’s can be taxed in two different ways. It is up to the members to decide if the LLC is paying tax or that they are paying tax.
Fact 4 — No taxation for aliens
If you are not an American citizen, or you do not have a green card, or don’ t have American clients… there are legal ways to avoid any tax!
Fact 5 – no double taxation
In a lot of cases, there will be a tax on the corporation level and again on the individual level. Because an LLC is a pass-through structure, taxation on the corporate level can be avoided.
Fact 6 – no separate tax return
Each member of an LLC can report the business losses and profits on their personal tax returns each year.
Fact 7 — flexible profit distribution
A corporation can only distribute profits on the percentage of the ownership. In an LLC the members themselves can determine the profit distribution percentage.
Fact 8 – no ownership restrictions
An LLC can have as many owned (members) as you want. The members could be individuals or business entities. Or the members themselves are the managers or a third party.
Fact 9 – bank accounts
We all know it is nowadays a real agony to get a bank account for any company. To get a bank account for an American LLC – is if you do it in the right way – is quite easy. And can even be organized remotely!
Fact 10 – No CRS.
The USA did not sign CRS (Common Reporting Standards). This could have major advantages for people who appreciate privacy and discretion.
How to form a US LLC?
Step 1 – EIN
First, we need to get a TAX ID for the company (IT DOES NOT MEAN THAT YOU WILL PAY TAXES°, a so-called EIN. It means an ‘Employer
Identification Number’. To get your ‘EIN it is necessary to have a business name, a US business address and a brief explanation of the main business activity and service or product you will offer’.
Step 2 – operational agreement
You will need to have ‘an LLC operating agreement’, this is a legal document that defines the rights and responsibilities of each LLC member and it describes the organizations’ operating terms. In some states, such an agreement is not an obligation, but we recommend you to have one. It will also be needed to open a bank account in most cases.
Step 3 – articles of organization
The next step is to form a company. For this, you have to file the ‘Articles of Organization’ with a state entity.
Step 4 – a registered agent
You can only incorporate an LLC through a registered agent. It is a third-party registered in the same state as the business is established. This registered agent is nominated to receive and send official documents on your behalf.
Step 5 – bank account
It is not an obligation to have a bank account for an LLC, but of course, without a bank account, it is quite useless. In most cases, it is quite easy to get a bank account for a US LLC. We can organize in some cases, even remotely bank account. This is of course, quite exceptional nowadays!
Step 6 – Licenses, permits…
In specific cases, it can be required to hold certain licenses and permits. This is depending on the state and the type of business.
Step 7: good standing
Finally, your LLC needs to be in ‘good standing’. This means that in principle you have to file an annual report with the state, renew the registered agents’ service and fill a tax return.
Where to establish your LLC?
In which of the 50 states it is the best to establish my LLC? Most people think automatically of Delaware. We don’t. In 2015 the Federal government targeted ‘Delaware’ as a ‘suspect jurisdiction’. A lot of accounts were closed for Delaware companies. Also outside the US, Delaware as the smell of being a tax haven. Many states are very good locations for LLC’s. States like Nevada, Wyoming, South Dakota …with strong privacy laws are good options.
We work most of the time with Texas. It is a real business environment and a ‘low regulation state’ and also privacy is important in Texas. The banks in Texas are in general good and easy to work with. It is a large state with a huge number of companies… In all these states courts are viewed as pro-business. in most cases the state also offers confidentiality to LLC owners permitting them to remain unnamed in public registration filings.
possible to avoid taxes legally in your home country. A Bahamian trust could be, for this purpose a great idea.
E-commerce and LLC’s: problems…and solutions…
A lot of non – residents are active in E-commerce. Maybe they do not have American clients, but their clients are paying with PayPal, Stripe, Shopify…It is complicated but… problems could arise when you want to set up this kind of accounts with a YS LCL treated as a ‘disregarded entity’.
In this case, we will create a ‘taxable association’. It is an LLC which will be taxed as a corporation. The association will act as a ‘payment agent’ for a non-resident business with a written agency agreement to resell non-resident goods and services in the USA.
Invest in US real estate through an LLC!
The USA could be an attractive place to invest in real estate. Also a foreigner it could be a great idea to invest in American real estate through an LLC. Why?
Limited Liability Protection. An LLC will limit your liability. If for example someone visits your property and end up injured, they could file a lawsuit against you. America is a country where judges sometimes sentence you to huge compensations! Avoid problems by buying with an LLC.
Avoid double taxation. Like we told before the USLLC is a ‘ pass-through taxation’ structure. So if you own as a’ non-resident’ a US real estate with an LLC you will avoid in most cases US tax. You will not be liable to, pay taxes on your income in the US.
Delegation. Wit a real estate LLC you can delegate easily the management of your real estate. It can make things much easier if you live outside the US
Transfer of ownership. With an LLC holding the real estate transfer of ownership is also much easier. So it will be much easier, for example, to transfer the real estate property to the heirs.