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Forming a US LLC for Non-Residents: A Complete Guide

The US market is known as the world’s economic stronghold, so it’s only natural that non-US residents rush to establish themselves here. But as a foreign company expanding your trade or business, did you know that you’re subjected to different registration processes than a typical US company? 

Fortunately, our resident entrepreneurs are here to guide you in forming an LLC for non-resident businesses.

Who is Considered as Non-US Resident?

If you’re a new entrepreneur, you’re probably wondering what we meant by Non-US Residents. You may not know, but any person or business owner not residing in the country is often referenced as non-resident aliens in legal terms, for they have no physical address in the US. 

A non-resident alien may only obtain the status of a resident alien after passing the substantial presence test or the green card test. If a foreign individual fails these exams, their status will remain as a non-resident alien. 

Can They Open Businesses and LLCs in the USA?

Yes, opening a US trade or business isn’t limited to natural-born citizens. As a matter of fact, foreign business owners don’t have to be physically present in the country to register for a US company. Testament to this is the millions of online businesses that are currently thriving in the country.

business meeting

But as our experts previously noted, the process of paying taxes or incorporating may differ from a US LLC owned by a registered citizen. 

And while you can run your limited liability company virtually, personally managing it will require a non-US citizen like you to apply for a VISA or work permit. If that’s not possible, you can hire business managers residing in the country to handle company matters in person.

Business Structures in the US

Corporation

Some non-US citizen business owners are enticed to form a C-Corp entity because of its unlimited stock capability. With its high potential to expand, it can attract more external investors, making your business accelerate in the market. 

Although this business entity has more elaborate tax obligations than a US LLC, a C-Corporation has a lower dividend rate. So if your US trade or business doesn’t engage in real estate transactions, you wouldn’t need to pay taxes for capital gains. 

lady standing

Additionally, some non-US tax residents prefer C-Corporations over LLCs because its structure isn’t directly scrutinized by the Internal Revenue Service or IRS.

Partnership

If your trade or business enters a limited partnership agreement, it means that you, as the owner, have unlimited liability over the company. On the other hand, your partners involved in the same agreement have limited liabilities or control over the business. 

If your company has more than one owner, our business specialists recommend forming a limited liability partnership. Through this structure, each member of the partnership has equal protection over debts. Moreover, it also protects co-owners from legal problems caused by another partner.

Trades and businesses under this entity are subjected to pass-through taxation. It means that the company’s profits are taxed via personal tax returns, not through corporate taxes. 

LLC

Single-Member LLC

Many business professionals recommend forming a US LLC when running an online business because you can legally register it with only one member. Thanks to this structure, the company’s profits and losses are directly reported to the owner’s personal tax return. 

form 1040

Non-residents and residents must fill out different forms when paying for their income tax returns. You should submit IRS Form 1040[1] if you’re a resident alien and IRS Form 1040NR if you’re not.

Multi-Member LLC

Any US LLC formed with two or more members is automatically classified in partnership tax perspective by the IRS. 

As you pay tax obligations as a multi-member LLC, profits and losses accumulated by each member must be reported. They must include this information in their income tax returns as well.

Benefits of Registering an LLC Business in the USA

#1: Taxation

As an aspiring business owner, we’re sure you already know that the US is one of the biggest tax havens in the world, especially for LLCs. You may not be aware, but an LLC is considered a pass-through entity in the US. It means that your business’s tax burden is processed through the personal income tax return of the owners. 

tax forms, pen, and calculator

There are also tax treaties foreign LLCs can take advantage of to lessen taxes, which our experts will discuss further in the latter part of this article.

#2: Protection of Assets

As long as you’re a member of an LLC, your assets are protected by the law. Even if you’re a non-US tax resident, this regulation still applies, and the state government recognizes you and your company as separate entities. 

So if an LLC gets broiled in lawsuits or legal conflicts, no creditor can dip their hands in any member’s assets unless there are certain circumstances that pierced its corporate veil. All they can go after legally is the business account of the LLC in question.

#3: Minimal Costs and Fees

If you’re thinking of forming a legal entity for your online business, the best way to go is to incorporate it as an LLC. While our team understands the expansion perks of corporations, the reduced registration and legwork for LLCs can save new business owners time and money. 

shaking hands

Keeping up with shareholders ‘ meetings and elections can be a hassle for owners who don’t have a business address in the country. Fortunately for you, most US states don’t require it for LLCs. 

#4: Banking System

When it comes to opening a business bank account, the US floods with multiple options. As an LLC, this perk could help you open separate bank accounts for your business and personal needs. 

#4: Reliability

As the largest economy there is, you can bet that expanding in the US could get you a bigger market reach. And given that the country has an abundant business environment, our resident entrepreneurs could assure you that many states here have clear and set standards on handling business-related issues. 

How to Register a Foreign-Owned LLC

#1: Apply for an EIN

Any legal entity in the country must obtain an employer identification number for tax purposes. But since a foreign LLC owner does not have a social security number or a taxpayer identification number, obtaining it differs from a typical LLC. 

applying for EIN

If your company is a citizen-owned LLC, it can easily be done on the IRS website. But if you’re currently in your home country, the best we can advise is to call for a faster and more fruitful transaction. 

Should you find yourself unavailable to call, you can send an email or fax to the IRS along with the required IRS Form SS-4. It should include basic company details like business name, business address or mailing address of your registered agent, and many more.

#2: Register Your Chosen Name

It may sound simple, but choosing a unique business trade name is a crucial step you should ponder well. If anything, your LLC name should be distinct and not anyway similar to any active businesses in the state you want to incorporate in. 

#3: Get a US Mailing Address

Assuming that you reside in your home country and run an LLC abroad, one of the first requirements you should acquire is a physical US mailing address. You see, most states in the US oblige LLCs to have a registered agent who’d act as a representative to receive all the important notices and legal documents from the state office. 

man reading a document

Not having a physical business address within the country usually makes foreign companies hire a registered agent service. Our trade specialists advise you to carefully examine the company you’re hiring because the documents they’ll receive on your behalf are often time-sensitive and should be brought to your attention immediately.

#4: Open a Bank Account

Opening a US bank account is, without a doubt, one of the challenging processes of running a US LLC for non-resident individuals. We don’t recommend doing the step without acquiring your EIN first because this is one of the many requirements of banks when opening an account with them. 

Many entrepreneurs often opt to fly to the country and personally walk into the bank. But did you know that there are a few ways you can open a US bank account online? One of them is by registering for a US PayPal account. 

But remember, every bank has its set of requirements. Whether you decide to fly in or do it online, you’ll still be asked to provide necessary documents like Identification cards, articles of organization, EIN, business address, and others. 

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Taxes for Foreign-Owned LLCs

As we already discussed, LLCs registered in the US are not obligated to pay corporate taxes. All the profits and losses are filed through the personal account of each owner of the entity. 

businessmen in a meeting

The IRS will be the one to determine if you’re a taxable individual. Most of the time, if you’re not a resident, only your US-Source income will be taxed.

Source of Income

It can be quite tricky for a new entrepreneur to determine the difference between foreign and US-Source income. And given that foreign LLCs are taxed through US-source income, this metric should be an area you should gain mastery upon. 

Typically, income sourced outside the US is not subjected to international tax. However, if you’re operating an office within the country, that’s a different story. You must know that profits on a trade or business in the US are taxable under the law. Besides that, LLCs with applicable tax treaty perks are automatically taxed too. 

On a side note, the foreign-sourced income could not be an Effectively Connected Income if your dependent agents don’t do deals or negotiate within the US. The same tax treaty applies for US-sourced income if your company doesn’t engage in US trades or businesses. In that case, all you need to do is pay federal taxes.

US Trade or Business

The engagement of your LLC on US trades and businesses often determines if you’re exempted from taxes or not. But how will you know if your company falls under ETBUS policy?

man using a laptop

One standard that strongly implies that your business needs to be taxed is if your LLC has at least one dependent agent. However, this agent should have a substantial role in growing your business, excluding ones doing admin work. 

And last but not least, ETBUS policy also covers those LLCs continuously and regularly conducting business within the US territory for a long time.

How to Keep it Tax-Free?

Having a tax-free journey while running an LLC can be tough, but our business experts have a trick or two to share. If you can handle the job alone, it’s best not to employ employees or contractors to work for your company to lessen tax burdens. 

Besides that, including US residents as members of your LLC could also trigger tax requirements.

Filing Requirements

Like a typical company, foreign LLCs must submit articles of the organization during the registration. You’ll also need to file an annual report to maintain your business entity and get an EIN. 

woman reading a document

And while it’s not mandatory, our resident entrepreneurs highly urge you to draft an operating agreement for crucial management decisions.

Best States to Register Foreign-Owned LLCs

Incorporating in Wyoming is a great option if you want low maintenance fees for your LLC. It also has a nominee policy like Nevada, where owners can stay anonymous in public records. Delaware also has a similar regulation as they don’t require full disclosure of LLC members. 

FAQ

How is a foreign LLC taxed in the US?

A foreign LLC in the US is taxed via a pass-through policy. Should you decide to register under this entity, your company wouldn’t need to pay corporate taxes. Instead, the profits and losses of the LLC will be taxed through the personal income tax report of each member of the entity.

Can you start a business in America without a green card?

Yes, you can start a business in America without a green card. As long as you hire a registered agent to represent the company on your behalf, you wouldn’t have any problem incorporating in the country. However, just ensure that you get all the necessary requirements like EIN, bank account, etc. 

Conclusion

Incorporating a US LLC for non-resident individuals isn’t the easiest task in the business world, but it’ll surely boost your company’s credibility once you’re done. If you still find yourself confused and intimidated by these processes, we recommend seeking help from industry service providers to ease your LLC incorporation journey.

Charles McMillan
Charles McMillan
Charles is a family man, an entrepreneur, and a writer. He is skilled in finding the balance between efficiency, affordability, and high-quality offerings when it comes to business services. He’s on a continuing mission to discover and rediscover the most popular LLC services, while sharing his most accurate assessment and review to help business owners like himself.