US LLCs can be one of the best legal entities for non-US entrepreneurs. They enable access to all the benefits of a first world jurisdiction, such as banking, payment processing, and good reputation, while maintaining a relatively low tax rate and manageable levels of compliance requirements.
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 fast and compliant, and everything else you need to pay attention to when running it.
- The Benefits of the USA as Jurisdiction
- Reputation
- Set-Up and Maintenance Costs
- The Single-Member LLC
- Tax Obligations for Non-Resident Owners
- Who Is Considered a Non-Resident Alien (NRA)?
- What Constitutes US Presence or Economic Substance (Nexus)?
- Determining Source of Income
- Filing & Reporting Requirements For Foreign-Owned LLCs
- Best State to Set up Your LLC
- ULTIMATE GUIDE TO OPEN YOUR OWN LLC
- Requirements to Form and Operate an LLC
- Tax-ID for Your Company â EIN: Employer Identification Number
- How to get an EIN as a non-resident without SSN or ITIN
- Bank Accounts for a Foreign-Owned LLC
- Opening Accounts Remotely
- Opening Accounts in the USA in Person
- Remote Account Opening through Service Providers
- Need Help Setting-Up Your LLC
- Frequently Asked Questions
The Benefits of the USA as Jurisdiction
There are many good reasons for operating through a business registered in the USA.
Among them are:
- Very good reputation
- Internationally competitive set-up and maintenance costs
- Low barriers to entry
- Reliable access to good banking & payment processing
- A favorable tax system
LLCs are easy and straight-forward to incorporate (itâs actually called âorganizingâ in this case). You do not require a lawyer and therefore setup costs are well within range for founders all over the world. You can have everything set up and running within a week, and for less than 500$, if you choose to do some of the work yourself. A similar company form in Canada will cost you about 2000$ to get going.
Reputation
The USA continues to be one of the leading economies in the world. As such, companies registered here enjoy a high level of trust around the world. Your customers will have no issues deducting invoices coming from your company.
Set-Up and Maintenance Costs
Thousands of LLCs are being organized all across the USA on a daily basis. As such, there is a competitive industry aiming to acquire your business, and most services related to LLCs can be obtained at very affordable rates.
The Single-Member LLC
LLCs are so-called pass-through or tax-transparent entities. That means an LLC is not taxed directly, instead any tax obligations of the business âpass throughâ to the owners (here called âmembersâ) of the LLC. They report them on their personal income tax returns.
Tax Obligations for Non-Resident Owners
The tax implications of owning and operating a US LLC are clearly one of the most important questions that we have to shed light on. This is also one of the most often misunderstood questions in all of US international tax.
The USA can be one of the biggest tax havens in the world. A US-based LLC opened by a non-US citizen or non-resident can allow for earnings, that are completely tax-free.
The setup can work for all sorts of different business models:
- Consulting & other personal services
- Dropshipping
- Selling digital products
- Amazon FBA
- Freelancing
- SAAS
In cases where there are no tax obligations on the US side, and where the owner is a tax resident of nowhere or a resident of a country with a territorial taxation system, there wonât be any tax to pay at all.
In order to determine the appropriate taxation on the US side, we look at the IRS Taxation of Nonresident Aliens.
A US LLC has to meet three criteria, in order to not be subject to US federal income tax
- Be 100% owned by non-US tax residents (either natural or legal persons)
- Have no US presence or economic substance
- The income must not be âeffectively connectedâ
Who Is Considered a Non-Resident Alien (NRA)?
You are a non-resident alien if you are not any of the following:
- A US citizen
- A US permanent resident (i.e. âgreen card holderâ), or
- You have lived in the US enough time to pass the âsubstantial presence test.â
If any of the above three categories is true for you, then any income generated through an LLC owned by you, will automatically be subject to US tax.
What Constitutes US Presence or Economic Substance (Nexus)?
Here is how it works:
- As an NRA, you are subject to US tax on business income if you are âengaged in a trade or business in the United Statesâ, short âETBUSâ.
- You are ETBUS only if two things are true: (i) You have at least one âdependent agentâ in the US. Dependent agents are employees or companies that work almost exclusively for you. And (ii) that dependent agent does something substantial to further your business in the US. Purely administrative jobs are not included under this rule.
- Finally, if you can benefit from an applicable tax treaty, then youâre only subject to US tax if (in addition to being ETBUS) you operate in the US through a âpermanent establishmentâ (e.g. an office or other fixed place of business).
If you donât meet those conditions, you are not (automatically) subject to US tax on your business.
Even if the LLC generates income in the US, by offering services or selling products into the US, that income is not taxed in the US.
Determining Source of Income
Nonresident Aliens - Source of Income | |
Business income: Personal services | Where services performed |
Business income: Sale of inventory -purchased | Where sold |
Interest | Residence of payer |
Dividends | Whether a U.S. or foreign corporation* |
Rents | Location of property |
Royalties:
Patents, copyrights, etc. | Where property is used |
Sale of real property | Location of property |
Filing & Reporting Requirements For Foreign-Owned LLCs
Best State to Set up Your LLC
ULTIMATE GUIDE TO OPEN YOUR OWN LLC
In the following section, I am going to show you step-by-step, how to set up your own LLC, receive your EIN from the IRS in record time, open bank accounts fully remotely, and finally how to get payment processing (Stripe) and Paypal, so you can start billing your clients.
- Decide on the state for your LLC
- Choose a name and compare it with your stateâs database
- Use a service provider to open your LLC and serve as your Registered Agent
- Apply for an EIN
- Open bank accounts and apply with payment processors
Requirements to Form and Operate an LLC
Tax-ID for Your Company â EIN: Employer Identification Number
The EIN (Employer Identification Number) is a unique 9-digit number assigned to your business by the IRS.
The EIN is used to identify a business for tax purposes with the IRS. Think of it as a Social Security Number for your business.
You will need this number in order to fulfill the filing requirements for your LLC. Having an EIN is pretty much also a non-negotiable when opening a bank account, or applying for merchant accounts with payment processors like Stripe or Paypal.
How to get an EIN as a non-resident without SSN or ITIN
To apply for an EIN you will need to fill out Form SS-4 âApplication for Employer Identification Numberâ.
To obtain an EIN, you need three things:
- a business name
- a US business address
- a brief explanation of the principal business activity and principal product or service the business will offer or sell.
Click here to order your EIN through Globalization Guide.
Bank Accounts for a Foreign-Owned LLC
A company without a bank account is no real company. Aside from receiving wire transfers, paying bills and invoices, you will also need a bank account to use for your merchant accounts and payment processors.
So one of the most important questions to ask is, where and how to get good bank accounts.
There are two categories:
- Traditional banks, like Bank of America, Chase and so on
- Neobanks, like LEVRO or WISE (formerly TransferWise)
The traditional banks generally have higher requirements and internal compliance guidelines. Itâs generally not possible to open those accounts remotely. The owner or company manager has to appear in person.
Opening an account with fintechs and neobanks is usually simpler. Their KYC requirements are lower, and there are several options that can be done remotely. Since the available options change regularly, we havenât included them here. Feel free to reach out, if you need help.
Opening Accounts Remotely
As part of their KYC (Know-Your-Customer) guidelines, traditional banks will require a representative of the company to personally appear at a branch.
There are however some fintechs and neobanks that will allow you to do the verification without having to be physically present.
As of July 2022 there are five neobanks or fintechs that will open accounts with US banking details for non-resident owners of LLCs, fully remotely.
These five options are:
While itâs nice when a neobank allows you to open an account remotely, do your research and think about the ongoing tools and features your business will need. This may save you from having to go through the entire verification process all over again if you ultimately decide you need a different bank.
Opening Accounts in the USA in Person
When you actually step foot into the US, opening accounts for your LLC becomes quite easy. There are literally a hundred options available, including many of the big banks like Chase, Wells Fargo, Bank of America, TD Bank and many others.
Remote Account Opening through Service Providers
There is the option to open accounts without initially having to travel to the US. Through intermediaries that are given power of attorney, you can also open accounts. Often the banks will require a personal visit at some point however.
Need Help Setting-Up Your LLC
At Globalization Guide, we offer the full spectrum of LLC formations and management.
â LLC Formation in all states, incl. Wyoming, Delaware, New Mexico, and Florida
â Expedited EIN application
â Banking & payment processing support
â Filing and bookkeeping
Alternatively, follow my guide, on how to open your own LLC fast, easy, and cost-effective with Incfile:
Frequently Asked Questions
Some of the most commonly asked questions about using a US LLC as a non-resident.