Forming a Limited Liability Company (LLC) in the USA is a popular choice for non-US residents looking to establish a business presence in one of the world's largest markets.
An LLC is a business entity that offers several benefits, like limited liability protection, ease of management, privacy, and potential tax advantages.
In this blog, you’ll learn:
- Why a non-resident would want to form an LLC in the US
- The challenges that creating an LLC in the US can bring
- The requirements for a non-resident to form an LLC in the US
- The steps to forming an LLC
- The best states to form an LLC in
- Tax implications and legal considerations for non-resident LLCs.
Why Non-US Residents Form LLCs in the USA
Non-US residents often choose to establish a Limited Liability Company (LLC) in the USA for several compelling reasons. LLCs provide substantial benefits that are accessible regardless of the owner's location.
- Limited Liability Protection: A key advantage of an LLC is that it shields your personal assets, such as homes or cars, from business debts and legal issues. This protection is critical for safeguarding your personal finances against business-related liabilities.
- Access to the US Market: The USA boasts the world's largest economy by GDP, offering vast business opportunities. Establishing an LLC provides you direct access to this lucrative market, allowing you to tap into its potential regardless of your physical presence in the country.
- Management Flexibility: LLCs are renowned for their operational flexibility. As a non-resident, you can either manage the business yourself or appoint a manager. This flexibility allows you to structure the business in a way that best suits your needs and can be especially beneficial if you reside outside the US.
- Privacy
- Tax Benefits: LLCs offer various tax options. You can opt for pass-through taxation, where profits and losses are reported directly on your personal tax returns, avoiding the double taxation commonly faced by corporations. Alternatively, you can choose to be taxed as a disregarded entity, partnership, or corporation, selecting the structure that offers the most tax advantages based on your circumstances.
All of these benefits make LLCs an attractive option for many foreign business owners, which is why they choose to set up a business this way.
Challenges for Non-Residents Opening an LLC
While forming an LLC in the USA as a non-resident offers numerous advantages, it also presents specific challenges:
- Navigating US Laws and Regulations: The legal landscape in the US can be complex, with regulations that vary significantly from state to state. Understanding and complying with these laws is crucial but can be daunting without proper guidance.
- Registered Agent Requirement: To form an LLC, you must appoint a registered agent with a physical address in the state of incorporation. This agent handles legal and state documents on behalf of your LLC, a requirement that cannot be fulfilled with just a mailing address.
- Banking Challenges: Opening a US business bank account typically requires personal verification.This can be challenging if you live abroad and are managing your business remotely.
- Tax Identification Number: Obtaining an Individual Tax Identification Number (ITIN) may be required to file a tax return for the LLC or personally, but requires navigating through bureaucratic paperwork and could be time-consuming.
- Keeping Up with Tax Obligations: It's essential to stay informed about US tax laws and filing requirements to avoid penalties and ensure your LLC remains in good standing.
We don't say this to discourage you. Despite these challenges, forming an LLC is achievable for foreign owners with careful planning and professional advice. We’ll walk you through it.
Requirements for Non-US Residents
Non-US residents must follow the same steps as US residents when forming an LLC. This includes:
- Completing and filing your Articles of Organization
- Choosing a registered agent
- Creating an Operating Agreement
- Obtaining an EIN
- Opening a bank account
- Paying applicable taxes
- Securing necessary business licenses
In addition, non-US resident owners of the LLC must obtain an Individual Taxpayer Identification Number (ITIN) from the IRS. This number helps you file and pay US taxes due on US source income. Following these steps ensures your LLC operates legally and meets all requirements.
To fully understand the requirements for your specific business, we recommend working with a professional to help you navigate what's needed. Specifics can vary depending on your home country and the state you choose to register your LLC in.
6 Steps to Form an LLC for Non-US Residents
The process for creating an LLC is fairly straightforward, but there are steps you need to follow. We’ve put together a complete guide to setting up an LLC that will walk you through the process from choosing a business name to creating an Operating Agreement.
Still, we’d like to highlight specific steps and how opening an LLC as a non-resident can impact them.
1. Choose a State
Choosing a state to register an LLC in the USA is an important decision, and there are many factors to consider. Every state's requirements and fees for forming and maintaining an LLC vary.
If you plan to have a physical presence or operate in one US state, you will likely register there. If you don't, you can choose a state that's most beneficial to you.
One point to consider is how business-friendly the state is. States have different tax rules and privacy requirements. However, even if a state doesn't charge a specific tax, you may still need to pay other taxes and fees. It’s important to understand the full picture, including:
- Filing fees
- Annual reporting and compliance obligations
- Taxes, such as corporate, sales, franchise, and other state-specific taxes
- Licensing requirements
States like Wyoming, Delaware, Nevada, and New Mexico are popular choices because they tend to favor businesses. (We’ll get more specific about the best states to form an LLC later in this article.) Other states, such as New York, New Jersey, and California, are known for being less business-friendly.
By carefully considering these factors, you can choose the best state for your LLC, ensuring a favorable business environment and optimal tax benefits.
We suggest discussing your options with a business attorney or consultant who is familiar with the laws in all states.
2. Hire a Registered Agent
When you form an LLC, you need to have a registered agent. In fact, this is one of the only things that's legally required in every single state to form an LLC.
A registered agent is a person or service that receives important legal documents for your business. These documents can include lawsuit notices or official government mail.
Even if you don't live in the US, this is still a requirement. Here's a quick overview of registered agent must-haves:
- A physical street address (not a P.O. Box) in the state where your LLC is registered.
- Availability during normal business hours (typically 9 AM to 5 PM) to receive legal documents.
- At least 18 years old and live in the state where the LLC is registered. This point applies if it’s an individual acting as the registered agent.
You can be your own registered agent if you live in the state where your LLC is formed. Since this doesn't apply to non-residents, you can hire a professional service. Hiring a registered agent service has several advantages!
First, it keeps your personal address off public records, which can help protect your privacy.
Second, it ensures that important documents are received and handled promptly, even if you are not available.
To hire a registered agent, you can search online for registered agent services. Compare different services based on their reputation, fees, and the level of customer support they offer.
Once you choose a service, you will provide their information when you file your LLC’s formation documents.
Having a reliable registered agent is essential for keeping your LLC in good standing and ensuring you don’t miss any important legal notices.
3. File Articles of Organization
This document includes essential information about your business and is submitted to the state’s Secretary of State office.
Here’s how to file your LLC's Articles of Organization:
- Gather Necessary Information. Collect all the details you need to complete the form, which typically includes:
- LLC’s name and business address
- Registered agent’s name and address
- Names and addresses of the LLC’s members or managers
- Management structure (member-managed or manager-managed)
- Duration of the LLC (ongoing or for a specific term)
- Business purpose (if required by your state)
- File the Articles of Organization. Access the form on your chosen state’s Secretary of State website. You can usually complete it online, but you also have the option to mail it. If you don’t live in the US, filing online will be much more convenient. Fill out the form with the information you collected and submit it along with the filing fee, which ranges from $50 to $500 depending on the state. Some states offer expedited processing for an extra fee.
- Wait for Approval. After you file Articles of Organization, the state will review your request. Approval times can vary; some states process filings instantly online, while others may take a few weeks. Once approved, you will receive a certificate confirming the formation of your LLC.
By following these steps, you can successfully file the Articles of Organization and legally register your LLC.
4. Create an Operating Agreement
An Operating Agreement is a document that outlines how your LLC will be run and defines member roles and responsibilities. It's not required in every state, but we recommend creating one, especially as a non-resident, because it helps prevent misunderstandings and disputes.
Here’s what it should include:
- Basic Information. The name of the LLC, its principal place of business, and the names of its members.
- Management Structure. Whether the LLC is member-managed or manager-managed, and the roles and responsibilities of each member or manager.
- Ownership and Voting Rights. The ownership percentages of each member and their voting rights.
- Profit and Loss Distribution. How profits and losses will be allocated among members.
- Decision-Making Processes. Procedures for making important business decisions, including voting requirements and processes.
- Dispute Resolution Processes. Methods for resolving disputes among members, such as mediation or arbitration.
- Amendment Procedures. Guidelines for making changes to the Operating Agreement and the process for adding or removing members.
Even if it’s not legally required, having an Operating Agreement can keep your business organized and running smoothly.
5. Obtain an EIN
An EIN (Employer Identification Number) is a unique number that the IRS assigns to your business. We often say it’s similar to an SSN (Social Security Number).
What an EIN is Used For:
- Tax Purposes. You need an EIN to file your business taxes.
- Bank Accounts. Most banks require an EIN to open a business bank account.
- Hiring Employees. If you have employees, you need an EIN to manage payroll and employee taxes.
- Permits and Licenses. Some business permits and licenses require an EIN.
How to Get an EIN if at least one owner has an SSN:
- Go to the IRS Website And Apply Online. The fastest way to get an EIN is to apply online. The application is available on the IRS website and can be completed in minutes.
- Fill Out the Form. Provide the necessary information about your business, such as its name, address, and type of business.
- Submit the Form. After filling out the form, submit it online. You will receive your EIN immediately.
- Other Methods. You can also apply by mail or fax using Form SS-4. These methods take longer to process.
Having an EIN helps you handle your business finances and comply with tax regulations.
6. Open a US Bank Account
You will need a US bank account so you can accept payments from customers and pay company expenses. You may also need one for payment processors (such as Stripe) and merchant accounts. Opening a business bank account requires sharing some information with your bank. You may be asked for:
- Identification
- Proof of your LLC's registration (Articles of Organization, Certificate of Organization, or Certificate of Formation)
- Proof of US address and phone number
- EIN Confirmation Letter (CP575) or EIN Verification Letter (147C) from the IRS
- Your LLC's Operating Agreement
To avoid any delays or unnecessary headaches, we advise contacting your bank ahead of time to create a list of items you'll need. If you're unable to visit your bank in person, they may have other options (like chat or a help line).
Best States for Non-Resident LLCs
When forming an LLC as a non-US citizen resident, choosing the right state is essential. Different states offer various benefits in terms of taxation, fees, and legal requirements. Some of the best states for non-resident LLCs are Wyoming, Delaware, and Nevada (and New Mexico).
A quick overview of need-to-knows in these states:
- Wyoming. There is no corporate or state income tax in this state. However, there is a $100 filing fee and annual reporting, which costs $60. This state allows you to form an LLC anonymously.
- Delaware. This state allows anonymous LLCs, has no state income tax, and costs $90 to form when you file. This state has a $300 Annual Franchise Tax that you must pay for as long as you own your LLC. This state doesn't require you to file an annual report.
- Nevada. There is no state income tax in Nevada. When you file your Articles of Incorporation, there is a $75 filing fee. You'll also need a Nevada business license ($200) and an Initial List of Managers ($150). You will need to file an annual report, but the state's requirements are among the most basic.
Let's compare these three states:
- Taxation. Wyoming and Nevada offer significant tax advantages, with no state income tax and minimal other taxes. Delaware has both an individual income tax and a corporate tax.
- Fees. Wyoming has the lowest filing fees, while Nevada has higher initial costs but less ongoing. Delaware has higher initial costs and higher annual fees.
- Legal Requirements. Delaware has the most developed legal system for businesses, Nevada offers strong privacy protections, and Wyoming is known for strong asset protection and privacy laws.
Your decision for the best state to start an LLC in should depend on your needs and priorities. If you value a well-developed legal system, a Delaware LLC might be the best choice. If privacy is your main concern, Nevada offers the best protections. For overall low costs and strong asset protection and privacy, a Wyoming LLC is an excellent option.
Carefully consider all these factors before deciding.
Tax Implications for Non-Resident LLCs
When you own a US LLC as a non-resident alien, you need to understand how income is taxed both in the US and internationally. The specifics of your LLC's tax obligations can vary based on your home country, the state of business formation, what your business does, and how you structure your LLC for tax purposes.
First, it’s important to understand that American LLCs are generally classified as ‘pass-through entities’, which means that business income gets passed through to the owner’s personal income tax returns.
Still, LLC formation is flexible, and you can choose different tax classifications based on what’s most beneficial for your business:
- If you own a single-member LLC, it's treated as a disregarded entityfor tax purposes by default. Your business income is reported on your personal income tax return, making it easy to pay yourself from the profits.
- If you own a multi-member LLC, the default is to treat it as apartnership. Profits are divided among members, who report their share on their personal income tax returns.
- Both single-member and multi-member LLCs can choose to be taxed as acorporation. The LLC pays corporate taxes and then pays members as employees (salary) or shareholders (dividends).
The following is a high-level overview of a few of your potential responsibilities.
US Tax Responsibilities
In general, you only need to pay US taxes on income that was earned in the US.
- Federal Income Tax. You'll need to pay US federal taxes on any income earned from business activities in the US. The rate depends on the income level and applicable tax treaties between the US and your home country.
- Withholding Taxes. In many instances, the LLC will be responsible for withholding a percentage of the company’s taxable income that is payable to a non-resident and sending it to the IRS. The non-resident will then need to file a tax return to determine how much tax they owe and how much of the withholding will be refunded to them.
- State Taxes. Depending on the state where the LLC is formed or operated and the type of income it has, you may need to pay state income, franchise taxes, or other taxes.
- Self-Employment Taxes. Non-resident LLC owners may have to pay self-employment taxes (Social Security and Medicare) on their share of the LLC’s income. However,the need to pay self-employment taxes will depend on many factors including if the owner’s home country has a tax treaty with the US, they type on income earned, and tax classification of the LLC.
International Tax Responsibilities
- Home Country Taxes. Non-resident LLC owners must report their US LLC income to their home country's tax authorities. The specific tax treatment depends on the laws of your home country.
- Tax Treaties. The US has tax treaties with many countries to avoid double taxation. These treaties determine how income is taxed and can provide tax relief for you. Review the tax treaty between the US and your home country to understand your obligations and benefits.
As the saying goes: with great power comes great responsibility.
Forming a US LLC as a non-resident has advantages, but it also comes with specific tax obligations.
Non-resident LLC owners may need to pay both federal and state taxes on US income and report it to their home country's tax authorities. The LLC may also be required to withhold taxes from the owners and send the withheld amount to the IRS. Understanding tax treaties and available deductions and credits can help you minimize your tax bill.
Consult with a tax professional familiar with international tax law to navigate these complexities.
Legal Considerations
Just like US businesses, LLCs formed by non-residents need to follow US laws and regulations.
Here are some key points to remember:
- Compliance with State Laws. Each state has its own rules for LLCs. Make sure you follow the specific requirements of the state where you form your LLC.
- Registered Agent. You must have a registered agent with a physical address in the state where your LLC is formed. This agent will receive legal documents on behalf of your business.
- Federal Regulations. Comply with federal laws, including obtaining an Employer Identification Number (EIN) from the IRS for tax purposes.
- Operating Agreement. Even if not required, having an Operating Agreement helps define how your LLC will be managed and prevents disputes.
- Permits and Licenses. Depending on your business type, you may need specific permits and licenses to operate legally.
Ready To Form Your LLC Today?
Setting up an LLC as a non-resident might seem overwhelming due to the many decisions and legal steps involved.
However, with benefits like liability protection, tax advantages, privacy, and operational flexibility, it could be the right move for you.
With millions of new business applications filed annually, you’ll be in good company and benefit from one of the most lucrative markets in the world!
Our guide can set you on the path to setting up your LLC on your own, but if you prefer not to take the DIY approach, we can assist you. Reach out to LLC Attorney to get professional formation services on your side and get your business up and running quickly.
LLCS for Non-Residents FAQs
Absolutely! Owning an LLC can be a little more complex for a non-resident, but it's achievable when you follow the LLC formation process and understand your responsibilities.
The taxes non-residents pay depend heavily on the business structure and the business income.
You should be aware of the following US tax rates:
- Individual Federal Income Tax Rate: ranges from 10% to 37%
- Self-Employment (FICA) Tax Rates: range from 0% to 15.3%
- Withholding Tax Rates: Range from 0% to %30
- Corporate Income Tax Rate: 21%
You do not need a green card to open a US LLC. The process of LLC formation is very similar for both non-residents and residents, but it is somewhat complex, which is why we advise consulting with a professional.
