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Benefits of Forming a US LLC for Non-residents
The Limited Liability Company (LLC) is one of the most popular forms of doing business in the United States, both for residents and non-residents. At the same time, it offers some additional perks for non-resident owners. Starting a company in America as an LLC has a lot of advantages, including the following:
- The USA has one of the most stable political systems with independent courts.
- You will get access to the largest national market in the world.
- Founded on the principles of the free market, America is uniquely rich in business opportunities.
- Some business opportunities are available only for domestic companies there.
- Setting up and running an LLC requires less paperwork than a corporation.
- US LLCs have the “pass-through” tax status.
- The structure of the US LLC provides flexibility in decision-making, easy management, and profit distribution.
LLC Taxation for Residents and Non-residents of the USA
One of the significant advantages of an LLC in comparison to a C-Corporation is its tax status. Unlike C-Corporations, US LLCs are not taxed on a corporate level. Instead, they have “pass-through” taxation, meaning that LLC members pay their taxes only on the individual level after receiving the distributed dividends.
An LLC with two or more members (owners) is considered a partnership for federal income tax purposes, i.e., with no taxation on a corporate level. A single-member LLC is considered as a “disregarded entity” for federal tax purposes, i.e., its member pays taxes only as an individual. At the same time, despite its “disregarded” tax status, a single-member LLC is treated as an entity separate from its owner, providing limited liability.
However, for non-residents, it is a little bit different. Any LLC profits generated in the US will be taxed by 30%. These withholdings may be adjusted at the end of the year by filing Form 1040-NR to IRS if your account can prove that you owe less than that. However, a US LLC with only non-resident members does not pay taxes on any income generated outside of the USA. Thus, a US LLC is a very convenient business structure if you do not plan to have any income-producing business activities on the USA territory.
Best US States to Form an LLC
If you or other LLC members live in the USA or you plan to open an office and manage your day-by-day activities from there, it is better to register an LLC in the state where you or other LLC members live and/or where the LLC office will be located. If your LLC is registered in one state and has business activities in another state, it must be registered as a “foreign company” and have a registered agent there. At the same time, if your LLC is supposed to have business activities in more than one state, there is no way to avoid it.
On the other hand, if you are forming a US LLC as a non-resident, you can freely choose the state where to register your company. It is common sense to choose among the states that do not have state taxes. This way, you will have to deal with US federal taxes only. At the same time, if you need to open an office in a particular state, it is better to register your LLC in that state. First, it will be easier to open a business bank account if you have an office in the state where you registered your LLC. Second, you probably will have to register your LLC as a “foreign company” in the state where you open its office if the LLC is registered in another state.
Having this in mind, we suggest registering your US LLC as a non-resident in Delaware, Nevada, Wyoming, South Dakota, or Alaska. All these states are business-friendly without state taxes except Delaware, which does not tax out-of-state income. Still, Delaware has the most elaborated business law history, the largest base of legal precedents, and the most advanced business courts system.
Before and After an LLC Registration
Setting up a US LLC is a crucial step in opening your business in America. You will be on the safe side if you discuss your plans with a US corporate attorney, who can help to register your US LLC and provide you with follow-up consultations and assistance. It is even more important to have professional help by your side if you are forming a US LLC as a non-resident.