f Ultimate US LLC Guide For [NON-RESIDENTS] - Globalization Guide

Ultimate US LLC Guide for [NON-RESIDENTS]

US LLCs can be one of the best legal vehicles for non-US entrepreneurs to run their business. They allow access to all the benefits of a first world jurisdiction (such as banking, payment processing, and good reputation) while maintaining a low tax rate and very manageable levels of bureaucracy and bookkeeping.

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 cost-effective, and everything else you need to pay attention to when running it.

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
⭐️ Low set up and maintenance costs
⭐️ Low KYC requirements
⭐️ Easy access to good banking & payment processing
⭐️ Zero-tax possible

It’s pretty amusing to think, that a US LLC actually is more interesting as a vehicle for your business, when you are not a US citizen. This might actually be one of the best examples of how the flag theory can be used optimally.

LLCs are easy and cost-effective to incorporate (it’s actually called ‘organizing’ in this case). 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, which is not the case with most offshore, low-tax jurisdiction.

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.

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

The Single-Member LLC

An LLC is a pass-through or tax-transparent entity. That means the LLC is not being taxed directly. Instead, the tax obligations of the business ‘pass through’ to the owners (members) of the LLC. They then report them on their personal tax returns.

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 won’t 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

  1. Be 100% owned by non-US tax residents (either natural or legal persons)
  2. Have no US presence or economic substance
  3. The income must not be “effectively connected”

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. “green card holder”), or
  • You have lived in the US enough time to pass the “substantial presence test.”

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:

  1. As an NRA, you are subject to US tax on business income if you are “engaged in a trade or business in the United States“, short “ETBUS”.
  2. You are ETBUS only if two things are true: (i) You have at least one “dependent agent” 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.
  3. Finally, if you can benefit from an applicable tax treaty, then you’re only subject to US tax if (in addition to being ETBUS) you operate in the US through a “permanent establishment” (e.g. an office or other fixed place of business).

If you don’t 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
InterestResidence of payer
DividendsWhether a U.S. or foreign corporation*
RentsLocation of property
Royalties:
Patents, copyrights, etc.
Where property is used
Sale of real propertyLocation of property

 

Example #1: Consulting Agency Without Offices or Employees in the US

A social media marketing agency is performing work for US clients. The owner is located in Panama, with a few additional employees in the Philippines. It has no US office or sales agents. All sales are done via phone or automated sales systems.

The company opens a US LLC to bill their clients, and to receive payments in USD in a US bank account. The US clients have no issues claiming the services as business expenses. Since the work is performed abroad, and the owners are non-US citizens/residents the income is not taxed in the US.

Example #2: Foreign Fulfillment by Amazon (FBA) Seller

A foreign entrepreneur uses Amazons marketplace to sell products into the US. He is using Amazon’s “Fulfillment by Amazon” service to fulfill his orders. All marketing and procurement are managed online by the non-US citizen, who divides his time between Thailand, Bali, and Colombia.

His supplier ships the products directly to Amazon’s warehouses, where Amazon employees repackage and ship them to customers all over the US.

Amazon acts as an independent agent with millions of other clients. Amazon is not primarily working for the foreign entrepreneur. Therefore the foreign entrepreneur is not “engaged in a trade or business in the US”. He is therefore not subject to income from selling products into the US.

3. Filing & Reporting Requirements For Foreign-Owned LLCs

In 2017 the United States underwent a major tax reform. It significantly expanded filing requirements, and also increased penalties for not filing or filing incorrectly.

Before the tax reform, (only) US corporations with at least one 25% non-US owner or foreign corporations with US trade were required to file the IRS form 5472. Foreign-owned, single-member, disregarded LLCs were exempt from this requirement.

This all changed, and as of 2018, non-US owners of a US LLC will have to file the IRS form 5472 as well.

Technically, a US LLC only has to file this form if it has engaged in “reportable transactions.” Unfortunately, the tax laws define this term very broadly, and therefore in most cases, it’s better to still file the form. Especially since failing to file, or filing incorrectly, carries a potential fine of up to 25.000$.

This website goes into a lot of detail on the change.

IRS Form 5472

Since the form 5472 was used only for US corporations before, the IRS had to make changes to make it useful for LLCs. They took a shortcut, however, and did not change the form completely. Instead, you have to attach it to a pro-forma form 1120, that serves as a cover page.

Your LLC must have an EIN in order to file Form 5472 and Form 1120.

The due date for form 5472 is April 15th.

The Form 1120 will be only partially completed and includes only basic identifying information, not income and tax deductions like on a complete tax return.

On the Form 5472 you will report only three basic financial information:

  1. The value of the LLC as of the 31st of December of the tax year.
  2. The amount of money moved from the non-US owner to the LLC in the tax year.
  3. The amount of money moved from the LLC to the non-US owner in the tax year.

Additionally, the form must also include a non-US taxpayer identification number for the 25% owner of the LLC.

Download Form 5472 here and the official instructions here.

Unfortunately, it’s not possible to e-file this form. You must either mail it or fax it to the IRS, using the following address:

Internal Revenue Service
1973 Rulon White Blvd.
M/S 6112, Attn: PIN Unit
Ogden, Utah 84201

Accounting & Bookkeeping For US LLCs

There are no requirements to submit the accounting of your LLC.

So you won’t have to

  • ask for and store receipts
  • present bills and receipts from restaurants and other places
  • complete monthly VAT reports

All you need is a simple profit and loss account, that shows incoming and outgoing payments. You can accomplish that by having simple account statements and screenshots of Payment platforms like Paypal, Stripe, Clickbank, Digistore, and others.

Since you won’t have any tax obligation, when you operate your LLC as a disregarded entity, you won’t have to deal with tax inspectors or audits.

Best US State to File LLC

You have the choice between any of the 50 US states, when registering your LLC. As a non-resident with an LLC treated as a disregarded entity, some of the differences between the states become less important. Differences in state tax rates won’t matter for example, as you will aim to be not liable to pay them.

There are however still a number of criteria that you can consider.

  • LLC formation cost: A one-time fee paid to the state to form your LLC.
  • Annual franchise tax: An ongoing fee paid to the state to keep your LLC in compliance and good standing. Failure to pay this fee will usually result in the state resolving your LLC.
  • Anonymity: A small number of states offer anonymous LLCs. Here the owners of the LLC are not publicly disclosed.
  • Other laws and regulations: Some states have more beneficial laws regarding business than others. Wyoming makes it very difficult for example to sue companies, which makes it a very attractive location for a non-resident LLC.

What is the Best State for an Anonymous LLC?

There are only four states that allow anonymous LLCs. Therefore your options for these are limited. However, these states are also among the states with the easiest and most-cost efficient incorporation processes.

Wyoming, Delaware and New Mexico allow you to form LLCs, while keeping your name out of public records. Be advised that these LLCs are not 100% anonymous of course. The registered agent always has to know who is behind an LLC, and disclose this information to the state upon request.

  1. Delaware does not require listing the names of members and managers of LLCs. It does require a Registered Agent to be listed, as well as the incorporator/organizer. To maintain complete privacy it is required to hire third-party providers for those services.
  2. New Mexico does not collect any information about members/managers of LLCs. There is also a complete lack of annual reports, fees or taxes. Similar to Delaware, to maintain complete privacy you will need third-party providers.
  3. Nevada & Wyoming both allow “nominee services.” When you use those services, a nominee will appear in the public records, instead of the real owners.

Side-note: No matter what state or setup you use to incorporate your LLC. When you want to register for an EIN, which you will need to get banking and payment processing, you will have to disclose all of your information to the IRS. This information is not being made public though.

StateFiling feeAnnual feeAnonymity
Wyoming$100$50
Delaware$90$300
New Mexico$50$0
Florida$125$138.75⛔️

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 state’s 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 – 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 “Application for Employer Identification Number”.

To obtain an EIN, you need three things:

  1. a business name
  2. a US business address
  3. a brief explanation of the principal business activity and principal product or service the business will offer or sell.

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:

  1. Traditional banks, like Bank of America, Chase and so on
  2. Neo-Banks, like TransferWise

The traditional banks generally have higher requirements and internal compliance guidelines. It’s 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 haven’t 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 December 2020, there are three neobanks or fintechs that will open accounts with US banking details for non-resident owners of LLCs, fully remotely.

These three options are:

  1. Mercury.co
  2. TransferWise
  3. Payoneer

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.

✅ LLC formation in Wyoming, Delaware, New Mexico, and Florida
✅ Obtaining an EIN
✅ Banking & payment processing
✅ Filing and bookkeeping

Alternatively, follow my guide, on how to open your own LLC fast, easy, and cost-effective with Incfile:

The Most Common Misconceptions I see

The most common

Frequently Asked Questions

Some of the most commonly asked questions about using a US LLC as a non-resident.

What if I sell products online, and my web hoster is located in the US?

No problem. Since you’re renting the server from an independent agent (the hosting provider), you are not ETBUS.

What if I sell physical products into the US?

Having US source income doesn’t make you subject to US tax by itself. Only when you are ETBUS is your US source income “effectively connected” with your US business.

Do I need a US address to incorporate a business in the US?

LLCs are required to have a registered business address. This does not have to be an actual physical address. I recommend using a virtual address service for your business address. This is very useful when applying for your EIN or opening bank accounts.

 

45 thoughts on “Ultimate US LLC Guide for [NON-RESIDENTS]”

    • Hello Marino. No, the bank account does not need to be in the state where the LLC is organized. You can open a bank account in any state (within discretion of the bank).

       
      Reply
  1. do I need to open a bank account on the same state where I incorporated my LLC?
    For example, if I incorporate in New Mexico, am I able to open a bank account in the state of Florida?

     
    Reply
    • Hello Norberto.

      You are not limited to banks in the state where your LLC is organized. I have many clients with Wyoming LLCs, and one of the most common states for opening bank accounts is Florida. There are no issues to open bank accounts for Wyoming LLCs in Florida, as an example. The same applies to New Mexico LLCs and LLCs from any other state.

      Hope it helps!

       
      Reply
  2. Great article with good details. And I have a question about charging EU customer for digital services like – digital marketing and consulting, online courses, online services such as ongoing website support or any other kind of digitally delivered service where no borders apply. I know there is an obligation to register of EU VAT number if you want to sell services to EU clients and also you have to charge VAT, do VAT declarations every quarter and pay the collected VAT.
    Do you have some information about that, or you are only focusing on doing business with customers outside EU, only USA and other countries ?

     
    Reply
  3. Hi there, good article, very informative, though i have a question, what about stock trading? I’d like to know if trading profits (not dividends) are subject to taxes in case of a non-resident LLC whose brokerage accounts are held at us based brokerages?

     
    Reply
  4. Hi Chris! Nice post.
    What part of the IRS code makes it possible for a SMLLC with a foreign owner and no dependent agent in the US exempt from US taxes on income from US clients?
    This is something I see a lot of conflicting information about and nothing about on the IRS website… and every accountant I speak to in the US insists US taxes are payable on income from US clients (despite the fact that all services are performed from outside the US and there is no office or agent in the US..)

     
    Reply
  5. I am a foreign citizen and I open an LLC in 2019 .. I started selling my services in the US and make transfers to my country and pay taxes locally at my country. Do I have to fill the forms 5472 and Form 1120 in order to avoid paying taxes in the US?.. I already paid taxes in my country.. I am confused..
    thanks.

     
    Reply
    • Hi Vivian.

      Form 5472 + 1120 are not related to taxes, but to IRS reporting requirements that are more about Anti-Money Laundering and related issues.
      You will need to file these forms however.

       
      Reply
  6. hello and thank you for your article
    please i’ve LLC in wyoming and i’ve opened an account in transfertwise and its activated but the problem is that my account don’t support debit card for business (idon’t know why), please if there is any solution please help

    and thank you again

     
    Reply
  7. Hello,
    I registered LLC and obtained an ein a week ago. Should I fill 5472 and 1120 forms this year if I haven’t made any operations yet? I plan to start my money transactions within a month.
    Thank you

     
    Reply
  8. Hi.

    Thanks for the article. Just a quick question, if my LLC sells software and apps,.some of them on Google play store and some trough other websites and PayPal. To my understanding I don’t qualify as an ETBUS so I don’t owe any US tax. Is that correct?
    By the way do you offer filling services for the 5472 and 1120?

    Thanks.

     
    Reply
    • Hi Emil.

      I think sales from software through marketplaces lilke the Apple App Store and Google Play Store are considered royalties, and as such are subject to Chapter 3 withholding. Depending on where you are located, you would be able to lower those withholding rates.

      I do offer filing services for Form 5472 and 1120. Just shoot me an email to chris@globalisationguide.org, or reach out through the messenger plugin.

       
      Reply
  9. Hi Chris,
    I already have a Delaware LLC and EIN but I want to open a New Mexico LLC, can I use the existing EIN for the NM LLC or do I have to apply for a new EIN?
    Awesome article, keep up the good work!

     
    Reply
    • Hi Andreas. The EIN is tied to the individual business, so you have to apply for a new EIN for your new LLC. And thanks!

       
      Reply
  10. Hi Chris,

    Your information is really useful.

    One question, if I am dropshipping from US local supplier to local Amazon buyer. Am I considered ETBUS.

    And if I dont have a US bank account. I am just getting the tax permit for tax exemption.

    All money transaction will be dome through my individul credit card and Amazon will pay to right away to my bank account.

    Am I still liable to file IRS form 5472 and any tax I have to pay ?

     
    Reply
  11. Hello,

    I’m from Turkey and I live here. I’m going to sell tangible goods on Amazon FBA in the U.S.
    My products will come to the U.S. from China and They will stay in Amazon’s FBA warehouses but it can be any state. It will be online E-commerce.

    I’m non U.S. resident and I’m thinking to form a Single-Member LLC in the U.S. But I don’t know which state is better. There are 2 options I’m thinking of: Delaware and Wyoming.

    If you consider:

    *** Sales tax (buyers pay it, not sellers. So, It doesn’t concern me and there isn’t any money comes out from my pocket for sales tax. I just collect it from buyers and pay it to the states. So for sales tax, no matter which state I choose. )

    *** State income tax (when I choose one of them to form LLC as a non U.S. citizen, Will I pay state income tax to any other state? There are comments on Quora.com that says there are factors create physical nexus or economic nexus for non U.S. residents Amazon sellers )

    *** Also, Is there any Sales tax or Income tax for Local Government (like municipality) for non-U.S. residents ?

    *** Federal income tax ( For this, I guess no matter which state I choose. Because there is no difference)

    *** Other all details that I don’t know,

    Which state would you recommend me to form LLC?

    Could you help me with that?

    Warmest Regards
    Tayfun Duymaz

     
    Reply
  12. Hi, thanks for the article.
    How do I open a branch (representative office) of a company from another country in the United States? With a physical agent, and, if possible, with a profit. What documents are needed and what is the mechanism of action? Thanks!

     
    Reply
  13. Hey Chris thanks for the article.

    I recently opened a C Corp in Delaware.

    Is there a major difference between the two – is it worth considering closing down the CCorp and instead forming an LLC?

    Thoughts?

     
    Reply
    • Hi Drew.

      A C-Corp is its own entity for tax purposes. So you will always pay US corporate tax on any revenue you generate. That is one difference, but there are many others. Whether or not an LLC makes more sense in your case, will depend on a number of factors, but I do not have enough information to tell you what’s best for your particular situation. There are many situations, where a C-Corp is a much better option, especially for US residents.

       
      Reply
      • Oh ya Im a Canadian citizen living abroad in Indonesia.

        Does that help?

        From what I’ve read they are pretty similar as a foreigner in a foreign country, but I could be wrong.

         
        Reply
          • Literally just spoke with my accountant — I was technically in 2019 – and I’ll pay those taxes – but this year and moving forward I will not be as I spend all my time out of Canada (I believe you need to be in Canada at least 6 months out of the year to be considered a tax resident) plus I have no assets or anything tied there.

            Let’s say for argument sake that I am not considered a tax resident anymore.

            Would this have an effect on whether to choose and LLC or C Corp ?

             
  14. At the end of the FAQ you recommend using a virtual business address, when setting up the LLC. Can you recommend or suggest any?

     
    Reply
  15. Hello Chris! awesome work on your guide.
    I already formed the LLC in Wyoming a few days ago and the box with the documents has already arrived at my ipostal1 address. What should I do now?
    The “scan documents” option is not available to use since is a box/package.
    The EIN is already on its way.
    Thanks so much!

     
    Reply
    • You can download digital versions of all the documents from Incfile through their website. You can forward the physical documents to your home country via ipostal1. Hope that helps!

       
      Reply
  16. Dear Chris how are you! I’m from Uruguay and will start a real estate biz in Florida. Basically I’ll resell houses prior basic remodelations. No doubt that I’ll open an LLC. But I’ll need to send money to that LLC account., my question is: the money must be transferred from a personal account in the US? Or I can send the money from overseas from another account that doesn’t belong to me?
    Thanks

     
    Reply
  17. So the only forms I need to fill are the 5472 along with the 1120, am I right. And one more thing, I opened my LLC mid December, do I have to file this April?

     
    Reply
    • Yes, those are the only reporting requirements and unless you have income that is effectively connected / US source, you would not be required to file anything else. If you had no reportable transactions in 2019, you only have to report in 2021.

       
      Reply
  18. Thanks for this article! I have one additional question: do you have any experience with forming a US LLC but as the single partner of this US LLC is a foreign entity (a foreign business). I am a non-us resident but I would prefer that the LLC is owned by the other foreign company. Would this have any significant impact on the way to start the LLC?

     
    Reply
    • Hi John.
      that process has become more complicated, since the responsible party to request an EIN needs to be a natural person now. If no US person with a SSN is part of the foreign entity that owns the LLC, it’s pretty much a dead end, as no EIN can be requested.

       
      Reply
  19. Hi Chris,

    I already have a Wyoming LLC but I want to have the EIN, can I get it without applying for a ITIN?

    Awesome article, keep up the good work!

     
    Reply
  20. Hi Chris, great article! It is the first one that I find with so many helpful details.
    I have an LLC -partnership, two members- incorporated in Delaware and I live in Argentina. Question: if I get a Paraguayan residency, and I am still living in Argentina, can I claim not to pay taxes in Argentina because I have a Paraguayan residency? Thanks.

     
    Reply
    • Hi Carlos!

      If you continue to live primarily in Argentinia, just having your legal residency in Paraguay would not change your personal tax residency, and therefore not help you to avoid Argentinian income tax.

       
      Reply
  21. Hello. So I followd the steps for opening a LLC as an US non resident. As im fro the EU Ive set my peronal adress to Nevada. Now the US Postal Service requires Form 1583 to be signed and notarized before my address can be activated and any mail can be delivered or received on my behalf. But i cant notarize it on “Notarazie” from Incfile because i dont have an US SSN number. What should i do?

     
    Reply
    • Hi Mladen.

      You do not need a US SSN to use notarize.com, through the link provided by iPostal1 or Anytimemailbox. All you need is an ID document (passport) and a utility bill for your personal address that you want to verify (in your country).

       
      Reply
  22. Hi,

    I book a 30-min call w u today 4 pm (CET) but have received no email invitation. Could you please follow up by email?

    Thanks

     
    Reply

Leave a Comment