How To Open A LLC Company in USA For Foreigners
What is an LLC?
Is a limited liability company, the advantage of having an LLC is the simplicity, it’s very easy to maintain in comparison to a corporation. It’s very helpful when you have real estate or a business and you want to want to sell it out. Also there needs to be two people in the company, it provides for limited liability protection it means that the personal property of the owners of the company of the LLC will not be touched if anything happens with the LLC. If there is a lawsuit against the LLC and there are two people in the LLC, the litigant will not be able to go after the personal assets of the owners of the LLC. Those are the key elements that make an LLC attractive for real estate.
Real Estate is a passive asset so when you buy real estate it will not create any kind of additional taxation, so of you buy an LLC and it holds only real estate you will have only rental income, either if you are a US citizen or foreign citizen, you will have rental income taxation and that will be taxed at regular income tax rate because you are not doing anything to produce the income of the real estate, the rental income is called passive activity and there is no self employment tax.
If you open an LLC for a retail store you will have the rental income over the profits of the LLC and self employment tax 15% over the profits. So the pros are simplicity that you are able to easily install a business or property there, you don’t have to do maintenance of a corporation, if you want to sell it will be very useful but to get those benefits you need to have at least 2 people and second to make the limited liability protection you also need 2 people there. You can open a bank account with an LLC, buy more property, you can put another property in the LLC.
LLC are very easy to form and very easy to dissolve and very easy to use when you are selling either a passive income property or active income property. The LLC doesn’t pay taxes, they flow the profits to the owners and it is the owner who pays taxes.
What are the advantages of opening an LLC in the USA?
Another advantage is that whenever you have multiple business or properties, it will be better to have one property in one LLC. You can buy several properties and have one LLC but the problem with that is that you are creating risk. You have to have a very sound insurance policy that includes liability insurance so if you want multiple properties within the LLC you must have a umbrella policy this will cover for any amount that the primary policies that you have don’t cover so you extra protection.
What are the requirements to open an LLC in the USA?
For US Citizen they can open with a driver license and then applied to an EIN with their Social Security. If the person is not a US Citizen they can open with the passport, they will need a physical address within the state they will the open the LLC, they will need a tax ID that they can open in 30 days approximately because of the pandemic. That’s the main issue with foreigners because requesting a Tax ID takes too long.
Best jurisdictions to open an LLC in the USA?
It depends on the investment, I know people choose Delaware, Wyoming or Nevada because they do not show the name of the company owner and are called offshore US companies. We have helped clients to set up that structure and whenever we are applying for a company in this legislation, the name of the owners are not shown or any information for that matter. That makes those states attractive for foreign companies. If you do open a company in Delaware and you are going to buy a property in Florida you need to register the company in Florida and you will put the name of the company as the owner so that way your identity will not be revealed. Wyoming, Delaware and Nevada are the best jurisdictions if you want to have your information private, but if you do that you have to register the company also in the state where you are planning to buy real estate. We help clients that are foreigners to get their tax ID and that takes 90 days approximately, after that the opening of the bank account is possible remotely so you need the company incorporated as well as the Tax ID also received.
Tax Obligations for a Single Member LLC with Foreign Owner
Is it an obligation to file taxes as a company as a single member LLC?
No, there is no obligation to file taxes for a single member LLC to file a tax return as a company. Because LLC companies with 1 member are disregarded entities meaning that the IRS and the courts will not consider a company as itself when the LLC has 1 single member. Therefore, the IRS does not require that the LLC company with 1 single member files a tax return, it is the member that needs to file a tax return personally for the transaction of the LLC, for example, when there is real estate income for rental purposes and that LLC needs to file a tax return for that even is the owner does not live in the US in any other case or activity an LLC with 1 single foreign member then that member will not need to file.
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What requirements and what processes must be carried out to obtain the Tax Id for a foreign owner of a Single Member LLC?
There are 3 options, the first one is that the person comes to the US and walks to the IRS office in any city and tell the officer that he needs to file a tax return so he needs a Tax ID, you will fill out an application, show your passport and in 30 days you will have a ITIN, you will also need an address. They can send your passport even if its Europe or Latin America but it will better if you have a US address. The second option is that instead of coming to the US you mail the documents to the IRS but remember you need original documents, or you need to certify the passport by the agency that issue the passports, not a notarization, and filling out the application and telling why you need the Tax ID. Later, the IRS is going to mail back your documents but only to a US based address. The third option is perhaps the most popular and we our clients this way. Clients send us the original passports and we certify that the passport is real and once we have that we will fill a couple of forms and will ask the clients why a need for the application of the Tax ID and we is there make sure the application will not be denied, it will 30 to 60 days.
The income from foreign sources to a single member LLC must be reflected in the tax return?
No, foreign income for an LLC is not taxable in the US, because you are not a US citizen or resident, therefor you don’t need to reflect that in your report.
What is the recommended period to do the accounting of the LLC with a foreign owner?
It depends on the amount of the transactions, if you have several rental properties or several businesses it will be better to do monthly accounting. If you don’t have many transactions the accounting can be in a yearly basis and then once the financial statements are provided the tax return can be filed. Make sure that you do this well in advance because tax season from January to May accountants are very busy filing returns so doing the accounting at the end of the year can be cumbersome.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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