For non-US citizens and foreign companies, forming a company is best to expand a business into the United States. An LLC, or limited liability company, is the optimal business structure when forming a company in the US because you do not have to be a US company or citizen to form an LLC in the United States.
What is a non-US citizen?
The term non-citizen is broad and applies to any non-legal individual in the US.
Individuals that are not considered US citizens are referred to as ‘aliens’ on IRS documents.
The term ‘alien’ refers to a person that is born in another country and does not hold US citizenship
Non-US citizens can be classified as a resident ‘alien’ or a non-resident ‘alien.’
Benefits of an LLC for non-US citizens
It protects your assets.
If you live in the United States or abroad or are even a foreign member of a multi-member LLC, forming an LLC protects your assets. LLCs insulate your homes, vehicles, and bank accounts from lawsuits and potential bankruptcy.
An LLC is lower maintenance compared to corporations.
With an LLC, you don’t have the stress of electing and forming a board of directions. And it eliminates the need to hold shareholder meetings and maintain meeting minutes. Starting an LLC reduces the abundance of paperwork and allows flexibility when making decisions.
Forming an LLC gives you economic access in the US.
The United States is the world’s largest economy. And starting an LLC grants you the access and foothold you need for credibility and global success.
An LLC allows pass-through taxation.
An LLC is a pass-through entity. It is because profits and losses of a company are passed through to the tax returns of all of the members of the LLC.
Steps to form an LLC in the US as a non-citizen
At a glance
- Select the state.
- Name your LLC.
- Hire a registered agent.
- File your LLC with the state of the LLC.
- Create an LLC Operating Agreement.
- Obtain your Employer Identification Number (EIN).
- Get a physical address in the state of your LLC.
- Open a US business bank account.
- Prepare for US tax filing.
1. Select the state
Some states are more favorable for federal tax reasons. But, when you have to open a place of business or office or require a physical presence in a specific state, the LLC must be formed in that state.
If you are opening a physical office or job site, you will need to form an LLC in that state. It also prevents having to register your LLC as a foreign LLC. You will not have to hire registered agents in multiple states, either.
For companies that do not have a physical need, the recommendation is to form an LLC in a state without taxes because you will then only have to handle federal taxes.
2. Name your LLC
All 50 states have different rules and restrictions regarding LLC names. But, there are specific guidelines to follow.
- The name of your LLC must include the words ‘limited liability company, or one of its approved abbreviations (LLC, L.L.C)
- You cannot use words, terms, or acronyms that could confuse your LLC with a governmental agency. (FBI, CIA, Treasury)
- In most states, using words like Bank, Attorney, and University will require additional paperwork and a licensed professional (accountant, lawyer, doctor) on staff.
- You will want to check and see if the web domain is available for the LLC name you want to use. If it is, grab it up so that your company name is reserved.
3. Hire a registered agent
A registered agent is a professional person or business that processes legal paperwork for you. It includes sending and receiving papers on your behalf.
Many states in the US require that an LLC hire a registered agent, and they have to be a resident of the state where you’re starting your LLC.
If the business is non-resident-owned, you will want to hire a registered agent because they have a physical address in the state and are there to open mail, accept processes, and other essential paperwork during business hours.
4. File your LLC with the state of the LLC
You must file your documents with the state you choose to file an LLC officially.
US LLC formation documents outline the structure of your company and are commonly referred to as:
- The Articles of Organization
- Certificate of Formation
- Certificate of Organization
5. Create an LLC Operating Agreement
While most states do not require an operating agreement, it is still a good idea to have one.
An operating agreement is a legal document. It outlines the ownership and operating procedures of your LLC.
A complete and comprehensive operating agreement helps ensure that all business owners are in agreement, includes an annual report, and reduces the threat of future conflict.
6. Obtain your Employer Identification Number (EIN)
The Federal Tax ID for your LLC is an Employer Identification Number (EIN).
Only individuals with a valid Taxpayer Identification Number (ITIN or SSN) or Social Security Number can apply for an EIN online.
Non-resident entrepreneurs and business owners that do not have an SSN or ITIN must complete the appropriate forms and submit them by mail or fax.
Why you need an EIN
- An EIN identifies your business for tax purposes.
- Financial and banking institutions require a business to have a federal ID number. For non-US residents, it is the nine-digit EIN.
- You cannot file tax returns without an EIN.
- An EIN is required to pay wages and payroll properly.
- To apply for business licenses.
- To establish credit and maintain a company’s official standing as a legal business entity.
How to get an EIN
- If you are a single-member LLC and a non-US resident, you can file for an EIN yourself by completing, signing, and faxing the IRS EIN application Form SS-4 Application for Employer Identification Number.
- You can expect a reply from the IRS in about a week.
- You can find a complete list of fax numbers for the IRS to file Form SS-4.
- Or, you can submit the completed Form SS-4 Application for Employer Identification Number IRS form by mail.
- The IRS mailing address will depend on your physical office, the agency jurisdictions, and residency outside of the United States.
- If you file the Form SS-4 by mail, expect it to take up to five weeks to receive your EIN.
7. Get a physical address in the state of your LLC
You will need some sort of physical US address in the state you are starting your LLC. It is required in order to open a bank account and for the LLC formation.
- You can open a physical office in the state you are forming the LLC. This option primarily applies to businesses that intend to have a home office in the US.
- Use a service like Earth Class Mail, and provide real US business mailing addresses in the state you are forming the LLC.
Registered agents can receive mail at your business address on your behalf. The services will scan and deliver the mail to you online and forward any packages out of the United States.
Wyoming, Delaware, and Nevada do not require you to obtain a physical address to form an LLC.
8. Open a US business bank account
The process of opening a US business bank account is the most complicated part of forming an LLC in the US because you must physically go to the financial institution.
- You must visit the bank due to US money-laundering laws. Your business banker is required to know their clients.
- You must obtain a US visa to travel to the United States to make contact with the bank in person.
- You will need to contact the bank prior to your visit to ensure you bring all of the correct required documents.
You can then open a business bank account once you’ve formed the LLC and gotten your EIN.
For those with a personal US bank account already in the US, they may be able to open a business banking account remotely.
Depending on the nature of your business, online payment and money transfer services like Paypal are available for banking needs.
Your LLC’s business bank account does not have to be opened in the US state you are forming your LLC. But, the bank has to have a presence in the same state. For example, you can visit a bank branch in Florida as long as the same bank has a branch in the state of your LLC.
9. Prepare for US tax filing
The US Internal Revenue Service (IRS) created regulations for LLCs and incorporations.
For foreign owners, the taxes depend on how many members are part of the LLC.
A single-member LLC is one that only has one member.
A single-member non-resident LLC must file specific forms:
A multi-member LLC is an LLC that has more than one member.
A multi-member LLC must fill out specific forms:
Taxes and non-residents
- Filing requirements changed in 2017. All non-resident owners of an LLC must file the 5472 US tax return. You will submit it to the IRS for disclosure purposes regardless of if you owe taxes in the United States.
- Foreign-owned LLCs are only subject to US income taxes if they are ETOB or “engaged in a trade or business in the United States.” Even if you generate more income in the United States, there is no LLC tax.
- Nonresident aliens must pay income taxes, but only on income earned in the United States or from another US source.
- Every year, the Substantial Presence Test is applied. It calculates to determine the resident and ’ resident and non-resident status for tax purposes.
- An Individual Taxpayer Identification Number is for certain nonresident and resident aliens, spouses, and children who cannot obtain a social security number (SSN).
- Income on real estate in the US owned by a nonresident alien is taxed at a lower tax treaty rate if not effectively connected with the US trade or a business.
How much does it cost to register an LLC in the US?
The majority of your cost of starting an LLC in the US will depend on the state of your LLC’s physical address.
The cost ranges from $40 to $500.
What are the requirements for an LLC in the state of Delaware?
Delaware does not require any documents when forming an LLC in the state.
You only need the following information:
– Whether or not you are a US Citizen
– Company name – Delaware allows you to check the availability of an LLC name for free.
– Contact Information – You must list an individual for communication contact.
Can you open a company in the US without living there?
You do not have to be a citizen or a resident of the United States to open a company. Regardless of your home country, you must follow the same steps to form an LLC.
What is pass-through taxation?
A company with one individual owner that is not separate from an LLC’s owner for income tax purposes is a disregarded entity.
Pass-through taxation allows single-owner companies not to pay taxes. Instead, the LLC owner pays the business’s taxes through their personal tax return.