Can Nonresidents Form LLCs in the US?
Yes, a foreigner CAN own an LLC in the US. LLC Foreign Ownership is completely allowed in the States.
A lot of our clients here at Nonresident Investor started off thinking they couldn’t possibly own a US-based company. However, many foreigners around the world own their own American-based companies, and quite a few of them use those companies to invest in US real estate.
The first step to achieving all of that is — to open an LLC.
LLC Foreign Ownership is a real possibility for foreigners. In fact, the following entities can form, own, or be members of LLCs:
- US citizens,
- US permanent residents and Green Card holders,
- Nonresidents,
- Nonresident aliens,
- US businesses, and
- Non-US businesses.
So, as you can see, LLC Foreign Ownership in the US is pretty much a possibility for anyone in all 50 states in the US. Of course, that doesn’t mean you can set up a shop in the US by getting an LLC foreign ownership and working there while still getting treated (and taxed) as a nonresident.
Now, before we get into the nitty-gritty of LLC foreign ownership, let’s take a quick look at what LLCs actually are.
What Are LLCs?
An LLC is a limited liability company that separates your business and personal persona. It protects your personal assets from any wrongdoings your business might do. If your business gets sued, your assets remain protected.
In essence, an LLC is a hybrid between a corporation and a partnership, and it offers the best of both worlds.
Just like in a partnership, in an LLC, you can choose to be taxed indirectly or as a pass-through entity — where you and other members of your LLC can report your losses and profits on individual personal tax returns. That way, members are taxed only once, as individuals. Corporations don’t offer this option.
On the other hand, just like in a corporation, structuring your business as an LLC allows you to separate your business and personal finances and shield your personal assets, which isn’t something that you can do when you form a partnership (since your personal assets often become collateral).
There are two different types of LLCs:
- Single-member LLCs or sole proprietorship LLCs, and
- Multi-member LLCs or multi-managed LLCs.
Single-member LLCs have only one member (the owner and founder) and are viewed as disregarded entities by the IRS. As a single-member LLC owner, you report all business activity on your private, individual tax returns and get taxed that way.
Multi-member LLCs have two or more owners or members, and one of them is a managing member. Similarly to single-member LLCs, multi-member LLCs also offer the option of paying business taxes through personal income tax returns. Each member of the LLC needs to pay their portion of business taxes this way.
That sounds great, right? But let’s see why you, a nonresident, would even want to get an LLC with foreign ownership (and which requirements you might have to meet).
Why Do Nonresidents Open LLC Foreign Ownership?
Opening a US LLC opens up a whole array of possibilities for a business. It’s a legitimate way to be seen as a US-based business entity on the global market. What’s more, forming an LLC foreign ownership also gives you access to the US market.
Generally speaking, those are the two reasons nonresidents open LLC foreign ownership in the US. To be more precise, opening an LLC in the States is great for:
- People who want a US-based company but don’t plan on having US-sourced income — these people are looking to have a tax-free business with very few obligations to the US government (annual filing of Form 5472). People with online businesses from various sectors (such as finance, dropshipping, consulting, freelancing, selling digital products, and IT), opt for an LLC foreign ownership because it allows them to do business as an American entity while also enjoying a tax-free treatment in the US (because they have no US-sourced income).
- People who want a US-based company and plan on having a US-sourced income — these people want to do business or trade in the US. Real estate investors and business owners who plan on doing business on American soil (or with American companies), open US LLCs because it gives them access to the US market. It also makes it easier for them to conduct their business. Of course, they also pay more taxes than the previous group (and file Form 1065 and Form 1040NR annually).
Favorable Taxing: The Main Benefit of US LLCs
The fact that LLCs are hybrids between partnerships and corporations is a massive benefit. By opening an LLC foreign ownership, you get all the legal asset protection but, more importantly, you get the tax benefits.
As a structure that’s “in-between” a corporation and a partnership, the LLC also offers hybrid taxing. But what does that mean?
It means that, at the very beginning of your LLC journey, you get to pick in which way your LLC gets taxed. There are 3 different ways you can opt to have your LLC taxed:
- As a disregarded entity,
- As a partnership, or
- As a corporation.
Single-member LLCs that are usually used by foreigners for their online business (such as those within the IT industry) get taxed as a disregarded entity that’s separate from its owner. However, even if you open a single-member LLC, you can opt to be taxed as a corporation. You must do so in advance, and file Form 8832 with the IRS, to let them know that you wish to be taxed as a corporation in the future.
You can also opt to be taxed as a partnership. Multi-member LLCs with at least two members are usually taxed this way. Of course, the option to file Form 8832 exists here as well, and you can file it in order to opt to be taxed as a corporation.
Being able to pick in which way your company is taxed isn’t an option in most countries, which is why the US is considered to be a pro-business country.
No matter which option you pick, you have to do so in the very beginning because your entire business strategy will depend on it. Every taxing model requires a different approach, which is why we advise you to consult a professional before deciding.
Find Out More: Contact Our Expert Legal Team
Requirements for Forming an LLC Foreign Ownership
If they are looking to open an LLC foreign ownership in the US without having US-sourced income, nonresidents have to meet the same requirements as US citizens when opening an LLC.
If they plan on having a US-sourced income or working within the US with their newly formed LLC, then they do need to meet an extra requirement: getting a visa.
You can own a US LLC without having any type of US visa. You don’t even have to visit the States to open your LLC — you can do everything online. However, to work for your limited liability corporation on US soil requires a work visa of some kind. Otherwise, you will face hefty fines and maybe even deportation from the States.
Other requirements for opening an LLC foreign ownership are:
- Having a registered agent, and
- Meeting the unique state requirements (if any).
Registered Agent
A registered agent is an entity that you appoint to handle your official documentation. As a foreigner who lives somewhere other than the States, you don’t have a permanent physical address in the US. That’s fine, and you can still do your business as a US-based LLC without one, but you do need to have a registered agent instead.
They serve as your physical address, and it’s where you’ll receive all your mail and important documentation, including:
- Correspondence with the state,
- Tax notifications, and
- Potential Services of Process.
Unique State Requirements
On a federal level, all LLCs are the same. However, on a state level, you can encounter some individual differences.
That’s why it’s important that you, foreign or not, check the requirements of the state in which you want to open your LLC foreign ownership. Some states — such as Delaware, Wyoming, and New Mexico — are particularly business-friendly, have low filing fees, and have low or no income tax. Others, like California and New York, have high-income taxes and massive filing fees, which makes them much less tractive to aspiring LLC owners.
That, of course, doesn’t mean you can’t do business or buy real estate in these states — it will just cost you more.
Related: Real Estate Investing in New York as a Foreigner: A Complete Guide
How Can a Foreigner Own an LLC in the US?
Although the requirements for opening an LLC foreign ownership vary from state to state, the general process of forming an LLC looks the same no matter what. Here’s a quick, 9-step guide on how to do that:
- Check the unique requirements and pick a state — either pick a state with the most favorable requirements or the one where you’re looking to make your real estate investment.
- Get a visa (if necessary) — if you’re looking to buy a real estate property in person or work under your LLC from the US, you’ll need some kind of visa.
- Get a Registered Agent — make sure the agent you pick covers the state you’re interested in opening an LLC in.
- Pick a name for your LLC — the name of your company can be anything, as long as it has distinct suffixes that clearly label it as LLC (such as LLC, l.l.c., etc.)
- Form an LLC Foreign Ownership in your chosen state — you can form your LLC online (on the Secretary of State website) or pay your Registered Agent to do it for you.
- File the Articles of Incorporation form — Articles of Incorporation are different in every state. You can download them and fill them out, then file them to be recognized as a legal entity by the state.
- Acquire EIN (or ITIN) — you can apply for your EIN either by filling out the SS4 form and sending it to the IRS or by visiting the IRS website and doing it online.
- Create an Operating Agreement — an Operating Agreement defines the rights and obligations of all LLC foreign ownership members. It’s not required by every state but we strongly advise you make one either way.
- Open a bank account — to make your LLC functional, you’ll need to open an American bank account.
These 9 steps may sound simple, but it’s really easy to get tangled in the web of paperwork. For a more comprehensive overview of all the details, read our guide on opening an LLC as a foreigner.
Related: Opening a US LLC: A Guide for Foreigners
What Challenges Do Nonresidents Face When Forming an LLC Foreign Ownership?
Aside from the requirements, there are also specific challenges that you should keep in mind as a foreigner.
Getting an EIN
Getting an EIN isn’t a problematic task. However, there seems to be a lot of confusion about it among foreigners.
A lot of our clients who decided to start the journey to opening an LLC foreign ownership on their own usually get confused about EIN and ITIN. These two numbers are extremely important for nonresidents who want to own LLCs in the States. In order to get EIN without Social Security Number, you will need some guidance and we are more than happy to help.
The main point of confusion is that people think they need one to get the other. However, that’s now exactly true. Although you’ll often hear that, as a foreigner, you need an ITIN (an Individual Taxpayer Identification Number) to be able to form an LLC foreign ownership and get an EIN (Employer Identification Number), that’s not true.
The ITIN serves as a substitute for the social security number, and it can be used as a federal tax ID to fulfill the tax filing requirements. However, you don’t need an ITIN to get an EIN. When you form your LLC foreign ownership and file the Article of Incorporation, you’ll be able to apply for your own EIN online.
Keeping Track of All Rules
As mentioned in the previous chapter, requirements for forming an LLC foreign ownership vary from state to state. For example, some states require you to have an Operating Agreement filed, while others want it not only filed but also signed, witnessed, and notarized. Meanwhile, some states don’t require it at all.
Keeping track of that and staying updated on the current rules is one of the challenges that foreigners face.
Finding the Right Registered Agent
If you already have a Registered Agent, you must check whether they can operate in the state you’re interested in. If they can’t, and they don’t have offices there, you won’t be able to use them since the authorities won’t send your documents out of state.
Obtaining the Right Qualifications
Finally, people interested in conducting business in America through their LLC should keep in mind that they might have to get US-approved certifications. If you provide a service that, by law, needs to be certified, you’ll need to acquire a US certification.
