Thousands of foreign citizens decide to establish a business in the US each year, but it can be an overwhelming process. After all, most of the information you’ll find on US companies and incorporation is designed for residents and doesn’t consider the unique needs of a non-resident.
As a non-resident, you can follow these basic guidelines to choose a business entity:
If your company is going to do business in the United States, a corporation is the best option.
If you will be operating entirely outside of the United States and there will be no US resident owners, a Limited Liability Company (LLC) is the best option.
Why an LLC?
If your business will be conducted entirely outside of the United States and you do not have US-resident owners, your LLC will probably not be subject to US income tax or reporting. With a single-member LLC, your business is a disregarded entity, meaning it doesn’t even exist for tax purposes. The global income of a corporation, on the other hand, is taxable and requires the filing of a corporate tax return annually.
Why a Corporation?
If you will be conducting business in the US in any way, including leasing space or hiring employees, a corporation makes the most sense. A corporation pays a regular tax rate regardless of whether it is owned by a resident or non-resident. With an LLC, the tax situation becomes more complicated. Continued taxation means that nonresidents will need to obtain a US taxpayer identification number and file a US nonresident income tax return.
All money earned by the LLC that is sent to the owners is reduced by 30% for withholding taxes. The IRS can then issue a refund for the excess over the amount owed. If you do business in the US and form an LLC, you will also need to appoint a withholding agent and prepare and submit IRS information each year.
A foreign-owned LLC is also subject to branch gains tax, which is designed to prevent foreign-owned businesses from avoiding capital gains tax.
Incorporation in the US
While the process of incorporating or forming an LLC as a non-resident can be a bit complex, it is often worth it. When you form an LLC, you will go through the same basic process as a US resident. No citizenship or residency is required, and there will be few hoops to jump through.
Incorporation, on the other hand, is done at the state level, not the federal level. The process varies by state.
You will need to obtain an individual taxpayer identification number from the IRS if you have to pay taxes. To get the profit rollover distribution, you will need to form an LLC. If you form a corporation, you will be subject to double taxation. That is why many foreign residents opt for an LLC.
You can be a corporate director or officer, but you cannot work in the US or receive compensation for services rendered in the US unless you have a work permit. If opening a bank account in your home country or a local government office requires proof of formation, you may need to certify your business documents with an Apostille, which is an agreement between countries to accept documents.