US Company for Non-US Citizens
Should you consider starting a US company as a non-US citizen?
If your passport and your country of residence do not allow you to run a business easily, then you should think about incorporating in another country, particularly the US.
Compared to many countries worldwide, the US offers better access to funding, receiving payments, lower taxation, and less bureaucracy.
LLC or C-Corp?
As a non-US citizen, you can incorporate as an LLC or as a C-Corp.
These two business structures are different.
Advantages of an LLC:
- Low incorporation costs
- Low running costs
- No corporate taxes, only income tax in your home country
Disadvantages of an LLC:
- Angel investors and venture capitalists do not invest in LLCs. They invest in C-Corps because of the beer structure for outside investment.
Advantages of a C-Corp:
- Low incorporation costs
- May have low running costs
- Angel investors and venture capitalists prefer them over LLCs due to the business structure
Disadvantages of a C-Corp:
- Double taxation - corporate taxes in the US and personal income taxes in your home country
So, what is better for you?
If you are an independent maker, solopreneur, solo e-commerce seller, or freelancer, an LLC is better.
If you are building products, but you don’t need outside investment soon, LLC is better. When you need investment, you can easily change the business structure from LLC to C-Corp.
If your business needs an outside investment soon, then you need a C-Corp.
Image - timeline solo maker → may have a product soon → needs investment
Where to incorporate?
If you need an LLC, incorporate in Wyoming or New Mexico.
If you need a C-Corp, incorporate in Delaware.
Other US states have either higher franchise taxes or more bureaucracy.
US LLC - Disregarded Entity Essentials
If you are maker, indie hacker, freelancer, solo e-commerce store owner, or any other kind of solopreneur who doesn’t want to raise venture capital any time soon, a US LLC as a disregarded entity is by far the best option for you.
- Zero corporate taxes
- Pay only annual fees (as low as $50 in Wyoming, not required in New Mexico)
- File online some forms to the IRS (1040 and 5472)
- Pay yourself when you want and how much you want (management services)
- Pay income taxes in your home country only for the money that you pay yourself. If there is money that stays in the LLC, they remain untaxed.
- Pay only for a registered agent (around $50 a year) and virtual mailing service (around $10 a month)
Criteria to be Treated as a US LLC - Disregarded Entity
There are four conditions you need to meet in order to enjoy the benefits of a US LLC as a disregarded entity:
- You must be the sole owner of the LLC. No partners allowed.
- You must not have employees from the US. Independent contractors/freelancers are allowed.
- You must not have premises dedicated to you in the US. It means that you must not have your own offices or warehouses that you own or rent. You can use Amazon FBA premises, though (they are not only for you, but for all FBA sellers).
- You must not spend more than 30 days in a calendar year in the US. Actually, you can spend more than that, but it requires lots of paperwork to keep yourself out of the US taxation net.
Taxation of your US LLC - Disregarded entity
As a pass-through entity, the US entity passes the income taxes from the company to the owner.
That means that the company doesn’t pay taxes. The owner pays the company income taxes as their personal income taxes.
However, since you are living outside of the US, you don’t owe taxes to the US IRS. You owe taxes only in the country where you live as long as you meet the taxation thresholds there.
The only exception is the US LLC income coming from dividends, interests, rents, and other recurring income coming from capital gains. This is taxed 30%.
To give you an idea:
- What income is taxed
- Stock trading income
- Rents from real estates
- What is not taxed:
- Profits from selling on Amazon
- Income from consulting services
- Sales of securities
- SAAS sales income
- Digital products sales income
- Anything else that is not listed as taxed above.
How to incorporate?
You can incorporate without travelling to the US. There are many incorporation services that would incorporate your business, get an EIN from the IRS, open your bank account, etc. These services are specialized for what you want to do and are affordable.
A quick Google search will give you millions of results. Here are the best ones (some of them include getting the EIN and opening a US bank account for you):
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