LLC Vs Corporation for a Non-Resident

Thousands of foreign nationals decide to set up a U.S. business every year, but it can be an overwhelming process. After all, most of the information you will find about U.S. companies and incorporation is designed for residents and it does not consider the unique needs of a non-resident. best LLC services

As a non-resident, you can follow these basic guidelines for choosing a business entity:

If your company will do business in the United States, a corporation is the best choice.

If you will be operating completely out of the United States and there will be no U.S. resident owners, a limited liability company (LLC) is the better option.

Why an LLC?

If your business will be conducted completely outside of the United States and you have no U.S. resident owners, your LLC will probably not be subject to income tax or reporting in the U.S. If you form a single-member LLC, your company is a disregarded entity, which means it does not even exist for tax purposes. A corporation’s global income, on the other hand, is taxable and requires the filing of a corporate tax return annually.

Why a Corporation?

If you will conduct business in the U.S. in any way — including leasing space or hiring employees — a corporation makes more 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. Flow-through taxation means non-residents will be required to get a U.S. taxpayer ID number and filing a non-resident U.S. income tax return.

Any money the LLC earns that is sent to owners is reduced by 30% for withholding tax. The IRS can then issue a refund for the excess over the amount due. If you conduct business in the U.S. and form an LLC, you will also need to designate a tax withholding agent and prepare and send the IRS information each year.

A foreign-owned LLC is also subject to the Branch Profits Tax which is designed to keep foreign-owned companies from getting around capital gains tax.

Incorporating in the U.S.

While the process of incorporating or forming an LLC as a non-resident can be a bit complex, it is often worthwhile. When you form an LLC, you will go through the same basic process as a U.S. resident. Citizenship and residency are not required, and there will be few hoops to jump through.

Incorporation, on the other hand, is done at a state level, not at the federal level. The process varies by state.

You will need to obtain an Individual Taxpayer Identification Number from the IRS if you will have to pay taxes. To obtain pass-through distribution of profits, you will need to form an LLC. If you form a corporation, you will be subject to double taxation. This is why many foreign residents opt for an LLC.

You may be a director or corporate officer but you cannot work in the U.S. or receive compensation for services performed in the country unless you have a work permit. If you open a bank account in your home country or a local government office requires proof of formation, you may need to have your company documents certified with an Apostille, which is an agreement between countries to accept documents.

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