Editor’s note: This is a guest post from Alexander Parks, Incorporation Specialist at MyUSACorporation.
It’s no secret that to become an LLC or corporation-based in the United States, your business needs to meet a number of strict guidelines. However, these guidelines are very different for US residents than they are for non-US residents. Let’s go into more details on incorporating a business in the US as a non-resident.
What’s the most convenient business entity for non-residents?
Experts typically say that the most effective way to incorporate a business into the US is by forming an LLC. On the other hand, C-Corporation makes are subjected to double-taxation. That’s why most foreign citizens start an LLC as opposed to a corporation.
The surprising tax advantages of starting an LLC
Setting up your own business can be overwhelming, but it may seem that much more challenging when you have to choose from the various forms of business models. Of course, a corporation and a limited liability company aren’t really business models, per say.
An LLC, or limited liability company, is often considered to be an especially beneficial form of business for a startup company.
What’s an LLC?
Depending on the number of owners, the IRS automatically sees an LLC as a “disregarded entity” or partnership. This kind of business structure brings the limited liability of the company’s owners together in much the same way a corporation would have, with that of the pass-through taxation that a partnership would have. LLC advantages in this area involve minimal taxes with generous legal protection.
LLC advantages with taxes
LLC advantages involving taxes include only filing for taxes once, reduced tax rates, and no double taxation. An LLC is only taxed once regardless of the number of owners. The net income of the business is taxed via a single owner of the company and in some cases the owner can file taxes for the business through their own personal tax return.
Depending on the total income of the LLC and the owner, the tax rates of the company may be lower than that of a corporation. This is because an LLC’s tax rate is typically figured according to the personal tax rate of the owner. A personal tax rate is often reduced significantly in comparison to that of a corporate tax rate.
In addition to the LLC benefits of reduced tax rates, an LLC doesn’t have to pay a double taxation as a corporate owner does. Corporate owners pay taxes on their dividend income as well as their corporate net income. An LLC on the other hand does not have to do this.
It should be noted that laws regarding the taxation of LLC varies from state to state. What one state does not require an LLC or corporation to pay may be required by another. If you are considering forming an LLC or have questions regarding the benefits, be sure to check with the state law requirements for this business option before deciding.
How long is the process of incorporating a business into the US?
There isn’t a set amount of time that’s expected for your business to become an LLC-based one. Fortunately, you can check your state’s expected processing time to give you an idea of how long the process will take. Keep in mind that a special IRS unit is in charge of processing tax ID registrations when business owners are non-residents, so the process may take longer than usual.
Are non-residents legally allowed to use the address of their Registered Agent as the company address?
No — unfortunately, non-residents cannot use the Registered Agent address as their company address since it is used to send and receive official documents related to taxes and lawsuits. Your company address needs to be, by law, the address where your company officially operates at, i.e., the home or office in your country where your business operates.
Ultimately, being aware of these common questions can help you make the most informed decisions for your business’ needs. Incorporating your business in the US as a non-resident can be very complex, and having a well-rounded understanding is crucial to success.
Can a foreign company become an LLC or corporation in the US’ owner?
If you choose to form an LLC, then yes. LLC ownership can be expressed in two ways: by percentage or membership units, which are similar to shares of stock in a corporation. And one of the many advantages is that you can appoint your own company as an owner. If you’re wondering how to form a corporation, however, keep in mind that you’ll have to appoint a ‘director’ — an individual, not a business — to run your corporation. When it comes down to it, S corporations can have no more than 100 shareholders, and each one must be a resident of the United States.
What annual documents do business owners need to file?
There isn’t a ton of paperwork involved with setting up LLCs and corporations in the US as a non-resident, but it does take some preparation. You’ll have to file an annual tax return, and if you’re forming a corporation, you may need to renew your State of Incorporation status using a form that updates the company’s address, officers, and Registered Agent. Experts recommend consulting with an accountant to look over the specific details of your LLC or corporation’s legal and financial documentation.
If a business doesn’t have a physical office space in the US, do they still need a business license?
This depends on the type of business you run. Some licenses relate to the county and city of the office, while others are more specialized and may not require a license at all. Talk to a professional for the specifics of your business licensing needs.
Ultimately, knowing the answers to these common questions is the best way to make the most informed decisions about your business’ needs. For more information about corporation and LLC advantages, contact MyUSACorporation.
Alexander Parks is an Incorporation Specialist at MyUSACorporation and specializes in management and business development. He was also named one of Quora’s top 10 writers.