The Malta Independent 15 October 2021, Friday

Incorporation Rocket Discusses US incorporation for EU Business Owners

Thursday, 16 September 2021, 09:00 Last update: about 29 days ago

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Forming a U.S. company is for many entrepreneurs a good way of expanding their business into foreign shores. In data from the U.S. Bureau of Economic Analysis, it was found that foreign-owned companies employed around 6.8 million workers in the United States in 2015. According to the Census Bureau, the month of July 2021 has seen 454,460 business formation applications, LLC formation being among them. The LLC has enjoyed a popular reputation in the United States due to the relative ease of formation. In this article we’ll take a closer look at the LLC as it pertains to foreign business owners. 

Can a United States LLC have a foreign owner? 

The short answer is, yes. The Limited Liability Company (LLC) can be owned entirely by foreign persons. The state of Florida is one of the most common states used to incorporate. Miami in particular seems to attract foreigners to invest and live, and in Florida the taxes and management and formation costs are usually less than in many other states. However for a foreing owned LLC to be compliant certain things need to be in order. When there is a foreing partner in an LLC, that partner needs to have a U.S. Taxpayer Identification Number (ITIN). Since United States tax laws require that foreigners pay taxes on earnings made in the U.S., regardless of immigration status, foreigners can be allowed to form a company as long as they have registered for a Taxpayer Identification Number. The process to register can be lengthy and once the application is submitted it can take up to 18 weeks for an ITIN to be assigned. 

Do foreign owners need a Visa? 

The answer here is: it depends. While foreigners can be owners of an LLC that operates in the U.S. without a visa, they will need to acquire one if they wish to work for the company within the country. For a foreign citizen who wants to do business in America, a B-1 visa is usually the right choice. This visa is meant for foreigners who want to consult with business associates, attend professional or business conventions or negotiate a contract. The B-1 visa is aimed at foreign persons looking to invest in the U.S. rather than work in the U.S. Finally, foreigners could apply for an immigrant Visa, such as the E3, which allows skilled workers and professionals to immigrate and work on American soil. 

Reporting taxes in a foreign owned LLC

The foreign partner of an LLC on U.S. soil may be deemed to be engaged in a U.S. trade or business and consequently the LLC must withhold 35% of its profits for tax purposes. Taxes are paid and filed on a quarterly basis to the IRS. 

The partnership itself may not pay income taxes, but it must file Form 1065 with the IRS even if there is no profit. This form serves as an informational return and the IRS may review to determine whether the partners are reporting their income truthfully. Furthermore, the partnership must provide a Schedule K-1 to the IRS and to each partner. The Schedule K-1 is a federal tax document that is used to report the income, losses and dividends of a business. The document is typically prepared for each individual partner and is included with the partner’s personal tax return. 

A Significant Limitation

It is important to note that the foreign owned LLC cannot choose to be taxed as an S-corporation, as U.S. law does not permit forreign citizens to be partners or owners in an S-corporation. Instead, the foreign owned LLC may be taxed as a C-corporation, which is the default.  On a positive note, foreign owners may act as consultants to the LLC. For this a written Consultant’s agreement is needed, allowing the foreign member to complete all consulting work within their home country, billing the LLC in the United States for the service. This strategy may help eliminate possible profits, thus avoiding some taxation. 

The Takeaway

The biggest factor in play when considering to form an LLC on U.S. soil is whether or not the foreign owner is able to obtain visas to travel in order to open a U.S bank account. It is important to note that forming an LLC on American soil does not grant foreigners visas to work in the USA. 

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