In today’s article we present 12 cases in which an American LLC can bring you great advantages and 2 in which you have to be careful to avoid problems.
We have already written several articles on the blog about LLCs, so the purpose of today’s article is not to repeat this information, but rather to explain in depth the many possible uses of LLCs.
As you may already know, the LLC is currently one of the best and most versatile corporate structures around, especially for perpetual tourists and those willing to emigrate to the appropriate country, as it allows you to carry out practically any type of business, without paying taxes.
Here at Tax Free Today, we have become specialists in this type of business and therefore we now offer a direct service for registering and maintaining an LLC.
It’s true that we charge more than the majority of other agencies out there, however in exchange for this, you can rest assured that we will know how to respond to any questions you have, that you will be able to open company accounts and use the services that you need (such as Paypal or Stripe, for example), that you won’t end up being fined for not knowing your obligations to the IRS, that we inform you of your tax obligations based on your personal tax residency and, ultimately, that everything will work out.
Contrary to what many believe, registering an LLC is not without its traps and obligations. In many cases, you aren’t given an EIN, or it takes between 2-3 months to get one. The problem with this is that without this number you won’t be able to open a bank account anywhere. With us you are guaranteed an EIN in only 10 days.
Sometimes, the problem is that by using the services of other cheap agencies nobody will have let you know about your reporting obligations regarding forms 5472 or the FBAR. By knowing how to do this you can avoid having to fill these out, or you’ll be able to fill them out (with our help), dedicating less than half an hour of your time each year.
As for accounts and payment processors such as Paypal and Stripe, there are also many problems you may encounter. Either because your LLC doesn’t have the necessary documents, because you don’t have an SSN or an ITIN, or because you aren’t able to get a utility bill.
And, of course, if you continue to live in a country with a high tax burden, an LLC isn’t going to help you in the way that you want it to. You have to keep in mind the implications of having a company abroad and know how to declare its profits in order to avoid any problems.
Now, before you leap to register your LLC with us, let us tell you about the possible uses you could have for it 🙂
Using an LLC to provide services
One of the best uses for your LLC is to provide and bill for services. The United States has a good reputation, and there are many companies which provide services on an international level, meaning that there will be few clients who would have a problem with hiring the services of a company from there (the opposite is the case if you are providing services from a company based in Panama, Cyprus, Bulgaria, to name a few).
As well as clients, tax offices all over the world recognise and allow to deduct invoices received from an US LLC. For this purpose, it will be of help to register your LLC in a state with a public registry (such as Florida).
You don’t have to add any taxes to invoices from your LLC, even when you are billing clients in the European Union. You will only have to get a European VAT number if you are selling digital products worth more than 10 thousand euros in any country belonging to the European Union, though not if you only offer services. Nor do you have to worry about Sales Tax in the US, because this only applies for the sale of physical products on a national level.
With Transferwise Borderless you can charge your clients with whichever of the 5 available local account numbers you prefer. You can choose from the United Kingdom, Belgium, Australia, the USA, and Japan. Thanks to this you can charge your clients from anywhere in the world with hardly any transfer fees.
Using an LLC as a Perpetual Tourist
With us, you won’t even need to submit your passport or proof of address (utility bill, tax return, and so on) in order to register the company.
The only thing that you need if you wish to open a business account with Transferwise is a bank statement that includes your last physical address. As we have previously mentioned on several occasions, continuing to have a bank account in your country of origin doesn’t make you a tax resident there.
Another simple way of getting a business account is hiring our bank account opening service in order to get an account with Citibank. In this case, you would only need to have a bill of your mobile phone provider in which any kind of address appears.
If you open the business account in person you won’t even need proof of address.
Using an LLC for Dropshipping
An LLC is also an interesting option if you are in the dropshipping business. On the one hand, you have the advantage that in the United States there are many collection services options that you can use, meaning that there’s a lot of competition between them, and the commissions they charge are much lower than in other parts of the world.
If you want to use Stripe, you will generally need a business account in a real bank. They will rarely also ask you for utility bills or a lease agreement in the company’s name.
In the case of Paypal, they will almost always ask you for utility bills and a lease agreement. Furthermore, in order to use Paypal, you will also need an SSN (Social Security Number) or an ITIN (Individual Taxpayer Identification Number). If you aren’t a resident in the USA (nor have you ever been), you will be able to apply for an ITIN, but not for an SSN. Having accounts in the USA helps you get an ITIN, but it’s not essential. With the help of our partner, we can help you get an ITIN, which will cost you 500 USD.
Another interesting option is the provider GoCardLess.com, which is pretty easy to use. With this service you will be able to charge your customers worldwide through direct debit.
And there are of course many other options.
It’s important that you avoid becoming ETBUS (engaged in a trade or business in the United States), or creating a nexus in the United States, especially if you sell there. If you sell to Europe or other places in the world this is not as important. However, that being said, you have to take into account the customs and VAT legislation in the countries you sell to.
ETBUS refers to the obligation to pay taxes on a state, and where appropriate, federal level. Becoming ETBUS or not depends on whether you have a permanent establishment, or if you have so-called ‘Dependent Agents’, i.e. people who work exclusively for the LLC and perform activities on US soil which are essential to the running of the company.
Having the lease agreement for an office or utility bills, which some collection service providers require, does not automatically mean that you have a permanent establishment. You are understood as having an establishment when you have a separate room which can be used exclusively for the LLC, in which business decisions are made and/or work takes place regularly.
A Dependent Agent is understood as any contractual partner who performs services exclusively for your LLC. Shopify or Amazon have a large number of customers and therefore are not considered to be dependent agents.
As long as the contractual partner, whether they be a supplier, a storage service provider, or self-employed, has other customers, you won’t become ETBUS.
Therefore, it’s important that you avoid having employees in the United States. Bogus self employees can also be a problem.
The nexus, on the other hand, has nothing to do with income taxes, but rather Sales Tax on products sold in the US. In the United States, you only pay Sales Tax in certain States.
This is a very complicated issue, so if you sell physical products in the US, you will need to speak with our local tax advisor. As has been said, you will only have to be aware of the nexus (and therefore the payment or not of sales tax) if you sell physical products on a national scale, it doesn’t apply for sales from the USA to other countries.
Using an LLC for Amazon FBA
If you work with Fulfilment by Amazon (FBA), in principle you are in the same position that you would be if you use dropshipping. The difference is that since Amazon is in charge of processing payments, you do not necessarily depend on any payment service provider.
Generally, in order to verify your FBA account, you just need a bank account in the same country in which your company is registered, and a credit card. All these things can easily be obtained in the USA.
On the other hand, US LLCs don’t have any limitations and can sell through FBA in all markets worldwide.
A problem which can arise if you sell to Europe is that you will need a European VAT number (perhaps several), and you will then have to correctly process and pay this tax. Getting a VAT number isn’t always easy, and many EU countries won’t provide you one if you don’t have a permanent establishment, or some sort of local branch.
The solution to this problem is having a Fiscal Representative. For this, you can use services such as vatglobal.com or avalara.com which handle all matters related to customs procedures and VAT issues on your behalf. In order to sell in some countries in the EU this is actually mandatory.
In the Netherlands, having a Fiscal Representative actually has certain tax advantages if the goods are brought in through the port of Rotterdam, as in this case you wouldn’t need to advance VAT on imported products, with a consequent increase in liquidity.
Another common problem for those who work with FBA is the change in ownership of the company’s account or jurisdiction which, at least until recently, was rarely approved by Amazon (lately, the situation appears to have changed).
Either way, a simple option would be to sell the LLC, as membership records are anonymous in most States, and changing them is very easy.
Using an LLC for affiliate marketing and online business in the “gray area”
As has been mentioned, an LLC is perfect for almost any kind of online business, as it combines good banking and payment gateway options, all in the same country.
Some affiliate marketing platforms will only pay you if you have a bank account in the same country in which you’ve registered your company. This is something which makes it very difficult for those who earn their money as affiliates to use offshore companies as, contrary to what happens with LLCs, opening bank accounts in the same country in which your company is registered is rarely possible.
US LLCs are generally accepted by all affiliate marketing platforms.
Despite some online entrepreneurs’ fear of the United States’ laws and judicial system, LLCs are a good solution for those who make their money through businesses in the “gray area”.
In the United States, the chances of you having problems due to violating European data protection regulations (GDPR) are pretty slim. You only really need to be careful if your business is very focused on selling products or services in the USA and has many local clients. Although, even in this case, as a non-citizen you are fairly well protected.
As the name would suggest, a Limited Liability Company does in fact limit liability and in the event of insolvency due to a lawsuit, you can replace the LLC with another one without this affecting you personally (with certain limitations, of course, in more severe cases the manager may get into trouble).
But what do we mean by businesses in the gray area? Generally, this refers to businesses in sectors relating to cannabis, eroticism, and gambling.
Thanks to the diversity across the 50 States of the U.S., you have many options to use local legislation to your advantage. Depending on the State, not only are these types of businesses tolerated, they are actively supported. We’ve also noticed this when dealing with local banks, which often surprise us with the terms that they give to companies in these sectors (especially compared to what you’d find elsewhere).
For businesses in the cannabis sector, the most interesting Federal States are primarily those who have already legalised the substance for private use. Generally, the best option for registering your LLC is Colorado. The State of Washington and others could also be good options.
In terms of businesses in the erotic sector, Florida is a popular location, while if you are considering the gambling sector, Nevada is undoubtedly the right choice. Of course, offering gambling requires a licence. However, if you are collaborating as an affiliate with a company in the gambling sector, with an LLC in Nevada, you won’t face any problems or special requirements.
And since we are speaking about affiliation, we can also take this opportunity to recommend LLCs to those involved in multi-level marketing (MLM).
The advantage of MLM is that it can often be done personally, without having to register a company. However, above a certain amount, it can be worth reducing the risk by limiting liability and having money go through an appropriate account structure, as banks tend to look more closely and ask more questions about larger sums of money entering an account.
Of course, you can launch your own MLM company as an LLC. And seeing as it was the Mormons who invented this type of business, why don’t you honour them by registering your company in Utah? 🙂
Using an LLC for trading and investing in the stock market
US LLCs aren’t always the best option for those who are involved with trading and investing activities in the stock market. This is due to its status as a transparent company for tax purposes.
With an LLC, you will pay the same taxes that you would if you trade as an individual. That’s to say, the taxes you pay are dependent on your personal tax residency, rather than where the company is registered. Therefore, an US LLC won’t help you avoid the 30% withholding tax on US dividends. If you are a Perpetual Tourist, you lose this 30% withholding tax on dividends. However, with the right personal residency, you could reduce this tax to 15%.
LLCs may also face problems when it comes to investing, as a result of FACTA. FACTA refers to the bilateral agreements on information exchange made between the USA and almost all other countries worldwide. This agreement affects bankers and brokers.
Due to the increased compliance obligations for both American people and businesses, the majority of banks, brokers, and stock exchanges outside of the United States refuse to open accounts for them. Therefore, in terms of investment, LLCs have less options than companies registered in other countries.
On the other hand, it can make sense to opt for an LLC if you want to benefit from the greater anonymity of US LLCs against third parties. Although the United States receives practically all information regarding the LLC’s bank accounts, they do not share any information on the LLC’s business accounts.
The United States has promoted the Automatic Exchange of Information (CRS), but ultimately, they have only partially implemented it. For example, they exchange information on the private accounts of residents in countries belonging to the EU (here there are also exceptions, such as Puerto Rico), but never on business accounts. This means that US LLCs are extremely interesting for those for whom bank secrecy is important.
Especially if you are involved in day trading activities with futures, options, derivatives, and other financial instruments, you won’t have any problems with your LLC using American brokers such as TD Ameritrade, Charles Schwab or Interactive Brokers.
In principle, all these options could be carried out tax-free by operating directly as an individual (with tax residency in the appropriate country). However, an LLC facilitates access to American providers and, as we have said, gives you greater anonymity with your American accounts and brokers, as well as the possibility of having a credit card for the LLC.
Using an LLC as a real estate holding company
US LLCs can also be used to invest in real estate on an international scale, as LLCs have full legal capacity in most countries worldwide. This means that LLCs can appear on the property registry.
Using an LLC in this way doesn’t have tax advantages as you would have to continue paying local taxes. However, the flexibility of commercial law in the United States allows you to modify the LLC’s ownership structure without any major problems, as well as granting anonymity to the partners. By carefully choosing the Federal State, for example New Mexico, the company’s directors can also remain anonymous. Even without changing the public registry, the LLC’s Operating Agreement allows you to freely assign ownership rights.
LLCs are often underestimated when it comes to asset protection. In the USA, it’s common practice to keep all properties under an LLC. This way, problems related to personal debts don’t directly affect the LLC and its properties. In some States, it’s possible to form serial LLCs with cellular structures. Each of these cells comprises a separate asset, such as real estate. The creditors only have access to the assets if they obtain separate judicial sentences for each individual cell.
In times of crisis and liquidity needs from Governments, it can be incredibly useful to have an LLC. It is foreseeable that direct expropriations of US companies in your country of residence (wherever that may be) will not be politically tolerable.
Using an LLC as a holding company for boats
US LLC’s can also be used as a holding company for movable assets. Here at Tax Free Today, we haven’t had many cases concerning private jet owners, but it’s true that many of our readers and clients are sailors. Transferring ownership of a sailboat to an US LLC, and possibly sailing under the American flag, could be a good option.
The Delaware ship registry is known around the world and allows for cheap and hassle-free registration. Of course, the Panamanian flag is also interesting and allows for tax exemption on income made through the boat. There are multiple possibilities to consider here.
Using an LLC to buy tax liens and deeds
You may not have heard of tax liens and deeds, but if you are interested in alternative types of investment, you should definitely look into this.
Tax liens and deeds refers to the purchase of property tax debt from US real estate owners. Depending on the Federal State, the amount owed carries an interest between 8% and 24%. If the owners are unable to pay, you can repossess their home.
Anyone who doesn’t mind getting involved with this kind of business could quickly lay the foundations for a real estate empire in the United States. But in order to have the right to participate in the public auctions, you will need to have an US company, meaning that an LLC therefore facilitates this type of business.
Using an LLC as protection against sanctions and lawsuits
As has been mentioned previously, suing and obtaining sanctions for an US LLC which does business outside of the US is a complicated matter. Therefore, especially in Europe where online businesses and their websites must meet multiple requirements, it may be worth transferring any rights and obligations linked to an online presence to an LLC.
Thanks to the peculiar nature of the public company registers in the United States, it’s easy to verify the existence of any company, yet its owners will remain hidden from prying eyes.
In the majority of the States in the US, you have the possibility to avoid the public registration of the company’s members and directors. The best State for this is New Mexico, as there you are not required to regularly submit annual statements, meaning that any possible changes in the membership structure can be put in place a long time before they have to be formally updated.
Of course, if there’s no transparency regarding the LLC’s directors, it will be difficult for the company to open any bank accounts. You can always pay for servers and domains, choosing the appropriate Hosting Service Providers which will really protect your privacy, and which you can pay anonymously with Bitcoins.
If you want to use an anonymous LLC to cover your back, it’s important to make sure that the domains and hosting are actually registered on behalf of the LLC. According to the US law, there’s no need to indicate who is behind the published website, but if you’re active on the Spanish market, for example, you would need to do it.
So, if your competition sues you, nothing will come of it. Even if they force the hosting provider to disclose the name of the owner of the domains and servers, they will only find an anonymous LLC.
That being said, if your first and last name appear on the website and the authorities of the country in which you are being sued can access your address and data, you must be careful. The protection of an anonymous LLC only goes so far.
Either way, keep in mind that even if the LLC is not anonymous, simply by having a US address on the website’s legal notice, you will be able to keep most potential complainants at bay.
Using an LLC to get loans and credit cards
A common problem for perpetual tourists and recent emigrants is that they can’t access credit. Getting a loan in a new country of residence is usually difficult at first, or only possible by paying a high interest rate.
Those who depend on credits for business, such as real estate investors, may find that they cannot move their residency because although moving abroad allows them to avoid some taxes, the difficulty in obtaining credits is a bigger issue.
Luckily the United States offers a solution to this issue. This country is one of the few in the world where non-citizen foreigners can also access credits and therefore improve their credit score. Of course, this doesn’t happen overnight and is subject to certain conditions.
In order to improve your credit score, the first thing you need is an SSN or ITIN. Due to the fact that you can only get a Social Security Number if you have lived or worked in the US (it also counts if you have done an internship in the US at any point in your life, as social security numbers generally do not expire) the majority of foreigners will have to request the ITIN which, by the way, is also required to use Paypal in the USA. Our partners in the US can help you get the ITIN for $500.
In order to increase your credit score you need to regularly receive money into the company’s account, and then transfer it to your private accounts (also in the US). There are complicated strategies and specialists in this area, so we won’t explain this much further here.
Banks often help too, as they want to offer their credit cards. If you have a regular income, within 6 to 12 months your credit score should have improved enough for you to apply for your first credit cards.
The use and timely settlement of amounts due on all credit cards also has an effect on one’s credit score.
On the other hand, American Express credit card holders often have the option to transfer their credit history from other countries to the United States. This alternative can save you a lot of time.
In the United States, banks lend money more easily than in other countries, and interest rates are low. If you want to use the money to purchase real estate outside of the U.S., it’s still hard to get loans. However, if the idea is to buy real estate in the USA, or if you need money to help to quickly grow your business, you can easily get better lines of credit than in other countries.
Using an LLC to get a residence permit in the United States
During consultations, it’s often asked if an LLC can help with getting a residence permit in the United States. The answer is yes, although if you only have a shell company with no turnover, it won’t do much. Depending on the type of visa you want, an LLC can become the fundamental requirement in obtaining residency.
If your LLC operates in the American market, you will have to reach a certain turnover and create jobs. This of course means losing the tax advantages for LLC’s non-resident owners. Depending on the amount of income and which State you are in, it may be better to be taxed as an individual or as a company through corporate tax (like C-Corporations). You can find more information in our article on how to acquire residency in the USA.
Anyone who wants to spend time and invest in the US, but doesn’t need to live (and pay taxes) there permanently, can apply for a visa as a non-immigrant. Generally, you will only need an LLC with an office which has invested a specified minimum amount, and plans to become profitable within the next few years (E2 investor visa).
Something which our readers and clients often don’t know: in the United States you can become a tax resident by spending less than 183 days there. Tax residency there depends on the so-called substantial presence test. This “test” takes into account the time spent there during the current year, as well as the last two years.
The formula to count the days may seem rather complicated at first. The time spent two years ago is divided by six, the time spent last year is divided by three, and the time spent in the current year is counted in full.
So, the maximum amount of time you can spend in the USA over three years without becoming a tax resident is 4 months per year. Thus, it would be 120/6 (20 days two years ago) + 120/3 (40 days last year) + 120 (in the current year) = 180 days in total.
In the United States, you will become a tax resident if, by following the formula laid out above, the total number of days in the current year add up to more than 183 days. That means that you could become a tax resident even without a residence permit, if you are simply a tourist travelling there under ESTA.
LLCs with residency in a high-tax country
And now for another frequently asked question: can I create and LLC and benefit from my home country?
We have already spoken about the possible uses for an LLC, even without tax advantages. For example, as a resident in Australia, you could use an LLC to invest in tax liens and deeds in the United States. You can also use an LLC as a holding company for real estate or for movable assets, or to protect you against lawsuits and sanctions. In all these cases, the LLC doesn’t generate income and therefore you wouldn’t be required to pay taxes in your country of residence.
Although the blanket anonymity granted by LLCs (remember the lack of transparency records or automatic exchange of information) may incite people to not declare their incomes, we cannot recommend following this route.
What we do recommend is escaping from the weight of the State in a clean and legal manner, either by leaving the country to live as a Perpetual Tourist or, as a more realistic option for most people, choosing a new residency which doesn’t drown you in taxes and allows you to live as you please.
For those who want to keep living in a country with a high tax burden, it’s generally better to set up your company in a country with a minimal tax burden. Thus, if you live in Europe, Limiteds in England, Bulgaria, or Cyprus may be good options. Either way, we’d recommend that you book a consultation with us before you launch into it and do things wrong. This will cost you far more than our services do.
LLCs with residency in Cyprus (or other countries in which dividends are tax free, but income is not)
Finally, we would like to clarify an important point which is often misunderstood and could potentially cause enormous tax damage: the tax status of an LLC in combination with residencies where dividends are tax-free.
Cyprus and Portugal with their respective non-dom and NHR programs are some of the most popular places to have tax residency in the European Union. These programs offer complete tax freedom on any dividends received (dependent on meeting certain requirements, of course).
Unfortunately, an LLC does not distribute dividends unless it operates as a C-Corporation, in which case it loses all of its tax advantages and dividends are subject to heavy withholding taxes.
An LLC is considered a “Disregarded Entity for Federal Tax Purposes” and is therefore fiscally transparent. That is to say, the owner pays income tax in the country where he has his tax residency. The problem with Portugal and Cyprus is that the personal income tax to be paid can rise considerably.
If you’ve been paying attention, you’ll say, okay, but this problem can be solved by having a tax-free offshore company which owns the LLC. The LLC’s income goes to the offshore company and from there is distributed as dividends to all the partners. After all, there are still enough offshore jurisdictions which are tax-free, despite the annoying guidelines on economic substance.
The problem with this is that the US LLC is only considered “disregarded” while it’s owned by a single individual. An LLC can have as many managers as it wants, but there can only be one owner, if not it will lose its special status and will have to pay taxes in the USA.
Luckily you won’t encounter this problem as long as you choose a country with territorial taxation, or with a classic non-dom system for your residency (here you can find our ebook with the most interesting options).
Registering an LLC through Tax Free Today
If this has made you realise that an LLC is the solution that you needed, please contact us. We can help you to register an LLC in any State quickly and easily. You will usually have your company up and running within 10 to 20 days.
Through us, you can open a company account with Citibank, even remotely. The minimum deposit required in the case of remote opening is $15,000.
We will let you know about your obligations, and you will have us to clear up any doubts.
The basic package is 1,800 euros for the first year, then 1,200 from the second year onwards. In exchange for this, you will have a company which is totally tax and problem free, and which will function exactly as you wanted it to, without any surprises or scares.
All packages include an address and forwarding of scanned documents. If needed, you can request a premium address with a rental agreement (necessary for Paypal, among others), written in such a way that you still remain under no obligation to pay taxes in the USA.
We can also help you apply for the ITIN, and provide you with all kinds of services that you may need in the United States.
If necessary, we can put you in contact with an experienced American tax advisor who can help you with more complicated matters. Generally, you will only need this if you sell physical products in the USA (dependent agent and nexus).
If something isn’t clear, you can write to us with any doubts, or if you want to discuss your case in more detail, also looking at your personal residency, it may be better for you to book a consultation.
After all, it’s your life!