If you’re considering registering a US LLC, it’s important to understand the requirements you need to meet when filing a tax return with the IRS for a foreign limited liability company (LLC).
A US LLC can be one of the best tax reduction strategies for non-US residents. But, only if done the right way.
Just setting up a US LLC is not enough. There are steps you have to take in your actual business operations to make sure that you don’t accidentally incur a US tax liability.
And most importantly of all, you must file your LLC tax return annually.
Even if you don’t have a US tax liability, you are required to file your tax forms with the government each year. If you don’t, you can face huge fines… which at the end of the day is the same as having to pay taxes, right? If not worse…
In this article, we share with you the specific requirements you’ll need to meet to ensure your company can qualify for zero US taxes and the tax forms you need to file each year to avoid penalties. Of course, we’ll also share how to apply as a foreign-owned company to open a business bank account for an LLC.
KEY TAKEAWAYS
- It is 100% possible for a foreign-owned US limited liability company to pay zero taxes in the US
- There are specific guidelines to follow to successfully register a foreign tax-free US LLC
- It’s important to always consult a qualified tax professional before making any decisions
- Foreign business owners can unlock many benefits with a US limited liability company
Disclaimer: Nothing in this article is intended as personal or business tax advice. Always consult a qualified tax advisor or accountant before making any decisions.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Is It Possible to Pay Zero Taxes a Non-Resident US LLC?
- Why Set Up a US LLC as a Foreign Business Owner?
- How to Set up a US LLC to Have Zero Tax Liability
- Requirements for Filing LLC Taxes for Non-Residents
- How to Set Up a Bank Account for Your US LLC
- Do You Want Help Opening Bank Accounts?
Is It Possible to Pay Zero Taxes as a Non-Resident US LLC?
Yes, it is possible to pay zero taxes as a non-resident US LLC owner. To do so, you need to meet specific requirements and ensure your US LLC is truly non-resident. Read on to learn more about LLC taxes for foreign non-residents and how you can benefit from a US LLC.
Before diving in further, if this is your first time visiting GlobalBanks, don’t forget to download your FREE US Banking Starter Guide. It’s designed to help non-residents with opening bank accounts at top financial institutions in the US.
Why Set Up a US LLC as a Foreign Business Owner?
Setting up a US LLC as a foreign non-resident can be a very advantageous financial move. However, there are strict registration requirements and SS4 instructions that need to be followed to ensure you have registered your employer identification number (EIN) properly with the IRS. Once registered with the IRS, it’s possible for a non-resident company to structure a US LLC to have zero tax liability in the US.
To understand how this works, it’s important to note that US LLCs are considered “pass-through” entities. This means that the tax obligations of the business automatically “pass through” to the owner (or “member”) of the LLC.
For example, if the owner a) doesn’t have any personal US tax obligations and b) the LLC doesn’t have any US operations, US employees, or agents; is not “engaged in a trade or business in the United States” (ETBUS), and doesn’t have “effectively connected income” (ECI) in the US, then there are no US tax obligations. Again, it’s important to speak with a qualified tax advisor or accountant to make sure your foreign LLC does not meet any of the criteria mentioned.
In other words, foreigners with single-member LLCs can operate free of US tax obligations. And, if the owner of the company lives in a zero-tax (or territorial tax) country, they’ll likely have no tax obligation at all.
To top it all off, if done properly, with a US LLC not only can you benefit from a zero tax structure, but you can also unlock the following benefits.
Benefits of a Foreign-Owned Non-Resident US LLC
- Access to the US banking system
- Access to US payment processing systems
- Liability protection
- The ability to build US credit history
- Access to US financing and business loans
- Lucrative rewards with US credit cards
- Zero tax liabilities in the US
- Low LLC setup costs
- Low LLC maintenance fees compared to other countries
- And more…
As you can see, setting up a US LLC as a foreign non-resident can be a very strategic move.
However, to unlock these benefits and ensure your company has zero tax obligations in the US you need to understand the requirements you need to meet when filing your tax return.
How to Set up a US LLC to Have Zero Tax Liability
If you have a registered US LLC with zero employees working in the US and aren’t collecting income in the US, do you have to file a tax return with the IRS for a non-resident company?
Yes. Even if you do not have a tax liability, with a US LLC you will always have to report to the IRS. If you forget or fail to file your tax return with the IRS, you and your company can face heavy penalties.
This is why it’s important to understand both how to make your non-resident US LLC tax-free and what is required when filing LLC taxes for your company. So, with this in mind, let’s look at the requirements you need to meet. And, which forms you’ll need to file with the IRS as a non-resident US company.
First, how to make your non-resident US LLC tax-free…
To ensure your US LLC remains tax-free, you will need to follow the following guidelines:
- You don’t employ US residents
- You personally don’t reside in the US
- You have no US economic activity
- You have zero “effectively connected” income
Understanding what exactly is “effectively connected” income can be tricky. But, generally speaking, this means that the LLC’s income should not be generated by work conducted in the US. With that said, you can have US customers. But you, your offices, your team, and your suppliers should not be based in the US.
In most cases, the requirements vary depending on where you register your LLC and whether you’re registering an anonymous Flordia LLC, a Wymoning LLC, a Delaware LLC, or another form of LLC. To be sure that you meet these requirements, speak with a tax advisor about your particular situation.
Requirements for Filing LLC Taxes for Foreign-Owned LLCs
As mentioned above, even though you’re able to meet these specific guidelines and aren’t required to pay US taxes, filing an LLC tax return with the IRS is still required. Here’s how…
For a non-resident US LLC, filing Form 5472 and Form 1120 with the IRS is a requirement.
IRS form 5472 is specifically used to capture and report transactions of non-resident US LLCs. Whereas Form 1120 collects information regarding the US LLC’s income, gains, losses, deductions, credits, and more.
On behalf of your company, you’ll need to complete and submit these two forms to the IRS each year. If not, you and your company could receive a fine of as much as $25,000.
In addition to following the guidelines mentioned above and filing the proper forms with the IRS, a non-resident US LLC will also be required to open a business account in the US.
Unfortunately, opening a business account in the US for a non-resident US LLC can be a difficult process to navigate. But, with the right information and some guidance, you can open a US business account for your non-resident US LLC 100% remotely and unlock the benefits we mentioned above. Here’s how…
How to Set Up a Bank Account for Your US LLC
The next and final step to start benefiting from your foreign non-resident US LLC is to open a business account in the US.
As mentioned, this can be an extremely challenging process. Mainly because not all US banks accept foreign non-resident US LLCs.
The best approach to successfully opening a US business account is to know which branch, bank, and even banker will accept your client profile and business banking needs. But, more specifically, your type of business.
Of course, this can be challenging to navigate, especially on your own.
Fortunately, we can help – more specifically, GlobalBanks USA.
Do You Want Help Opening Bank Accounts?
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In fact, GlobalBanks USA even helps non-resident US LLCs and foreign & offshore entities.
To learn more about opening accounts with GlobalBanks USA, just click here now. Or, contact us directly with any questions!