Guide to the US LLC
The US LLC (Limited Liability Company) is a business structure, offered by all US states, that can be run tax-free in the US when certain conditions are met, such as being operated from outside of the US by non-US residents. In this guide, I provide an overview and detail how registration and maintenance works.
Simon @ FS / Chugach, Alaska
An overview
An LLC, or Limited Liability Company, is a tax flexible business structure that offers full liability protection to its owners. Tax flexible, in this context, refers to an LLC’s ability to make a classification election with the IRS. It can, in other words, choose how it wants to be taxed. For example, it can elect to be treated as a disregarded entity (flow-through), a partnership, a corporation, a trust etc. This election is made when the LLC first applies for an EIN (at registration) but can be amended at any time, if needed.
When an LLC is owned by non-US residents, it will usually be most beneficial to elect to have it treated as a disregarded entity (if it has one owner) or a partnership (if it has multiple owners). Both classifications allow for the flow-through of profits, meaning that the LLC itself is never liable to US tax. The owners are instead responsible for reporting their own share of the profits, and for paying any applicable taxes, according to their own circumstances. This last part is key, because it means that if no work is performed by the owner(s) while physically in the US (and no other physical operations exist in the US), no US tax liability will exist (and no personal US tax return will have to be filed). In other words, the US LLC will be tax free in the US in that situation.
Registration
To register a US LLC, you will first have to choose a registration state. All US states offer LLCs, and they are all identical in how they work (for all intent and purposes). The main differences between states will be fees, privacy and assets protection benefits.
Wyoming and New Mexico offer the best combination of low fees, excellent privacy and assets protection benefits (Wyoming especially). Delaware, another popular option, offers great privacy and assets protection benefits but has higher fees.
For those who prefer to have their personal details listed on the public registry (Wyoming, New Mexico and Delaware have no public registry of ownership), Florida is an excellent option.
In any cases, the tax benefits will be the same (state tax only applies when there are physical operations within the state). Banking, payment processing, access to credit etc will also be the same.
Once you have selected a registration state, you will have to appoint an organizer. The role of the organizer is to file the certificate of organization with the Secretary of State (the registry). Once filed, the role of the organizer ends.
You can act as the organizer for your LLC but it is important to keep in mind that the details of the organizer will be visible on public records. As such, you have to hire a registration service if you want to keep your details private (this applies to state with privacy benefits, Wyoming, New Mexico and Delaware).
In any cases, you will have to hire a registration service in order to obtain a suitable mailing address (this is referred to as the registered address). Many registration services offer a standalone address service.
Once the Secretary of State has approved the certificate of organization, your LLC will be deemed registered and you will be able to apply for an EIN with the IRS. This is done by filing form SS4 via either fax or postal mail (unless you have an SSN or ITIN, in which case you can apply online directly with the IRS). It is on form SS4 that you will make your initial classification election.
Within a few days (actual processing times vary depending on workloads at the IRS), you will receive your EIN and will be able to open bank accounts, payment processing accounts etc. At this point, your registration is complete and you can start operations.
The US really shines when it comes to banking, there are a tremendous number of options and the quality of the products is usually excellent. An LLC owned by non-residents will be able to remotely open accounts with fintech services like Wise and Mercury. If travel to the US is possible, it will be able to open accounts with the national banks (Chase, Citi, Bank of America etc) and many regional banks and credit unions. For more details about US banking, read my banking guide to the US. An LLC owned by non-residents can also open accounts with payment processing services such as Stripe, Shopify Payments and PayPal.
It will usually be a good idea for an LLC owner(s) to apply for an ITIN as it is often used as a means of verification when applying for financial accounts in the US. I have written a guide detailing how to apply, you can read it here. A side benefit of applying for an ITIN is that it will help when it comes to building credit history in the US, which will in turn allow for credit card applications, loans, lines of credit etc.
Maintenance
Most states require that all LLCs file an annual report (annually, as the name implies) before the registration anniversary, and pay an annual renewal fee (not applicable to New Mexico). Non-compliance will usually result in the striking off of the LLC (dissolution), and fines if it is then reinstated. All states also require that the registered address be maintained at all times. No state tax applies, in most cases, when an LLC has no physical operations within the state.
At the federal level, an LLC treated as a disregarded entity (single owner), owned by a non-US resident, with no physical operations in the US, will not usually be liable to US taxation nor will its owner be required to file a US tax return. In most cases, form 5472 and 1120 will have to be filed, however, to report the transactions that occurred between the LLC and its owner.
An LLC treated as a disregarded entity (single owner), owned by a non-US resident, with physical operations in the US, will be liable to US taxation on the profits from said physical operations and its owner will be required to file a US tax return (form 1040NR, in most cases). Form 5472 and 1120 will also have to be filed.
An LLC treated as a partnership (multiple owners), owned by non-US residents, with no physical operations in the US, will not usually be liable to US taxation but will be required to file a partnership return in the US (form 1065, along with a number of additional schedules). Form 5472 does not have to be filed in this case.
An LLC treated as a partnership (multiple owners), owned by non-US residents, with physical operations in the US, will be liable to US taxation on the profits from said physical operations and its owners will be required to file individual US returns (and apply for ITINs) in addition to the LLC itself being required to file a US partnership return (form 1065, along with a number of additional schedules). Form 5472 does not have to be filed in this case.
The above covers the US side. Depending on your circumstances, you may have a tax liability in your country of residence. I recommend reading my place of management rules and CFC rules guides for more details on how international taxation works in the context of legal entities operating outside of their country of registration. I also recommend that you read my explainer on foreign sourced income to ensure you fully understand this concept.
Register a US LLC with us
Freedom Surfer’s business registration service is the most efficient way to start and run your online business, built entirely with location independence in mind. Our US LLC registration package includes all government fees, a local mailing address (for use as the registered and mailing address) with mail scanning and forwarding, the EIN application and all necessary business filings (5472/1120 or 1065). Click here for more details.
