U.S. LLCs or Corporations are widely preferred because they are recognized and accepted worldwide, therefore you won’t face several problems you would in case you made a wire transfer from or to a shady jurisdiction. Opening an LLC, or C-Corporation is simple, fast, and requires low maintenance fees.
Asset protection: LLCs are great legal vehicles to hold assets and they require low maintenance fees.
Trading Company: U.S companies allows you to access a broad range of business and trading tools.
Limited Liability Company
Tax Benefits
The USA LLCs grant foreign company owners tax benefits if they don’t carry U.S. business.
0% tax: LLCs are considered “pass-through” entities, which means the LLCs’ profits are not taxed at a corporate level, but at a personal level when the tax resident tax payer fills his/her U.S. Individual Income Tax Return, form 1040. Therefor Single Owned LLCs are Disregarded Entities (DE) for tax purposes because foreign individuals not carrying US business don’t pay and file personal income tax.
LLCs’ Compliance
As a general rule, if Foreign-owned (non-U.S. residents and non-U.S. citizens) Single-Member LLCs don’t carry U.S Businesses, they are only liable to fill and submit the IRS Form 5472, with pro-forma form 1220, and to pay Franchise taxes.
Form 5472.
Form 5472 is not a tax return and it is more of a information return where the LLC owner discloses and reports any transaction between the LLC owner and the LLC itself; for example, if the LLC owner owns a real estate and this real estate is transacted (by way of sale, donation, or in any other way to change ownership) to the LLC, then this transaction is to be reporter under form 5472.
The purpose of this Form 5472, in theory, is for the IRS to obtain the information of these transactions carried between the foreign owners and the company, and to disclose it with third countries or jurisdiction with whom the U.S may have an information sharing treaty to avoid tax evasion and money laundering.
Form 1220
Form 1220 is to be filled pro-forma attached to Form 5472.
Franchise Tax
The Franchise Tax is a tax you pay every year to the State where your LLC is incorporated in. In general, LLCs pay a fixed fee to the State, while Corporations pay a Franchise Tax based on the numbers of issued and paid shares.
LLC Bank Account
U.S Bank Account for LLCs wholly owned by foreign individuals: due to the Patriot Act, banks require LLCs members to have an address within the U.S, and more specifically in the State where the LLC is incorporated. …. Or at least that is what they tell you on general inquiries to the bank. If you have a personal bank account in a US Bank, you can contact your banker and they will help you to open a business account for your LLC.
If you wish to open a bank account in a Bank located in other or another State, you will have to register your LLC in that State as a Foreign Entity (under this concept, Foreign Entity means incorporated in another US State, or another Country).
C-Corporations
As we mentioned in earlier posts, the reason of incorporating offshore may be to access foreign investment opportunities and forming a C-Corporation in the United States will allow you to open a business bank account on behalf of your corporation, and to access several types of investments and payment gateways. This is recommended in case you wish to trade within the United States.
Taxation
C-Corporations tax the shareholders' profits at the corporate level. This could lead to double taxation for U.S individuals, or for foreign individuals (if they report their income in their personal tax return in their country of residency)
Franchise Tax: most Corporations pay a franchise tax in their State of incorporation. The rate would vary depending on State and amount of issued shares.
C-Corporation Bank Account
Bank Account Opening for foreign owned corporations is easy, fast, and can be done without visiting the U.S soil. Accounts are fully functional (not virtual accounts)
S-Corporations
S-Corporations are Corporations with an LLC tax system. It is an hybrid which includes an LLC taxation, and a Corporation Structure. (LLCs owners have interests in the LLC and it is managed by directors, while Corporations are owned by shareholders, has a board of directors, and CEO).
S-Corporation status is only available for Corporations wholly owned by U.S persons.
Form 2552
S-Corporation shareholders must fill and mail hardcopies of Form 2552 to the IRS Physical Address. Late filling and election won't result in penalty if late filling is made before the end of the applicable calendar tax year and the tax payer can justify the late filling.
About the author: Jean Franco Fernández Clark. Corporate and International Tax Lawyer from Nicaragua, Central America. Speaks English, Spanish, French, Italian, Russian. 学习普通话
Disclaimer: Nothing in this article shall be considered a legal, financial, or tax advice. If you wish to obtain advice you should address a licensed tax consultant or attorney. We do not promote the USA and incorporations there in for illegal purposes or criminal activities. The publication of this article is for information purposes only and the content in this article comes from personal experiences and it is not by any means a legal or tax advice. Information may not be updated or correct.