Are you a non-resident looking to take advantage of the many tax benefits of forming a US LLC (Limited Liability Company)? With a territorial tax system like Paraguay, establishing a foreign-owned single-member LLC can be a lucrative opportunity for your business. In this blog post, we’ll explore the advantages of forming a US LLC and how it can benefit your company financially. Let’s get started!
What is a US LLC?
A US LLC is a business structure that combines the benefits of a partnership and a corporation. It provides owners with personal liability protection, flexible tax options, and easy management. LLCs can be formed by individuals or multiple people, who are referred to as members.
LLC stands for Limited Liability Company. An LLC is a fully liability-limited legal form that does not exist in this form in Europe, a hybrid of a partnership and a corporation. It can have a single owner (referred to as a member), who can also be the manager. The LLC is not an offshore company, but is used by millions of Americans in the same form.
Benefits of forming a US LLC as a Non-Resident
As a non-resident, you can take advantage of the benefits of a US LLC, such as personal liability protection and flexibility in tax planning. Additionally, you can showcase your business on the world’s largest market and attract customers. Moreover, forming a US LLC is relatively straightforward and uncomplicated.
What is a foreign-owned single-member LLC?
A foreign-owned single-member LLC is a US LLC established by a non-resident with only one member. Also it is considered a “disregarded entity“, which means that it is treated as a sole proprietorship for tax purposes. Either you form a foreign-owned single-member LLC being an individual or being foreign companies. However, the latter wouldn’t include your desired tax benefits. More on that later.
Benefits of a foreign-owned single-member LLC
A foreign owned single member LLC offers many benefits, such as:
- Limited personal liability: Members are only liable up to the amount of their capital contribution.
- Flexibility in tax planning: A foreign owned single member LLC can be treated as a disregarded entity, which means that one can report profits and losses on one’s personal tax return. Alternatively, it can be taxed as a corporation.
- Easy administration: A foreign owned single member LLC requires minimal accounting and administration.
- US business bank account: Opening a US-based bank account facilitates international transactions and increases credibility with American clients.
How to form a foreign owned single member LLC?
Forming a US LLC is relatively easy and straight-forward. Here I list the steps to take when forming your LLC:
- Choose an agent: A person or company representing your LLC in the formation state. As a non-resident, you must appoint a domestic agent to represent your LLC.
- Choose a name: Select a unique name for your LLC that has not been used by another LLC in your state.
- Register your LLC: Complete the necessary forms and file them with the relevant Secretary of State in your state. Make sure to pay all necessary fees.
- Create an operating agreement: A document describing the internal business operations of your LLC. It is not mandatory but advisable to avoid disputes among members.
- Apply for a tax ID number: A tax ID number (also known as an Employer Identification Number or EIN) is necessary to register your LLC for tax purposes. Once you have your EIN number, you may apply for a US bank account.
- Obtain necessary licenses and permits: Depending on your business and location, you may need certain licenses and permits to operate legally.
My personal experience with forming an LLC
I founded my LLC in Florida in 2020. My partner Paul had already been running his since 2013 and had years of experience with the annual documents required. Luckily I learned from him that the work involved in a single-member foreign-owned LLC is easily manageable on your own.
Unsurprisingly, there are many providers who want to take the work off your hands, some in the US and some abroad. However, hiring a US-based firm for the annual filings of a foreign-owned single-member LLC can be risky, as these firms are specialized in serving US citizens.
We‘ve heard from many foreigners who have been filed incorrectly by such companies and lost their tax benefits. Alternatively, there are foreign companies that know better how to file documents for foreigners. If you pay them a fee of $1,000 or more per year, they will do the work for you, but you will not gain any knowledge about opening and managing your LLC yourself. Additionally, you will end up paying more than the amount of $200 that I pay annually (fees may vary depending on the state.)
The work takes only a few minutes if you know which documents to file. Further, you should also get an online fax account (such as HelloFax) since the US IRS does not yet work electronically 😉 If you sign up with this link, you will get free additional pages!
My registered agent is included in the price of 200$ per year. In an office in St. Petersburg, Florida, my mail is scanned and sent to me electronically. Pretty convenient!
Tax benefits of a foreign-owned single-member LLC
The LLC is generally considered a “disregarded entity for federal tax purposes” by the IRS. In other words, you don’t pay taxes in the US if there is no dominant US connection of the members. The principle of tax transparency applies, meaning that the LLC pays taxes where its members are tax-residents. Therefore, LLCs are pass-through entities, where the tax payment is passed through to the tax residence of the owners.
Generally, you might want to start an LLC because you have a tax-free residence (or as a perpetual traveler you may have no tax residence at all.) Ideally, with a residence in a country with territorial taxation (such as Paraguay), income directly from your US LLC is tax-free as long as there is no permanent establishment or fixed employees in the US. Therefore, if you offer online coaching to US Americans or sell online courses, your income remains tax-free.
If you see the advantages of a foreign-owned single-member LLC and would like to learn more about it, I recommend scheduling a free consultation with Paul. He is happy to take the time to answer any questions you may have regarding a residency in Paraguay or forming your US LLC!
Your first consultation is free, and all you need to do is sign up with his calendar.
If you want to know more about life as a perpetual traveler, feel free to contact us!
☎️ Sign up for a free call HERE!
📩 Email: Alexandra@AlexandraAllover.com
🎓 My life as traveling teacher: Youtube
🎓 My education BLOG for students, parents and teachers
✍️ More BLOG posts on my travels: https://alexandraallover.com/blog