Setting Up a US LLC as a Non-US Resident: A 2023 Guide (Part 1)

When contemplating establishing a business entity as a non-US resident, the US Limited Liability Company (LLC) should undoubtedly be your first choice. Before delving into other popular options like Hong Kong, Estonia, Singapore, or the United Kingdom, it's crucial to understand the immense benefits that a US LLC can offer. This guide aims to shed light on why setting up a US LLC as a non-US resident is a strategic move in 2023.

Why Set Up a US LLC as a Non-US Resident?

1. Low-Maintenance, Tax-Free Structure: Registering an LLC in the US as a non-US person provides you with a low-maintenance and tax-free business structure within a first-world jurisdiction.

2. Superb Banking Options: Gain access to a wide array of banking options tailored to the needs of your LLC.

3. Vast Payment Processing Selection: Enjoy the convenience of choosing from a multitude of payment processing solutions.

4. Good Reputation: Operating as a US LLC elevates your business's reputation and credibility in the global market.

5. Access to the US Market: Tap into the enormous US market, unlocking unprecedented growth opportunities.

6. Solid Legal System: Benefit from the robust legal framework and business-friendly regulations in the US.

Two Types of US Company Structures to Know

For foreign entrepreneurs, the US offers two primary business structures: the Corporation and the Limited Liability Company (LLC). It's imperative to understand the distinctions between these two forms before embarking on your US business venture.

1. The Almighty Corporation Structure

In US law, a corporation is a distinct legal entity separate from its owners or managers. When a state issues a certificate of incorporation to an entity, it grants the entity the authority to enter into legal contracts, sue and be sued.

- Limited Liability: Shareholders typically enjoy limited liability protection, shielding their personal assets from the corporation's debts, provided they fulfill their duties as directors or officers.

- Federal Corporate Tax: The current federal corporate income tax rate for US corporations stands at 21%, with varying state corporate income tax rates across states.

- Taxation on Profits: After paying corporate income tax, profits distributed to shareholders as dividends may be subject to taxation, depending on their place of residence.

2. Know the Partnership Structure

Before delving into the intricacies of the LLC structure, it's beneficial to briefly explore the partnership structure, which will facilitate your comprehension of the LLC's workings.

- Pass-Through Entity: Partnerships are not taxed as separate entities; instead, they are pass-through entities where profits and losses pass through to individual partners, who are then taxed on their respective income.

- Profit Sharing: Partners share profits and losses, jointly managing the company.

- Individual Taxation: Income derived from the partnership is taxed under individual income tax rates.

The Hybrid LLC Structure

While many countries have their equivalents of "Corporation" and "Partnership," the US stands apart with its unique entity: the Limited Liability Company (LLC). At first glance, the term "limited liability company" might be misleading if you attempt to draw parallels with similar structures in your home country. However, much like American football, the US LLC offers a distinctive blend of features, warranting a closer look.

In the United States, the "limited liability company" (LLC) embodies a legal form that seamlessly melds characteristics of both corporations and partnerships. This hybrid structure combines the limited liability safeguards of a corporation with the flexibility and tax efficiency of a partnership. In the realm of LLCs, business owners are referred to as "members," and these members can be individuals or organizations.

From a tax standpoint, the LLC operates as a pass-through entity. This means that an LLC does not face taxation at the corporate level, unlike traditional corporations. Instead, the LLC's profits and losses flow through to its owners, who then report their respective shares of the company's earnings on their personal tax returns. Notably, US LLCs can be established and owned by a single member, a distinctive feature setting them apart from partnerships, which require at least two members. When a single individual owns the LLC, it is termed a Single-Member LLC, whereas those with multiple members are commonly referred to as Multi-Member LLCs.

Conclusion

When considering forming a company structure as a non-US resident, the US Limited Liability Company (LLC) should surely be your first choice. For international entrepreneurs, the United States offers two basic company structures: the Corporation and the Limited Liability Company (LLC). The US LLC has a particular set of traits that merit additional examination. This hybrid organization combines the restricted liability protections of a corporation with the flexibility and tax efficiency of a partnership. In the world of LLCs, business owners are known as "members," and these members might be individuals or organizations. The LLC is taxed as a pass-through company. In order to learn about the tax implications of LLCs in the United States. Keep an eye out for our next article. 

Disclaimer: While these guidelines are generally applicable and effective in most scenarios, they are not a one-size-fits-all solution. For highly complex situations, it is advisable to consult a US accountant or attorney well-versed in international taxation.