Miami Business & Tax consultants

Why Every International Business Needs a Tax Free LLC?

A Limited Liability Company is a business structure that combines pass-through taxation with the limited liability of a corporation. First established in Wyoming in 1977, the US LLC was initially popularized in the 1990s. LLCs can be registered (opened) in each of the 50 states, however for our non-resident clients we typically recommend registering in Delaware for a variety of reasons.

Why a U.S. Company?

With a constantly evolving global marketplace, the ability to adapt is more valuable than ever. With a US LLC an international business can invoice it’s clients from any part of the world without any U.S. tax consequences. Additionally, a U.S. bank account allows businesses in countries with less stable currencies to keep their funds in USD. With minimal annual reporting requirements and a low cost to open and maintain, a U.S. LLC is the perfect addition to any global business

No US Tax Liability

A foreign owned and operated LLC does not have to pay income taxes in the United States. As long as an LLC with a foreign owner does not have an office or employees in the US, and does not physically do business within the U.S.; there are no taxes to pay in the United States.

No withholding taxes

A foreign owned and operated LLC does not have to pay income taxes in the United States. As long as an LLC with a foreign owner does not have an office or employees in the US, and does not physically do business within the U.S.; there are no taxes to pay in the United States.

Access to U.S. bank accounts and USD

While banking in the United States is not perfect, there are some benefits. International wires are generally processed very quickly. Payments into the account are processed with no issues. And a business checking account at JP Morgan Chase Bank has no fees if you keep the account balance above $1,500.

Access to U.S. based payment processors

Some of the top payment processors globally like Stripe and Square only work with US bank accounts. Stripe in particular is one of the best and most reliable payment processors for many online businesses.

Legal Protection

While banking in the United States is not perfect, there are some benefits. International wires are generally processed very quickly. Payments into the account are processed with no issues. And a business checking account at JP Morgan Chase Bank has no fees if you keep the account balance above $1,500.

Flexibility in operations and ownership

The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC. If an LLC takes out a loan to expand the business and the business is unable to pay the loan, the member will not be liable to pay the loan back personally.

Low Cost to Maintain

The only annual filing requirements include an annual report with the state and Form 5472 filed with the IRS. Because there is little to do each year to keep the company open the

What is an LLC?

A Limited Liability Company is a business structure that combines pass-through taxation with the limited liability of a corporation. First established in Wyoming in 1977, the US LLC was initially popularized in the 1990s. LLCs can be registered (opened) in each of the 50 states, however for our non-resident clients we typically recommend registering in Delaware for a variety of reasons.

What are the most common uses for an LLC?

With a constantly evolving global marketplace, the ability to adapt is more valuable than ever. With a US LLC an international business can invoice it’s clients from any part of the world without any U.S. tax consequences. Additionally, a U.S. bank account allows businesses in countries with less stable currencies to keep their funds in USD. With minimal annual reporting requirements and a low cost to open and maintain, a U.S. LLC is the perfect addition to any global business.

Tax Free Subsidiary (for a Non-Resident)

As mentioned above, US Non-Residents can operate an LLC without any income or withholding taxes to pay as long as they are not doing business in the U.S.

Holding Company

An LLC can be used to own real estate or other assets to provide additional anonymity and legal protection

Example

A simple example is that Juan is a Colombian citizen and resident who has a technology business in Colombia. He also has a US LLC that he uses for tech- nical consultations. Because of local laws, most of the business done within Colombia passes through the Colombian company. However all of the clients in Peru, Panama, Spain, Chile and the United States, make payments to the US LLC. These clients can pay with wire transfer and credit card and there

are no issues. When funds are needed to pay the employees to deliver the services, funds are transferred from the US to Colombia via international wire and can arrive the same day. Payments to any providers outside of Colom- bia can be paid by the LLC without any issue. This approach allows for easier receipt of international payment and reduced income taxes in Colombia.

How to make sure your LLC does not pay U.S. Taxes

LLCs are best used for international business that don‘t have a presence in the United States. A foreign owned LLC is only subject to US tax if it is „engaged in a trade or business in the United States“, which only applies if any of the following are true:

• The LLC has an office with an employee
• Representatives of the LLC (owner or foreign employees) enter the US to deliver services • The LLC has at least one „dependent agent“in the US which are employees or companies that work for you almost exclusively, and the agent does something substantial to further your business as opposed to administrative work.

If you don‘t have an office or employees and don‘t deliver services in the US, you are not subject to US tax. Even if the LLC generates income in the US from US clients, the income is not taxed in the US.

Foreign software company without US office or representative

A Mexican software company is performing security services for US clients. The business is based in Mexico and has no US office or sales agents. All sales are done over the phone or online. The company can open an LLC to receive payments in USD, in a US bank account. Since the work is performed in Mexico and the owners are non US citizens/residents, who are not taxed in the US. Therefore, the LLC income is not taxed in the US as there are no offices or dependent agents in the US.not taxed in the US.

Foreign "fulfillment by amazon" service provider or representative

A foreign entrepreneur sells products into the US market using Amazon’s “Fulfillment by Amazon” service. All marketing and procurement is managed online by the non US citizen, who lives in Co- lombia. Products are ordered and shipped to Amazon’s warehouses, where Amazon employees package the products and ship to customers in the US. In this case, Amazon is not a dependent agent but an independent agent that has its own business with millions of other clients. Amazon is not uniquely working for this foreign entrepreneur. Therefore the foreign entrepreneur is not “en- gaged in a trade or business in the US,” so he or she is not subject to US tax on income from selling products into the US.

What if you eventually want to have offices and employees in the US?

For physical expansion to the US, the most recommended entity is a C-Corporation. A C-Corporation is taxed separately from its owners at a flat 21% rate by the IRS. All profit distributions (called dividends) made by a C corporation are subject to double taxation and US withholding taxes when paid to non residents. The standard rate of withholding is 30%, but this can be reduced if there is a tax treaty between the US and the non resident‘s home country.

That said, it is popular to use an LLC in addition to a Corporation. The LLC can be used to manage foreign billing and certain projects, while the Corporation handles the sales and product teams. When planned properly, there are many benefits to having a Corporation and an LLC.

Can I work in the US if I own a corporation or an LLC?

A foreign citizen can be a corporate officer and own and LLC, but may not work in the United States or receive a salary or compensation for services provided in the United States unless the foreign citizen has a work permit (either a visa or a green card) issued by the United States. When entering the United States on a tourist visa, the agents can review your phone and social media accounts to determine if you are coming to the US on business. Contact our immigration experts today to learn more.

What documents are needed to open an LLC and US bank ac- count?

None. We have a simple 2 page questionnaire that we use to open the LLC and the bank account on your behalf.

Am I required to keep accounting records?

Yes, a foreign owned single member LLC is technically required to keep books and records available upon request.

Do I have to travel to the US to open the company bank account?

We have the ability to open US bank accounts for nearly all new clients.

How long does it take to open an LLC?

Processing times for registering an entity vary among the different states, but most Delaware companies are open within 5 days, and expedited processing is available.

What are the annual cost for keeping the LLC open?

Every year the LLC must file an annual report, complete the filing of Form 5472 and pay the registered agent to use the address in the US. The total cost should be less than $2,000 each year.

How can I further protect my business from liability and lower my global tax expense?

Since an LLCs income is not subject to tax in the United States, it is common for other countries to impose a tax on the profits of the LLC to the owner. Depending on the country, using an Interna- tional Business Corporation (IBC) as a corporate blocker is the perfect solution. For most of our clients the preferred IBC jurisdiction is Belize.

As you can see in the chart in the next page (p.9), the foreign owner would own the shares of the IBC, while the IBC would be a member of the LLC. In this situation the Belize Corporation would be responsible for paying taxes on the LLC‘s income (hint: Belize tax rate on income earned outside of Belize is 0%). We also create Belize entities and bank accounts for our clients, as described in the Gold Package.

Tax free LLC application process

With a constantly evolving global marketplace, the ability to adapt is more valuable than ever. With a US LLC an international business can invoice it’s clients from any part of the world without any U.S. tax consequences. Additionally, a U.S. bank account allows businesses in countries with less stable currencies to keep their funds in USD. With minimal annual reporting requirements and a low cost to open and maintain, a U.S. LLC is the perfect addition to any global business

After receiving the questionnaire, Miami Business registers the LLC and acquires the 1-2 company Tax Identification Number.

1-2 Weeks

Once step 1 is completed, the US Bank Account is opened. Login information and wire instructions for the initial deposit ($1,500 is minimum balance required for no bank fees).

1-2 Days

The Individual Tax Identification Number is requested by Miami Business on behalf of the non-resident owner or officer. This service is required in order to open a Paypal or stripe account, among other things.

3-5 Weeks

After the required information is gathered, the IBC can be registered. Processing times and required information vary by jurisdiction. In Belize the process takes 3-6 weeks.

3-6 Weeks

File annual report with Delaware. This must be done by March 1st of the year follow- ing registration and costs $300.

Once a year

File Form 5472 with the IRS. This form reports all transactions between the LLC and the owner (and related parties). There is no tax due with this form. The form must be filed by April 15th.

Once a year

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All Rights reserved © Miami business & Tax Consultants