How to Form an LLC in the U.S. as a Non-Resident: Benefits, Taxation, and Best States

What is LLC?

An LLC (Limited Liability Company) is a hybrid business entity that combines features of corporations and partnerships. It provides personal liability protection for its owners (called members) while offering flexibility in management and taxation.

Can non-US residents open LLC?

Non-US residents can indeed open an LLC in the United States. There’s no requirement to be a US citizen or resident or even be physically present in the country to form an LLC.

What are the benefits of setting LLC in US?

Benefits of setting up an LLC in the US include:

1. Personal liability protection
2. Flexible taxation options
3. Ownership and management flexibility
4. Credibility and privacy
5. Access to the US market
6. Potential tax benefits
7. Asset protection

Registering LLC with Northwest Registered Agent

Register an LLC with Northwest Registered Agent, because:

1. Northwest Registered Agent charges $39 plus state fees for LLC formation
2. They provide free Registered Agent service for the first year (then $125 per year)
3. Northwest offers address privacy, keeping your personal address off public records
4. They have excellent customer support and 20+ years of experience
5. Northwest doesn’t sell your customer data, unlike many competitors

Northwest Registered Agent is recommended for its reasonable prices, quality service, and additional benefits like address privacy and strategic office locations. While not the cheapest option, their comprehensive services and customer support make them a strong choice for LLC formation.

states that are more favorable for forming an LLC

Certain states in the U.S. are more favorable for forming an LLC due to their business-friendly laws, tax advantages, and privacy protections. Here are the top options:

1. Delaware

• Known as the “gold standard” for LLC formation.
• Offers flexible and advanced business laws, including a specialized Court of Chancery for resolving business disputes quickly.
• No state corporate income tax for businesses operating outside Delaware.
• Minimal filing fees and no requirement to publicly disclose member names.
• Popular among startups and businesses seeking investment capital.

2. Wyoming

• The first state to establish LLCs and remains highly business-friendly.
• No state income tax, franchise tax, or corporate tax.
• Strong privacy protections, including anonymous ownership options.
• Low filing fees and simple formation processes.

3. Nevada

• No state income tax, personal income tax, or franchise tax.
• Strong asset protection laws and privacy safeguards (no public disclosure of members).
• Pro-business climate with minimal regulatory burdens.

4. New Mexico

• Low state fees and no annual reporting requirements.
• Strong privacy protections (does not require listing members publicly).
• Suitable for those seeking low-cost and low-maintenance LLCs.

5. South Dakota

• No personal or corporate income taxes.
• Minimal regulatory requirements and strong privacy laws.
• Ideal for businesses seeking asset protection and low operational costs.

Other Notable States:

• Texas: Large market, no personal income tax, but has a franchise tax.
• Florida: No personal income tax, charging order protection for LLC members, and a growing economy.
• Alaska: No state sales or individual income taxes; ideal for specific industries like natural resources.

Key Considerations When Choosing a State:

1. Tax Implications: States like Wyoming, Nevada, and South Dakota offer significant tax advantages.
2. Privacy Protections: States such as Wyoming, Nevada, and New Mexico allow anonymous ownership.
3. Business Environment: Delaware is ideal for raising capital due to its investor-friendly reputation.
4. Filing Requirements: States like New Mexico have minimal ongoing compliance obligations.

Entrepreneurs should select a state based on their specific business needs, such as taxation preferences, privacy concerns, or plans to attract investors.

pass-through taxation for LLCs

Pass-through taxation for LLCs works as follows:

• The LLC itself does not pay federal income taxes on business income.
• Instead, the LLC’s profits and losses “pass through” to the individual members (owners) of the LLC.
• Each member reports their share of the LLC’s income, losses, deductions, and credits on their personal federal income tax returns.
• For single-member LLCs:
  • They are typically taxed as sole proprietorships.
  • The owner reports income and business expenses using Form 1040 Schedule C.
• For multiple-member LLCs:
  • They are usually taxed as partnerships.
  • Members receive a Schedule K-1 from the LLC and transfer that information to Part II of Schedule E and other relevant forms.
  • The LLC must file a partnership information return (Form 1065) listing revenue and its distribution to owners.
• LLC members are responsible for paying self-employment taxes on their share of the LLC’s earnings.
• This taxation method allows LLCs to avoid double taxation, which is a key advantage over C corporations.
• Even if profits are reinvested in the business, members must report and pay taxes on those profits on their personal tax returns.
• While LLCs avoid federal income tax at the entity level, they may still be subject to other state taxes, including franchise, sales, and use taxes

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Tax Filing Requirements for non-us members of llc

1. Form 5472 and Pro Forma Form 1120
   • All foreign-owned single-member LLCs (classified as Foreign-Owned Disregarded Entities/FODEs) must file Form 5472 annually with the IRS, even if the LLC has no income or activity.
   • This form discloses transactions between the LLC and its foreign owner or related foreign parties.
   • A pro forma (placeholder) Form 1120 must also be submitted alongside Form 5472, even though the LLC itself does not owe corporate taxes.
2. Form 1040-NR (Individual Tax Return)
   • If the LLC generates U.S.-sourced income (e.g., rental income, sales in the U.S.), the non-resident owner must report it on Form 1040-NR and pay applicable federal taxes.
   • If the LLC has no U.S.-sourced income, Form 1040-NR is generally not required.
3. State and Local Filings
   • Depending on the state, annual reports, franchise taxes, or other fees may apply (e.g., California’s $800 annual tax for LLCs).

Key Exceptions and Penalties

• No Income ≠ No Filings: Even inactive LLCs must file Form 5472 and Form 1120 to avoid penalties of up to $25,000 for non-compliance.
• Privacy: Some states (e.g., Wyoming, New Mexico) allow anonymous ownership, but federal reporting obligations remain.

When No Filing Is Required

• If the LLC owns non-income-generating assets (e.g., a personal vacation home with no rental activity), no Form 1040-NR is needed.
• However, Form 5472 and Form 1120 are still mandatory regardless of income.

Summary

• Mandatory Filings: Form 5472 + Form 1120 (always required).
• Conditional Filings: Form 1040-NR (only if U.S.-sourced income exists).
• State Compliance: Varies by jurisdiction but often involves annual fees or taxes.

Non-compliance risks severe penalties, so foreign owners should consult a tax professional specializing in international taxation