US Non-residents form companies in the United States for a variety of objectives; some companies operate within the US, while others operate entirely outside. For example, many web-based companies are formed in the US even though their owners have no tangible connection to the US other than the registration of their companies. In general, there are no citizenship or residency requirements to form a company in the US. However, there are several factors that should be considered.
Pass-Through Taxation:
For many clients, pass-through taxation, or the ability to have their entity treated as a non-tax-paying (transparent) entity is important. For US non-residents, creation of an S Corporation is not possible because all S Corporation shareholders must be US residents. Instead, pass-through taxation can be achieved by forming a Limited Liability Company (LLC) instead of a corporation. LLCs are also very popular as vehicles for real estate purchases.
Taxed As Partnership Or Corporation:
The LLC can, with the filing of its Application for Employer Identification Number (EIN), elect to be taxed as either a partnership or a corporation. This selection, with certain restraints, may be changed in subsequent years. Please note that to apply for an EIN the applicant must already have a Social Security Number (SSN) or an Individual Tax Payer Identification Number–contact IBCF for more information.
Filing A US Tax Return:
For a corporation formed in the US, there is an absolute requirement that it file a US tax return regardless of whether there is US income. However, the LLC is taxed as a partnership and the partners (principals) must file and pay individual US taxes only if they operate a trade or business in the US or if they have US-source (effectively-connected) income. It is imperative that all non-US residents without a SSN (Social Security Number) from the IRS apply for an ITIN (Individual Taxpayer Identification Number) as soon as you form your new company—IBCF can help you through this process.
Mixed Us And Non-Us Source Income:
In this situation, it will usually be more advantageous to form a Limited Liability Company instead of a corporation. The global income of a US corporation is taxable whereas the LLC will be taxed as discussed above.
NOTE: In many cases, you may have compelling factors which require the formation of a corporation instead of a Limited Liability Company. For example, you may want to establish unequivocal tax residency in the US. Or you may be planning to sell stock to investors or file an Initial Public Offering (IPO).
Don’t forget Form 5472!
The Internal Revenue Service (IRS) of the United States of America has mandated a new filing requirement, known as Form 5472, for foreign shareholders of 25% or more in US LLCs. This form requests basic information on foreign owners’ citizenship and residence as well as the company’s transactions with foreign shareholders (exclusive of dividends).
Form 5472 must be filed when a limited liability company has non U.S. shareholders who own at least 25% of the entity and the entity has a “reportable transaction” with any foreign shareholder. For the most part, a “reportable transaction” is any exchange of money or property with the foreign shareholder such as a payment for sales, rents, royalties, or interest but excludes the payment of dividends.
Please see our in-depth article and reach out to one of our corporate specialists to help you navigate through the complexities of this requirement.
Apostille:
An Apostille is a seal legalizing a public document for use in international transactions, in accordance with the Hague convention. Many countries require that official documents created in another country bear an Apostille as evidence that they are what they purport to be. We can easily have your formation documents Apostilled if need be.
Where To Form Your Company:
In the US, you can form your company in any state you choose. If you plan, at some point, to open an office in the US, it may be cost-effective to form your company in the state where you foresee basing your company. The majority of US non-residents without a strong reason to form in any given jurisdiction choose Delaware or Nevada because of their business-friendly environments and easy compliance requirements.
What’s My Address?
Every state will require a Registered Agent/Registered Office with an address in that state for receipt of service of process or other official communications. We will serve as your Registered Agent / Registered Office. However, this is not your business address or mailing address which can generally be anywhere you wish. Please remember NOT to use your RA/RO address for anything other than official purposes as described above.
US Bank Accounts
As international banking standards become more rigorous, US banks will rarely open a bank account for a non-US person without both a personal visit and an established US corporation or LLC. Clients are advised to schedule in-person bank interviews only after company formation and to prepare extensive due diligence documentation. Please reach out to IBCF for a referral to an attorney who can assist with US bank account opening.