Tax Free LLC for Non-US Residents

There is now a method for foreigners to have a Tax-Free LLC in certain circumstances.

If you are all of these:

  1. Not a US Citizen
  2. Not a Green Card Holder
  3. Don't meet the US Substantial Presence Test (you don't spend more than 120 days in the USA, etc.)

Then you are a Non-Resident Alien.

AND, if your business meets these criteria:

  1. You do not have a Dependent Agent (exclusive contractor or employee)
  2. The business is not engaged in "considerable, continuous, and regular" business in the USA.

Then your tax free US LLC would not be considered to be engaging in US Trade or Business and thus neither of you are subject to US federal taxation.

What this means, is that you can use the pass-through taxation of the tax free LLC to pass-through to you personally, wherever you are.

You do still have to file annually, to the IRS: a proforma (basic info only) 1120 along with form 5472 (Reporting Transactions between you and yours and the LLC), but you wouldn't have to pay tax in the USA, the tax burden (profit) would be transferred to you personally, and you'd have to account for all the revenue and expenses in your personal tax return, wherever you file that.

ALTERNATIVELY, and with no qualifications or worries at all, you can form a Corporation or an LLC elected to be taxed as a corporation, file form 1120 and it's required addendums (you should really hire an accountant for this), where all the profit is drawn off to your local (or other jurisdiction) company, or you or your people, through management fees/expenses, so you're filing in the USA, but not paying any taxes there. You would only have to account for the profit as revenue whereever you draw it off to. It's a much safer and more flexible solution that legally avoids paying tax in the USA. Or maybe taxes in the USA are better than where you live and you'd like to leave some profit in the company and pay taxes in the USA? With a Corp or LLC taxed as a Corp you have these options available to you, and you don't have to qualify as above.

Contact us if you'd like to discuss your options.