Watch This Before Forming A US LLC as a Non US Resident

Understanding US LLCs for Non-US Residents

Overview of the Video

• The speaker has conducted three months of research on LLC information for non-US residents and aims to condense this knowledge into six key questions.

• The video will cover what an LLC is, its benefits, tax implications, ideal states for formation, recurring fees, and suitability for non-residents.

What is an LLC?

• An LLC (Limited Liability Company) in the US is akin to private limited companies in other countries, such as PLCs in Nigeria. It combines features of corporations and sole proprietorships/partnerships.

• This hybrid structure offers flexibility and simplicity while providing liability protection similar to larger corporations.

Benefits of Forming a US LLC

• One major benefit is "pass-through taxation," meaning the LLC itself isn't taxed; instead, profits are passed through to owners who report them on personal tax returns.

• Owners' personal assets are protected from business liabilities; if sued, only the company's assets can be targeted, not personal belongings.

Tax Implications for Non-US Residents

• Non-US residents with a US LLC typically do not pay taxes because they aren't liable as they are neither citizens nor residents. Thus, owning a US LLC can be more beneficial than for US citizens.

• However, if conducting business directly on US soil (e.g., owning a restaurant), non-residents may still incur tax obligations due to local operations and employees.

Access to Payment Platforms

• Owning a US LLC grants access to payment platforms like PayPal and Stripe that may otherwise be unavailable to non-residents. This facilitates legitimate business operations without fear of account restrictions based on residency status.

Understanding LLC Formation for Non-Residents

Tax Expectations After LLC Formation

• Non-residents can create accounts on payment platforms that were previously restricted, allowing legitimate access to these services.

• U.S. LLC entities typically have a pass-through tax structure, meaning non-residents often do not pay taxes on their business income, depending on the business structure.

• Most non-resident service providers and online business owners will likely avoid taxation in the U.S., with exceptions based on specific circumstances.

Choosing the Right State for Your LLC

• Non-residents have the flexibility to form an LLC in any of the 50 states, unlike residents who must register in their home state.

• Key considerations when selecting a state include filing fees, privacy policies, and annual report requirements; costs vary significantly across states.

Filing Fees and Annual Reports

• Initial filing fees range from $40 (Kentucky) to $520 (Massachusetts), with most states requiring annual reports or fees to maintain active status.

• States like Kentucky charge $15 annually for reports, while Delaware charges about $300 and Wyoming around $60; some states may not require any fees at all.

Recommended States for Non-Resident LLC Formation

• The four primary states recommended for forming an LLC as a non-resident are Wyoming, Delaware, New Mexico, and Kentucky due to their favorable conditions.

Top Choices: Delaware vs. New Mexico

• Delaware is popular but New Mexico is favored for its lower ongoing costs and minimal maintenance requirements; it does not require annual reports or fees after initial formation.

Cost Comparison Between Kentucky and New Mexico

• While Kentucky has a lower initial filing fee ($40), it requires annual reporting fees ($15), making New Mexico's total cost more advantageous despite a slightly higher initial fee ($50).

• New Mexico allows registration without needing a physical address within the state, unlike Kentucky which mandates a local business address.

Understanding LLC Formation in the U.S.

Virtual Address Services for LLC Registration

• To register an LLC, you may need to pay for virtual address services, costing between $120 to $150. New Mexico allows registration without a physical address in the state.

• You can use free U.S. addresses from services like Hiroshi or Shipito as your registered business address, which is essential since PO boxes are not permitted.

Choosing the Right State for Your LLC

• New Mexico is recommended for simple freelance or service businesses; however, Delaware is suggested if you plan to raise venture capital or scale your business.

• Delaware and Wyoming are preferred by venture capitalists due to their privacy policies; registering in these states is often seen as a requirement for funding opportunities.

Annual Fees and Costs of Maintaining an LLC

• The primary recurring fee for maintaining an LLC is the registered agent fee, which varies by state but is necessary across all states.

• For example, using Inkfile in Wyoming incurs about $180 annually (including registered agent and annual report fees), while New Mexico only requires a $120 registered agent fee with no additional filing costs.

Cost Considerations Before Forming an LLC

• If opting for New Mexico, you could potentially reduce your registered agent fee to around $50 per year by choosing independent agents.

• The initial cost to form an LLC typically amounts to approximately $255.

Who Should Open a U.S. LLC?

• Not everyone should rush into forming a U.S. LLC; it’s advisable only if you have a tested service-based business generating at least $100 monthly.

• Beginners or those without income sources should consider operating as sole proprietors until they can afford the costs associated with forming and maintaining an LLC.

Financial Tools and Business Operations

Opening a US LLC for Arbitrage: Is It Worth It?

Reasons Against Opening a US LLC

• Many individuals consider opening a US LLC primarily to create PayPal and Stripe accounts for arbitrage purposes. However, this may not be a wise investment due to the volatility associated with such businesses.

• The speaker emphasizes that having an LLC does not guarantee account security; accounts can still be blocked regardless of business structure. This is particularly true for arbitrage activities, which are prone to scrutiny.

• Two specific scenarios are highlighted where opening a US LLC is discouraged:

• If the business is too small.

• If the business involves arbitrage, which carries high risks of account shutdown.

Conclusion and Next Steps

• In the next video, recommended services for forming an LLC will be discussed. Viewers are encouraged to check the description for links to further resources.