Yes, a US LLC can be owned entirely by foreign persons. The state of Florida is one of the most common states used to incorporate and in Florida the taxes, management costs and formations costs are usually less than in many other jurisdictions. Since Florida, and Miami in particular, attract foreigners to invest and live, there are advantages and disadvantages of incorporating an LLC with foreign members.
When there is a foreign partner in an LLC, that partner must have a US Taxpayer Identification Number (“ITIN”). This must be obtained if the LLC is engaged in a US trade or business. United States Tax laws require that foreigners pay taxes on any earnings made in the United States. Regardless of immigration status, the United States will allow foreigners to form a company as long as they have registered for a Taxpayer Identification Number. The process to register is not complex, but it can be lengthy.
When do Foreign Owners need a Visa?
While foreigners can be owners of an LLC that operates in the United States without a visa, if they wish to work for the company within the country, they will need to acquire one. Foreign owners could work as a corporate officer for a US Company without a visa, but in this case, they must be outside of the United States. Otherwise, they cannot receive a salary or compensation for services provided in the United States unless the foreign citizen has a work permit issued by the United States. For a foreign citizen who simply wants to do business in the US, a B-1 visa is usually the right option to apply for, as it is meant for foreigners who wish to consult with business associates, attend professional or business conventions, or negotiate a contract. The B-1 visa is more for foreign persons looking to invest in the US rather than work in the US. Besides the B-1, you could also apply for an immigrant Visa like the E3 that will allow skilled workers or professionals to immigrate to and work in the US.
Foreign Owned LLC Reporting and Taxes
The foreign partner of an US LLC will be deemed to be engaged in a US trade or business and the LLC must withhold 35% of its profits for taxes, paid and filed on a quarterly basis to the IRS. Even though the partnership itself does not pay income taxes, it must file Form 1065 with the IRS even if there is no profit. This form is an informational return the IRS reviews to determine whether the partners are reporting their income correctly. The partnership must also provide a Schedule K-1 to the IRS and to each partner, which breaks down each partner’s share of the business’s profits and losses. In turn, each partner reports this profit and loss information on their individual tax return.
A significant issue to mention is that the LLC cannot choose to be taxed as an S- corp. since foreign citizens may not be partners or owners in an S-corporation in accordance with US law. It may, however, choose to be taxed as a C-corporation (the standard, default, familiar corporation we all know about).
Also, foreign owners may act as consultants to the LLC under a written Consultant’s agreement completing all consulting work within their home country and billing the LLC in the United States for this service. By doing so, it may be possible to eliminate profits thus avoiding some taxation, as well as U.S. situs (located) earnings, which would be subject to the U.S. tax regime, even for non-residents.
As mentioned above, the foreign owner will need to obtain an Individual Taxpayer Identification Number (ITIN). This is because, an election is made to have your LLC taxed as a corporation, then the foreign owner will become a US taxpayer. The income from US LLC sales will be taxable at the federal level. As an individual, the foreign owner will likely be filing IRS Form 1040NR. How much tax you will the foreign owner will partly depend on whether there is a tax treaty between your country and the US.