A hybrid between a partnership and a corporation, an LLC (limited liability company) offers several benefits, including operational flexibility, protection of your personal assets and tax efficiencies.
While there are various types of business entities that you can start in the US, an LLC is the most popular choice among small businesses and entrepreneurs. Setup is fast, easy and relatively inexpensive. They’re also easier to run and reporting requirements (paperwork) is generally low hassle.
From a foreigner’s perspective, they’re particularly appealing for these exact reasons. However, there’s often some confusion around LLC foreign ownership. Can a foreigner own an LLC or be a member of one in the US, or are they only for US citizens?
In this guide I’ll unpack the answer to that question and more. Let’s dive in.
Can a Foreign Person Own an LLC?
In short, yes. There are no limitations as to who can own or register an LLC in the United States.
Regardless of where you are from, you are free to form, own or be a member of an LLC in the US. There is no need for you to be an American citizen or even have a green card, for that matter.
Member vs Manager
When starting a US LLC, you’ll be posed the question of whether or not it will be “member-managed” or “manager-managed”.
Members are similar in concept to shareholders. They own a portion of the company.
Managers are similar to directors. They are appointed by the owners (members) and run the company, which includes the responsibility of filing.
Most small businesses are member-managed LLCs, as they are only owned by a small number of members.
Who Can Be an LLC Member in the US?
According to the IRS, most states do not restrict ownership. Members of US-based LLCs can therefore include:
- Other LLCs
- Foreign entities
The above applies to Ultimate Beneficiary Owners who are residents and non-resident aliens.
There is no limitation placed on the number of members who can own an LLC and single-member LLCs are also permitted in the majority of states in the US.
How Much Money Must a Foreign-Owned LLC Make Before Filing Form 5472?
If an LLC is at least 25% foreign owned, filing Form 5472 is mandatory. Regardless of how small, any and all “reportable” transactions must be reported to the IRS.
When Do Foreign LLC Owners or Members Need a Visa?
The only time you’re required to have a visa or green card is if you want to work for the LLC within the US.
Working for the LLC from outside of the country is perfectly fine. Ultimately the US government is concerned with foreigners without the appropriate approvals trying to take jobs from Americans. Conceptually, the US LLC aspect is irrelevant.
What Annual Tax Filing Is Required for the IRS?
If you own an LLC in the US or are a member of one, irrespective of where you’re located, you must file with the IRS, even if no tax is payable.
Non-resident single-member LLCs must file the following forms:
A multi-member LLC with a foreign partner (25% or more foreign-owned) must file these forms:
- Form 5472, and
- Form 1065.
Note that in both cases, this is for the LLC itself. None of the forms above are for individual income tax returns.
In many cases, income for members of foreign owned disregarded entities is not taxable in the USA. That income is taxed in their country of residence instead.
What Happens if I Don’t File Everything I’m Supposed To?
You don’t want to antagonise Uncle Sam. For LLCs that are at least 25% foreign owned, filing Form 5472 is a non-negotiable. Failure to do so will result in a $25,000 fine.
Not submitting the required information or worse, submitting false or fraudulent information can result in criminal penalties under sections 7203, 7206 and 7207.
Final Thoughts on Foreign-Owned LLCs
While it is possible for a foreigner to own or be a member of an LLC in the US, the process involves a fair amount of admin. Failure to tick all the relevant boxes will have the IRS breathing down your neck.
That said, by now you should have enough information about LLCs with foreign members to avoid this happening. Take it a step at a time and you’ll find the effort to reward ratio skewed in your favour.
Take it from someone who knows, opening a company in the USA as a non-resident holds many perks, such as excellent banking, low fees, a good reputation and more.
Leave a comment below if you’d like to know more.
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