A lot of foreigners who own businesses may believe that the US may not be the best place to receive tax benefits. In fact, the US is one of the best tax havens in the world and can benefit foreigners who own US-based businesses.
A tax haven is a country or state that offers little to no tax liability to foreign individuals and businesses in a political and economic static environment. US corporations such as Microsoft and Apple use tax havens to minimize corporate taxes. LLCs benefit from tax havens since they are not taxed directly but only on profits and losses reported on the owners’ personal tax returns. Therefore, setting up an LLC is the best way to avoid paying taxes.
The US has very attractive federal tax rules for foreigners. Although these laws do not benefit their own citizens, foreign individuals, and companies can from tax laws.
First, the individual and company must reside in their own country, conduct all business activities outside of the US and their income is not connected to the US. Therefore, you must have no US presence. You will only be taxed if you are engaged in trade or business in the US.
Taxation will only apply if you have one dependent agent, that is an employee or a company based in the US and employed by you and work exclusively for you and if the dependent agent contributes substantially to your business in the US rather than acting in an administrative capacity. Once your company operates and you pay taxes in your home country, U.S. tax laws will not apply to you or to your company.
This does not mean you cannot provide services and products in the US.
For example, you may own a company that provides a particular service such as software development or property management for US clients, but all operations may be done in your home country. You can open an LLC to receive payments in USD in a US bank account and would have no need to worry about taxes as the company has no offices or dependent agents in the US.
Another example is that you could use a third-party service provider that will package and ship products to the US. Amazon, for example, can help foreign entrepreneurs sell products into the US through their “Fulfillment by Amazon.” All operations are managed by foreigners but products are packaged and shipped to customers in the US thanks to Amazon. Although Amazon assists this company, it is not solely working with the company as it works with numerous clients and is not a dependent agent but rather an independent agent. Therefore, the company will not be subjected to US taxes.
Although you may not have to pay taxes, as of 2017, all foreigners need to file Form 5472 to disclose financial information to the IRS. Also, your LLC may be taxed in your own country.
P.S. This is not legal advice. Please seek your own legal advice based on your own personal situation. If you don’t have your own attorney, Firstbase.io offers free tax and legal consultations as part of our all-in-one service.
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