US "Offshore" LLC advice and strategies

[tregosampras]

Hey all, i'll try and be brief in describing my situation and goals. I'm looking to contribute what I know about this topic, and looking for advice or tips from anyone who has knowledge in the area.

I am what would be termed a US Nonresident-Alien for tax purposes, meaning I neither am an American citizen, nor resident in the United States, and would fail the "substantial presence" test to determine if I was indeed resident.

I am looking at setting up a software company for the purposes of freelancing / contracting on software development. I have an SSN and have worked in the US previously (and filed taxes). From what I have gathered:

About LLCs
+ Forming an LLC company organization provides legal protection for personal assets provided you adhere to keeping the business' affairs and your own separate.
+ LLCs can be formed with one member in all 50 states, and that member can be a nonresident-alien.
+ LLCs of this format would be disregarded entities to the federal tax system (IRS). This means their earnings and losses pass through to the members.
+ Although I haven't quite digested this point (because of the previous point), LLCs are not liable for taxation or reporting of income derived from sources outside the USA.
+ Nonresident aliens may find the following information of use

# You file your taxes as form 1040-NR (Non resident)
(link to the PDF omitted)

# Instructions for how to fill out 1040-NR
(link to the PDF omitted)

# Estimated tax payments (if and when they are to be made, unclear on this right now, IRS of no help on the phone) done with 1040 ES NR
(link to the PDF omitted. Sorry, forum engine is disallowing URLs in posts for me)

My Objective
+ Form an LLC with a single member, myself, the nonresident alien, and conduct consulting business to clients within the US, as well as outside the US.
+ Minimize taxation in the US and elsewhere in the world if taxation would apply there.
+ Enable corp-to-corp type business arrangements with US companies for contracting.
+ Utilize US banking services and keep money in the US.

I have no desire to issue shares, IPO, have multiple owners, or employees, or seek venture capital.

Potentially I might want to sub-contract to other individuals in future.

There is inconclusive information about which state in which to set up the LLC would be best for this kind of operation. There is much "information" on the internet pitting these state entities against one another in order to determine the best place to set up.

For me, the best state would:
+ Be very conducive to operating the company as a non resident (few to no show-up in person type requests made at inconvenient times).
+ Absolutely minimize my tax obligation.
+ Allow me to bill clients and not charge them tax.
+ Minimal fees but especially recurring costs
+ Absolute minimization on paperwork, quarterly filings, state specific obscure taxes (B&O), or anything that will serve as an expense and an annoyance moving forward.

Alleged leaders for state LLC setup...
+ Delaware because of mountains of legal history and favorable taxation
+ Nevada cited for increased privacy and limited liability and no tax
+ Wyoming for being like Nevada but cheaper
+ Texas for having "the most business favorable tax climate in the US"??
+ Oregon...not sure here but it sounds good, I love the state
+ California (just kidding)

I know its a mouthful, maybe young entrepreneurs out there are operating LLCs in various states and have opinions about their experiences Maybe someone is even operating an LLC as a nonresident alien. Lets hope

/crossfingers

[GlobalWealth]

This is a lot to digest from reading your post. This would necessitate a personal call for me to fully grasp your plan. Do you intend to continue to live in the US or do you have established residency outside of the US? Where is your citizenship? From your LLC location question, I would recommend either NV or WY. Neither state has personal or corporate taxes and as long as you don't maintain a residence in another state, you would be able to avoid state taxation. As a NR alien, you would be required to pay federal income tax as it is allocated to US income, but you shouldn't be liable for any offshore income. The US is actually a pretty good tax haven for non-US residents. If you want to chat further about this, please view my site and email or call me directly. Thanks.

[tregosampras]

Do you intend to continue to live in the US or do you have established residency outside of the US? Where is your citizenship?

Yeah I don't live there anymore and don't hold a visa or green card. Citizenship Canadian.

From your LLC location question, I would recommend either NV or WY. Neither state has personal or corporate taxes and as long as you don't maintain a residence in another state, you would be able to avoid state taxation. As a NR alien, you would be required to pay federal income tax as it is allocated to US income, but you shouldn't be liable for any offshore income.

Yeah exactly my thinking. So, if a non-resident alien is operating an American LLC, and that LLC conducts all its business outside the US, then the income will pass through to the member, LLC pays nothing, and the member is nonresident foreigner earning capital from non-us sources, not liable for tax in the US.

I'm trying to determine if this is the case, whether or not filing a 1040 would be required at all since there would be no effectively connected US income.

And then moreover, if there WAS connected income, such as the LLC contracting within the US, then that income would be taxable, and would be filed under Schedule C of the member's 1040 NR, which they would have to file at the right time like everyone else. But, do you just leave the foreign non-us income off the return entirely?

Neither state has personal or corporate taxes and as long as you don't maintain a residence in another state, you would be able to avoid state taxation.

I'm trying to sniff out any "BS" or irritating issues with choosing one of these states. For some reason NV and DE smell fishy. I looked at WA, but don't understand the B&O tax and would like to avoid paperwork or filings that need to be made quarterly or even more often than that. I want a no-gotchas, low-expense, low recurring expense state with minimum paperwork required after initial setup; the pay your taxes and fees once a year kind of thing if possible, whereby otherwise you can just exist. WA is most convenient for me if it doesn't have major detractors over WY, and OR is apparently trying to entice small business tech LLCs to the state with some competitive LLC structures, but I'm low on information about them.

The US is actually a pretty good tax haven for non-US residents.

Kinda seems that way, and controlling an entity in the best economy / best banking access is very good for a remotely operated business. Part of the motivation for this is that I will be moving around a bit in the coming while and would like to have a secure business base in a location well equipped for doing business and access to strong banking services.

Canada fails in both the business structures and the banking area IMO. Foreign banks often cannot contact or function properly with many canadian accounts when using their ATMs, their online banking services are less powerful, and their company structures punish you heavily for being non-resident in Canada.

If you want to chat further about this, please view my site and email or call me directly. Thanks

Sounds good, thanks for replying

[tregosampras]

I think the selection of state for LLC setup is quite limited by practical reasons which I have discovered. In order to open a bank account in a state as a business, you need to be qualified to conduct business there. That means if you want to register in one state and bank in another it becomes annoying and you have to file for some kind of foreign business qualification. IMO this effectively eliminates all states except the one you have a bank account in / want to bank in / have respectable access to.

It eludes me how many people tout Delaware as the mother of all places to set up a company. If you had to go to Delaware to set up a bank account, that would be extremely crappy.

[GlobalWealth]

I think the selection of state for LLC setup is quite limited by practical reasons which I have discovered. In order to open a bank account in a state as a business, you need to be qualified to conduct business there. That means if you want to register in one state and bank in another it becomes annoying and you have to file for some kind of foreign business qualification. IMO this effectively eliminates all states except the one you have a bank account in / want to bank in / have respectable access to.

It eludes me how many people tout Delaware as the mother of all places to set up a company. If you had to go to Delaware to set up a bank account, that would be extremely crappy.

this is incorrect information. you do not need to have state registration in order to open an account in that state. I personally have NV LLC's with bank accounts outside of NV without state registration. All you need to open the bank account in the US is the federal tax id# and the articles of organization. In some countries, you don't even need an id#.

[GlobalWealth]

NV and WY both have very low fees and no hidden taxes.

[nadel]

Hi,

On a related note:
An LLC filing as a partnership where the members are non-resident aliens is esentially tax free in the US for non-US income (no fixed office, no US employees, etc). But what happens when this LLC has both US-source income and non-US-source income? Are taxes paid on US source income, while leaving non-US income free? Or is all income taxed?
Anyone with experience can clarify?

[GlobalWealth]

You would be required to pay tax on the US source income. This is an accounting complication which would require you to allocate income and expenses based on geography.

[GlobalWealth]

The US is actually a great tax haven for non US residents to open a business. I am currently working with some non US entrepreneurs on establishing their business in the US to save a huge amount on taxation.