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Incorporation in the US for non-US Entrepreneurs - Bite-Sized Legal #7

Incorporation in the US for non-US Entrepreneurs - Bite-Sized Legal #7
By Bite-Sized Legal • Issue #7 • View online
Incorporation in the United States could be the best possible option for many non-US online entrepreneurs.
Although incorporating in your own country would be ideal because you know the local legal system best, if you live in a country that is not so business-friendly, you may want to look abroad.
In many cases, the US is one of the best options for global businesses.

Why Incorporate in the US?
US corporations offer entrepreneurs:
  • Favourable taxation in many states (as little as 0%)
  • World-class banking
  • The best payment processors, including Stripe
  • Better access to venture capital
  • Possible to incorporate and open a bank account without travelling to the US.
Who Should Incorporate in the US?
Entrepreneurs who run their business online, pay lots of taxes in their own country, have little or no access to capital, have no access to good banks and payment processors, they all should consider incorporating in the US.
However, not all US corporations are the same.
What Structures Are There?
There are two basic incorporation structures in the US:
  • LLC (Limited Liability Company)
  • C-Corp
LLCs are easier to start and the most often the right choice for small companies.
C-Corps are better structures for startups that want to raise venture capital because this structure make it easier to issue equity shares to other people.
However, when it comes to non-US entrepreneurs, there are other things to take into account.
What Structure Is the Right for You?
It depends on whether you start the company solo or with cofounders.
If you start solo, it is best to incorporate an LLC.
If you start a company with other people, a C-Corp may suit you better.
Why is that so?
Here it is important to understand that:
  • LLCs are pass-through entities, which means that the legal entity does not pay taxes because the tax duty is passed through to the LLC owner, and
  • C-Corps are not pass-through entities. They pay corporate taxes.
If the LLC owner does not owe taxes in the US as an individual, it is possible to not need to pay any taxes except for the personal income taxes in their home country.
A foreign-owned US LLC may pay 0% taxes if:
  • It has a single owner who owns 100% of the company
  • The owner does not spend more than 30 days in the US annually (it may be more, but they need lots of paperwork)
  • The LLC must have no employees in the state of incorporation (contractors are fine)
  • The LLC must not have any premises in the state of incorporation (using premises of Amazon FBA doesn’t count as your premises).
So, if you are single owner of an US LLC, you pay 0% taxes if you don’t travel there, run the business fully online, and do not have full-time employees from your state.
If you do not meet at least one of these requirements, you’ll pay taxes as if you were a resident of the US.
The best places to incorporate a foreign-owned LLC in the US are Wyoming and New Mexico because they require the least amount of paperwork. They provide ownership secrecy as well, if you need it.
——–
If you are not a solo founder and you have at least one co-founder, then the rules for 0% taxation do not apply to you.
That’s where C-Corps come in handy.
C-Corps pay corporate taxes, but they can be quite low or none if you go to the right places.
Wyoming C-Corps do not pay corporate taxes. Delaware C-Corps pay below 10% taxes and enjoy one of the world’s most business-friendly jurisdictions, including a specialized business court. That’s the reason why most of the Fortune 500 companies are Delaware C-Corps.
Moreover, this is the preferred structure and jurisdiction for venture capitalists.
Bottom Line
If you are a single founder, you can start with a Wyoming LLC. If you need to raise venture capital later on, it is easy to convert to C-Corp.
If you are at least two co-founders, a Delaware C-Corp or a Wyoming C-Corp are the best options in the US.
In the next issue of the newsletter, I will explain how you can incorporate in the US yourself and open a bank account without travelling there. I’ve done it and it is not complicated.
In the meantime, please forward this newsletter to someone who may need this information. I also write an ebook on this topic.
I am available to answer all your questions about this.
Cheers,
Petar
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