Many American citizens consider themselves privileged, but that privilege doesn’t extend to tax protection. That is reserved for everyone EXCEPT Americans.
May 7, 2019
By: Bobby Casey, Managing Director GWP
It’s well known among digital nomads U.S. citizens are not treated well by their own government when it comes to incorporating and banking. What may surprise you is, non-U.S. citizens consistently take advantage of much better opportunities in the US than its own citizens.
In some regards, the United States is fast becoming a tax haven. As a non-US citizen, you may stand to benefit from favorable structures in the U.S.
GWP Insiders doesn’t just help Americans expatriate and set up structures abroad, it helps non-Americans set up corporate structures in the U.S. As a member, you get the information, along with one-to-one advice, to achieve your goals.
As a non-U.S. citizen, you can use a Limited Liability Company (LLC) in some states to process earnings that will not be subject to taxation in the same way they would if the company were registered by a U.S. citizen. If you register your LLC in a state like Wyoming, even if your profits are earned within the U.S., they will not be subject to U.S. taxes.
In the U.S., your income can only be taxed if you are “engaged in a trade or business in the United States”, so you cannot have any ties to the U.S. If the only dependent you have in the U.S. is an employee who does nothing to significantly further your business, you are considered to have no ties to the U.S. for tax purposes.
Are you a taxable resident of a country that has a tax treaty with the U.S.? You won’t be subject to U.S. tax laws. You instead claim a “permanent establishment” within your home country. The taxes you pay in your home country will deny the U.S. any claim to tax you further.
The process for non-U.S. residents forming an LLC is very similar to that of U.S. residents. U.S. citizenship, or even residence, is not necessary for an individual to form an LLC in on U.S. soil. Furthermore, once your LLC is established, you’ll be able to open American bank accounts for your company, provided you can make an in-person visit to the bank.
These opportunities are possible for non-U.S. citizens because company incorporation is regulated at the state level, not the federal level. Each state has its own rules and laws surrounding company incorporation, but it is generally made up of two factors:
1. First, you apply to register in your chosen state.
2. Second, you set up a registered agent with a physical address in your chosen state.
LLCs, as well as the U.S.’s stance on capital gains from stock market investing for foreign investors, makes the U.S. a tax haven for many people around the world (just, sadly, not for its own citizens).
If a U.S. based LLC sounds good, also consider an S-corporation (S-corp). From a tax perspective, S-corps are similar to LLCs, but they allow income and losses to be passed to shareholders, without being taxed federally.
Like LLCs, this is only true for non-U.S. citizens who incorporate in states that maintain this policy. Foreign business owners operating in the United States often use a combination of S-corps and LLCs to write off losses, make the most of gains, and reduce the impact of any taxes.
When we think of tax havens, we normally envision sunny places where regulations are lax. Places like Belize, Panama, the Cayman Islands, and the Bahamas. Would the small U.S. state of Delaware make it onto that list of tax havens? Probably not. Yet, it holds the distinction of being the incorporation capital of the U.S., with over 50% of all U.S. publicly traded companies incorporated there.
What’s so special about Delaware?
Delaware has no sales tax. Regardless of whether a company’s location is within the state or not, in-state purchases are not subject to taxation.
It also has no state corporate income tax on goods or services provided by corporations registered in Delaware. Similarly, it does not tax any gains on fixed income investments or equity investments made by the holding corporation.
In some cases a real estate property tax might apply on the county level for personal property, but it is incredibly low in comparison to other U.S. states.
Delaware has no VAT, and there is no added tax when it comes to business transactions either. Inheritance tax, capital shares, or stock transfer taxes, do not exist in Delaware.
As if all this wasn’t enough, Delaware has its own separate court system. The Court of Chancery allows the state to hear corporate litigation with its corporate laws often influencing decisions at the Supreme Court level. If a corporation’s tax situation needs to be reviewed, Delaware’s own court system is a favorable platform.
Each state has different standards for how taxes are applied and filed for its corporations, and how citizenship of the registrant factors into that. The United States is a good option if you research the state and corporation type that is best for how you plan to run your business.
Be prepared to deal with the potential complications of banking in the U.S. (there’s a reason Americans are eager to move their money into foreign accounts). If the benefits outweigh the costs, then it’s worth exploring.
Join GWP Insiders today, for the details on a corporate structure in Delaware, see if setting up a corporate structure in the U.S. is right for you.