Everything You Need to Know About U.S. LLCs in 2024

Last Updated on 3 January 2025

In the world of web entrepreneurs, the Limited Liability Company (LLC) in the United States is often discussed due to its potential tax benefits, including the possibility of zero percent tax.

In this article, we provide a comprehensive overview of this business structure and highlight the mistakes you should avoid.

1. Understanding the U.S. LLC

An LLC is a limited liability company established in the United States. It is a structure that protects the liability of its owners, safeguarding their personal liability in the event of bankruptcy.

However, to take advantage of the beneficial tax regime of the LLC, you must:

• Be a Non-Resident Alien (NRA)
• Not be Engaged in a Trade or Business in the US (ETBUS)

2. Taxation Applicable to LLCs

To understand the taxation of LLCs, two key concepts need to be understood:

Non-Resident Alien (NRA)

An NRA is a foreigner who is not a U.S. citizen, does not hold a green card (i.e., is not a resident), and has not spent enough time on U.S. soil to pass the Substantial Presence Test (SPT).

Engaged in a Trade or Business in the US (ETBUS)

ETBUS refers to conducting business or trade in the U.S., which typically involves having a physical presence in the country, such as offices or employees.

With these two concepts in mind, it becomes clear that the tax regime applicable to LLCs is particularly advantageous for web entrepreneurs who meet these conditions.

For instance, if you’re a Spanish or Latin American citizen who does not reside in the U.S. and does not have business operations in the country, you meet these conditions.

The applicable tax regime for you would be the transparency tax regime.

This means that your LLC would not be subject to any tax. However, you, the owner of the LLC, will be personally taxed in your country of residence on the profits from your LLC.

3. Who Can Form and Run a U.S. LLC?

Anyone can form a U.S. LLC, regardless of their nationality or place of residence.

4. What Can You Do with a U.S. LLC?

A U.S. LLC allows you to conduct various types of businesses, both within the United States and internationally.

5. Advantages of the U.S. LLC

• Flexible Taxation: As mentioned earlier, LLCs are taxed at the member level. You can effectively achieve zero percent tax if you choose the right place for your fiscal residence.
• Low Costs: The creation cost of an LLC is $250, and the annual maintenance fee is $450 if incorporated in the right state.
• Anonymity: Some states do not publicly disclose the list of business owners.
• Access to U.S. Banks: With an LLC, you gain access to the best banks and credit cards.
• Payment Processors: You can use top payment processors like PayPal and Stripe.
• Simplified Accounting Obligations: Many states have simplified accounting requirements.

6. Drawbacks of the U.S. LLC

• Creation Cost: If you choose the wrong state, the creation and maintenance costs can be excessively high.
• Access to Financing: Non-U.S. residents may find it challenging to secure funding, depending on the size and nature of their business.

7. Myths About U.S. LLC

Several misconceptions about US LLCs often confuse entrepreneurs.

Myth 1: LLC Equals Zero Percent Tax

While it’s true that the LLC itself is not taxed, the owner will still have to pay taxes if their country of residence imposes an income tax.

Therefore, if you reside in a country like Spain, the profits from your LLC would be subject to Spanish income tax.

Myth 2: LLCs Do Not Pay VAT in Europe

This myth can be costly for those who are unaware.

Even though an LLC is an American entity, value-added tax (VAT) is a territorial tax, and e-commerce or info-product entrepreneurs must pay it.

VAT applies depending on the country where goods are delivered or services are provided.

If you deliver goods in Spain or provide a service to someone based in Spain, you will need to apply Spanish VAT.

Myth 3: LLC Provides Anonymity from your local Tax Authorities

This misconception arises from the fact that the U.S. has not signed the Common Reporting Standard (CRS), which would require them to disclose the identity of non-resident owners of active bank accounts in the U.S.

However, the U.S. has signed the Foreign Account Tax Compliance Act (FATCA) with many countries, which operates similarly to CRS.

Consequently, the U.S. does share information, albeit under its own conditions.

8. The Best States to Establish Your LLC

According to our research, the following states offer the most advantageous conditions for setting up an LLC:

• New Mexico offers default anonymity and low creation and maintenance costs.
• Wyoming: This is also a good option for forming an LLC.

9. When Should You Create a U.S. LLC?

The answer to this depends on your personal situation, as taxation will vary.

However, in some non-exhaustive situations, forming an LLC can be beneficial.

• If you primarily receive payments in U.S. dollars,
• If you engage in e-commerce in the U.S. (provided you remain non-ETBUS),
• If you want to avoid banks and currencies that are weak,

However, it’s important to clarify that the goal is not to create an offshore company for fraudulent or deceptive purposes.

The objective is to find a structure that allows your company to operate internationally while optimizing your tax situation.

In summary, U.S. LLCs offer numerous advantages to international entrepreneurs, particularly in terms of flexibility, cost, and taxation.

However, it is crucial to understand the intricacies of the LLC structure, as well as the myths and realities of operating such an entity, to make an informed decision that best serves your business needs.

10. Navigating the World of U.S. LLCs

With the information provided, it’s easier to see why U.S. LLCs have garnered attention in the web entrepreneur space.

They present an opportunity for non-U.S. residents to leverage the benefits of U.S. business infrastructure, financial systems, and a favorable tax regime under certain conditions.

However, like any business decision, creating an LLC should be done after careful consideration and a thorough understanding of both the advantages and potential pitfalls.

Choosing Your Fiscal Residence

The taxation you encounter will largely depend on your fiscal residence.

Therefore, choosing the right fiscal residence is crucial when you’re an LLC owner.

In this context, we’ve created a Google Sheet to help you identify your fiscal residence, which includes a list of over 60 countries with tax advantages that you should consider.

Understanding Your Role as an LLC Owner

As an LLC owner, you are personally taxed in your country of residence for the profits of your LLC.

This is a crucial aspect to understand because, while the LLC itself isn’t taxed, the owner is.

Therefore, it’s essential to investigate and comprehend the tax laws in your country of residence before setting up an LLC.

Seeking Professional Guidance

Given the complexity of the subject matter, it is always a good idea to seek professional advice when considering setting up an LLC.

Tax professionals and legal experts can provide guidance tailored to your specific situation, helping you navigate the process and make informed decisions.

Conclusion

In the globalized economy of 2024, U.S. LLCs represent an interesting vehicle for web entrepreneurs looking to optimize their business operations and tax situation.

However, like any business decision, it requires careful consideration and a thorough understanding of its implications.

In the end, the goal is not to defraud or deceive but to find a legal structure that allows your company to operate internationally while optimizing its tax situation.

As with any significant business decision, always ensure you are fully informed and seek professional advice if needed.