You clicked on the link to this article, so it is likely that you are already facing some difficulties that force you to look outside of your country to start your own company.
We understand you. We, both co-founders of Neubase took the same road. We ended up with companies we founded in Wyoming and never looked back.
There are many benefits to starting and running a business through a US LLC. Most online workers and entrepreneurs from any country can take advantage of that, but there are also a small number of people who would perhaps do better by establishing a local company or establishing it in a European country.
After reading this article, you’ll know:
- What it means to have a US LLC
- What are the advantages of owning an American company?
- Who should consider not starting a US LLC
- In which federal state to establish the company
- How to start a US LLC – step by step
- How to run a US company from any country in the world
- What are the costs of starting and running a US LLC
- How to close a US LLC and what are the costs
- Why start a company in the US and not in in your home country, Estonia, or elsewhere
US LLC: Who Needs It, and How to Start It
Before we get into the details of setting up and running the company, it is necessary to ensure that you can and indeed should set up your own company in another country.
Who can start a company in the United States?
Anyone who has reached the age of 18 can establish a US LLC from anywhere in the world.
In general, there are two conditions that must be met:
- If you are of legal age
- Not being a citizen of a country under US sanctions (such as Iran, Cuba, North Korea, etc.)
If you want to start a business and you are not yet 18 years old, your parent can be the founder and you can work through the company.
Benefits of doing business through your own US company
Here are the most important benefits of working through a US LLC:
Low barriers to entry
Any individual or company worldwide can establish a US LLC, except for minors or citizens of several countries under US sanctions. If your country is not involved in a conflict with the US, you can open a company there.
The other low barrier to entry is the low incorporation fees. State fees are usually around $100.
Obtaining the EIN will cost you a few hundred more. That’s all the money you need to get started.
Low running and maintenance costs
Running the company is affordable.
Neubase’s Managed package costs $590 per year, and that’s all most companies need. It also includes the annual report to the Secretary of State, the subscription to the registration agent, the annual tax returns, fees to the state, and other support.
If you have a higher volume of transactions, which means higher cash inflows into your bank account, you will further need dedicated accounting. However, you are not burdened with such an obligation at the beginning, when the inflows are lower.
Wyoming is an offshore jurisdiction, but it is not known for shady practices like some Caribbean islands. American companies operate under American laws and are supervised by American institutions; therefore, they enjoy an excellent reputation worldwide.
Your clients won’t ask you if your tax rate is 0%. All they care about is that you operate under reputable American law.
Access to the US market
Although international business run more smoothly than ever, national laws still create points of friction that make companies want to do business with other companies in the same country.
As a result, many American companies want to do business with other American companies.
For example, there are many suppliers for dropshipping businesses that work exclusively with US companies. There are also companies that prefer to cooperate with companies that have a bank account in the same country and operate according to the same laws.
A US LLC brings you closer to these partners and clients.
Access to US financial services
The US has the most developed financial market in the world and one of the most developed fintech markets. As a result, American businesses enjoy many innovative banking and financial services that are not as readily available in other parts of the world.
The US is one of the few places in the world where you can open a small business bank account completely online, without ever going to a local bank branch.
Several neobanks operate in the US market and provide financial services to LLCs and other businesses. Once you have your EIN, you can open a bank account from anywhere in the world and start working. In many countries, and yours is probably one of them, you must visit a local bank branch to open an account. Opening an LLC eliminates that need.
On top of that, once you get some financial success (usually over $10.000 per month), you can get access to working capital loans even from abroad.
The easiest access to Stripe and PayPal (and other payment processors)
Stripe is the preferred payment processor for many online businesses (including Neubase). It is robust, simple to integrate, and easy to use.
The user experience with Stripe is a special experience. Unfortunately, it works in very few countries.
To get access to Stripe, you must incorporate your company in a supported country. The US is one of them.
If you live in an unsupported Stripe country, registering a US LLC is the fastest route to a Stripe business account.
The ease of working with Stripe is unmatched. You’ll also need a bank account to connect to Stripe, and that’s where Wyoming excels again because it doesn’t require you to travel to the US to open an account.
For PayPal, you’ll need an SSN or ITIN. It requires a bit more hassle and paperwork, but if you need PayPal very much, it is obtainable.
0% tax for the company
Just a little planning leads to a zero tax rate for your LLC. It may sound too good to be true, but you can easily pay no taxes on your income if you meet a few simple criteria.
More about it below in the text or on this link.
You can invest the money before taxing it in your country
If your business is doing well, you will have enough money to invest in the markets to save for retirement. However, if you withdraw your money in your local bank, it is subject to tax before you can do anything with it.
This means that instead of investing 100% of what you have left over for retirement now, you will need to invest 90%. In the long run, that 10% can make a difference.
Let’s say you start with an initial investment of $10,000 and invest $300 every month for 25 years. With an average annual interest of 6%, after 25 years, you will be able to withdraw:
- About $240,000 if you earn 100% of your profits, the money invested before taxes and
- About $216,000 if you pay 10% taxes in your home country and invest what’s left.
These numbers will change depending on how much you invest and how high the personal income tax rates are in your home country, but you get the point.
You, as an individual, and your Wyoming LLC, as a legal entity, are two different persons under the law.
As a consequence:
- When creditors come after your LLC assets, your personal assets will remain protected and
- When creditors come after your personal assets, your LLC’s assets will remain protected.
Again, you and your LLC are two different persons. When one of you gets into trouble, the other’s assets are protected.
Wyoming LLC Member Privacy
The names of LLC founders, called LLC members, are not published in the Wyoming Register of Companies. Only the name of the registered agent who will register your company will be listed there.
The registered agent is required to know your name, but will not share it with the state unless there is an order to do so from the competent authorities.
Your name will be included in the operating agreement as the owner of the LLC, but you are not required to file it anywhere.
Let’s say you’re working on freelance projects and your current employer doesn’t want you to do it. Your employer has no way of knowing that you are working on freelance projects. Your name will not be published, so no one will be able to check and find out that you own a Wyoming LLC.
Who Should Consider Other Options
An American company is not for everyone. Despite all the benefits, for some, other options may be better. Here are some examples:
You are not yet earning enough to justify the cost of setting up the company. This doesn’t apply to e-commerce websites, but if you’re freelancing and making a few hundred dollars a month, then it’s probably too early for any company. Payoneer can be a good alternative for withdrawing money from Upwork, and when you need to invoice clients outside the platforms and when you need to show seriousness, it will be better to have your own company.
You work with EUR. The constant conversion from dollars to euros and vice versa all the time is part of your margins. Even with a US LLC, you can have multi-currency accounts (like Wise), but if you work exclusively in Europe and with Euros, do the math on how much the currency conversion can offset the cost of taxes in Europe.
Merchant of Record. Maybe a merchant of record, such as Paddle or FastSpring can do all the footwork for you and make you pay less compared to having your own company. You need to do your own math.
Which structure to choose?
For founders who are not US citizens or residents (green card), there are two structures available:
- LLC (Limited Liability Company), that is a company with limited liability. This structure in our country has similarities with LLC.
- C-Corp (C-Corporation), which is actually a joint stock company.
Given the rights and obligations created by each structure (LLC v. C-Corp) and the experiences we’ve had with clients, we recommend always forming an LLC unless you’re a startup planning to seek investment.
An LLC is a better option if:
- You work freelance
- You have an agency
- You run a software company, but won’t get investment anytime soon
- You run an e-commerce business, including dropshipping
- You want to open an Etsy shop
- You sell digital products
- You trade on stock markets and crypto exchanges
C-Corp is better only if
- Getting an outside investment is imminent
- You need to employ people in the US
- You need to buy premises in the US
Where to Incorporate
US laws allow federal states to choose for themselves what benefits they will offer to founders of companies on their soil. Therefore, each of them has a different cost to establish and run, different taxes, etc.
When all the advantages and disadvantages of each are added up and subtracted, we think the following states are the best:
- Wyoming to form an LLC. It has low start-up and running costs, no taxes, low fees, and guarantees founder privacy.
- Delaware to Incorporate C-Corp. Investors and large corporations prefer Delaware because of the low corporate income tax, but also the Court of Chancery. This is a court that specializes in business disputes. There is no jury, but judges who know how businesses work and resolve disputes quickly and efficiently.
So, if you’re a startup that will get investment anywhere, start a C-Corp in Delaware. In any other scenario – e-commerce, agency, freelance, trading – form an LLC in Wyoming.
How to Start a US LLC
Establishing a US LLC includes several steps:
- Choice of structure and federal state where the company will be established
- Selection of registration agent
- Submitting the documentation
- Report beneficial owners to FinCEN
- Obtaining an EIN number
- Opening a bank account
- Opening Stripe, PayPal, Wise, etc.
Then the company is fully operational.
Structure and Federal State
We already explained above that a C-Corp in Delaware is suitable for startups, and an LLC in Wyoming is suitable mostly for other types of businesses.
That’s why we move on to the next steps.
Every company must have an appointed registration agent that has an address in the state in which you wish to incorporate.
If you want a Delaware company, you need a Delaware registration agent. If you want a registration agent for a company in Wyoming, you need someone with an address there.
At this link, you have a list of registration agents in Wyoming. These are not all of them (as you can see from the note at the top).
A resident of Wyoming can be a registration agent on their own, but since you do not live there, you must pay a subscription fee to a local registration agent who provides that service for an annual fee. Subscriptions range from $25 to $120+, depending on which service you choose.
A registration agent subscription is included in each of the Neubase packages.
Incorporation of the LLC
A company is established by submitting the appropriate documentation to the Secretary of State of the federal state where you wish to establish a company.
You can do this yourself, but considering that it is not at all wise to embark on a process that produces rights and obligations, it is better to leave it to someone who knows how to carry out the procedure.
Filing Beneficial Owner Information to FinCEN
Starting from 1 January 2024, every US company must file beneficial owner information to the Financial Crime Enforcement Network (FinCEN). The report will contain basic personal information about the beneficial owners of the LLC.
The LLC members will not be included in any public records. Their names will remain private in the US states that guarantee privacy. However, FinCEN won’t need to approach registered agents with a court order to hand down someone’s information for criminal investigation purposes. It will have all the information about the ownership of a specific LLC.
If you are not involved in any illegal activities, this should not worry you at all.
Employer Identification Number (EIN) is the number with which your company is identified to US institutions. It is also required for opening an account in a bank or with a payment processor.
Every bank and payment processor will ask for your EIN when you try to open an account with the company.
You can obtain it by submitting the SS4 form to the IRS by fax or mail (really, by fax or post mail). Then wait two to five weeks for a response from the IRS.
In the meantime, you can call the IRS on the phone, so maybe once you get in line, they’ll give you the number right away. The call is paid. There is usually a wait of about two hours to get in line due to busy lines.
That is why it is easier to let the agency that will establish your company take care of obtaining the EIN. When choosing the agency, make sure that the EIN application is included in the price.
Opening a Bank Account
Once you receive the EIN number, the next step is to open a bank account. Unlike most countries in the world, you don’t have to travel to the United States to open a bank account.
There are several online banks that will open a company account for you if it is registered in America. Mercury and Brex are just two of them.
These are, in fact, neobanks, not banks in the traditional sense of the word. Neobanks are fintech companies that are built in partnership with conventional banks. Conventional banks keep the money, and neobanks carry out payment transactions.
Neubase has an account at Mercury. The money is actually held by three other banks. But what matters to you is that Mercury is your bank and that it doesn’t require you to travel to their branch (they don’t even have one) to open an account for you.
All these non-banks can also issue you a payment card that you can use for online payments or to withdraw money from an ATM anywhere in the world.
A Stripe and PayPal account
Once you open a bank account, you can also open an account with payment processors like Stripe and PayPal.
Paypal requires an SSN or ITIN. Foreigners have no SSNs, but ITINs are obtainable. The procedure with the IRS takes 7-11 weeks. Unfortunately, that’s the only way to get US business Paypal from abroad if none of the co-founders has an SSN.
How to Run a US LLC
Running an LLC in Wyoming is quite simple and inexpensive.
How to Pay Yourself from Your Own LLC
To pay yourself money that you have earned through your company, log into your Mercury, Novel, or whatever account you use, and send money to your personal bank account. That’s it.
When they get to the bank, they will ask you where the money came from (due to anti-money laundering regulations), you will sign a form on the origin of the money (such as consulting services, management services, etc.) and it will be deposited into your account.
This money is subject to personal income tax in your home country.
Every year, an annual report must be submitted to the State Secretary of the federal state in which the company was founded.
Each state has different rules about the deadline for filing this return. In Wyoming, it is filed annually no later than the first day of the month in which the company was incorporated.
If it was founded on June 10, 2023, then the annual return must be submitted every year by June 1 at the latest. If it was established on September 22, the deadline is September 1 each year.
The annual report is submitted in the last 120 days before this deadline.
If not filed on time, the company becomes inactive. It can be reactivated within the next two years, subject to a reactivation fee. If it is not reactivated, the Secretary of State will close it down.
You can file the annual return yourself online at the Wyoming Secretary of State’s website. It can also be filed for you by the registration agent or someone else who performs that service for a fee.
It is important to know that the register will contain the name of the person who submitted the application. So, if you want to preserve anonymity and not say anywhere that you are the owner of a share in a certain company, then you should leave the filing of the application to someone else.
Filing the annual return is part of Neubase’s Managed package.
Paying taxes in America is an extensive topic that you can read about in more detail at this link.
Here we will only give an overview of what you can read in the other text.
LLC is a pass-through entity. This means that the tax obligations of the company are transferred to the founders. So, the company was not taxed, but the state taxed the founders.
However, if you are not a US tax resident, then you owe no taxes there either. Thus, the effective tax rate can easily be brought to 0%.
You will pay 0% company tax if:
- You are not a tax resident in the US
- You don’t have your own premises in America. When we say private rooms, we mean rooms that only you can use. Here, for example, you can enter rented warehouses that are only at your disposal. If you share the warehouse with other companies, as is the case with Amazon FBA or fulfillment centers, then it does not count as your own premises.
- You have no US citizen or resident employees. You can hire US companies and freelancers, but you should not have employees or freelancers who will work only for you and no one else.
Meet these requirements and you don’t have to send money to the IRS.
Business Activities That Are Taxed in All Cases
There are a few things you still have to pay a 30% tax on in the US, no matter where you live or work.
Tax is always paid on the so-called Fixed, Determinable, Annual, Periodical Income (FDAP Income). This includes passive income, such as:
- Affiliate commissions
- Royalties (fees for intellectual property rights)
- Rents, if you have real estate in the US
- Dividends (if you buy shares on local exchanges)
The entire list is available here.
Some companies may have to pay sales tax, the US version of VAT.
There are two important things you should know about sales tax:
- Each state determines its own sales tax
- Rates are mostly in the single digits (unlike the around 20% VAT rates in Europe)
Sales tax is actually paid by the consumer. You should add tax to your price and charge it.
Stripe allows you to automate this process.
You don’t need to charge sales tax unless you exceed certain turnover thresholds (usually $100,000 per year in a single state)
Let’s take the state of Florida as an example. There the threshold is $100,000 per year. This means that if in 2023 you make sales of over $100,000 in Florida alone (not all of America or the whole world, but only Florida), then starting in 2024 you will have to charge Florida buyers tax (not all buyers, but only to those from Florida).
You can read more about taxes at this link.
Accounting isn’t mandatory, but it’s good to have one.
In the beginning, when the inflows are lower, you don’t have to pay an accountant every month.
Can go through all transactions at the end of the year and prepare the tax return. But when you have a higher volume of transactions, it is desirable to have accounting. In such a case, preparing the tax return can be very difficult. In addition, if your business is thriving, you will also want to have financial statements to see in detail how much and what you are spending and how much you are getting from the business.
Software such as Quickbooks, Xero, Freshbooks, Zoho Books, and the like, which can be integrated with the bank account, make the work much easier.
Address and telephone number
You can use the address of the registration agent. No need to pay extra for an address unless you want to yourself.
You should pay attention to the fact that you can use the address of the registration agent to open a bank account, communicate with institutions, etc. But you can’t place it on an e-commerce website so that buyers can return your products there. You can’t even use it for things outside of the company’s operations.
Opening a Stripe account requires an American phone number, which you may not need in the future.
There are a number of companies that offer a US number for a fee, usually around ten dollars a month. The TextPlus app is free of charge and provides a US phone number.
Sooner or later you may need contracts. Depending on what type of business you have, you may need the following agreements:
- For e-commerce businesses, Terms and Conditions usually serve as a sales contract
- For the sale of digital products, the Terms and Conditions also usually serve as a sales contract Agencies and freelancers often need a contract for consulting services (programming, design, photography, etc.). Sometimes the client has a template that they will ask you to sign, and it is good to have your own template that you will send to them.
- For a software business, again Terms and Conditions do the job of a sales contract. Enterprise customers typically require a different type of contract.
- Employment of labor force
An American company can only hire American workers who have a work permit to work in America. However, you should avoid that, because with the first American employee, you will become a taxpayer in America and the 0% rate will not apply to you.
If you need to hire someone, you can hire a freelancer as an independent contractor, or another company (or person-firm), where there is no employment relationship, but a business-to-business relationship.
Closing a US LLC
Closing an LLC is simple and inexpensive.
The important thing before you close is to clear your accounts with the IRS and the people and companies you owe money. You will also need to inform your business partners that you will no longer exist.
If you are a Neubase Managed subscriber and you have to close the company, we will guide you through the process and pay for the closing. It is included in the subscription fee.
Why a US LLC and not in Your Home Country?
If you clicked on this text and read this far, you already know why. You must have too many reasons that make you take this step.
It is quick, easy, and cheap to establish a company in many places around the world, but then the problems come. These countries are often rife with bureaucracy and modeled after a non-capitalist system. There are no modern payment services. The bank apps are outdated.
Foreign payment processors like Stripe do not want to work with your local banks.
If you do not work with local clients, a local company has no competitive advantage over a foreign one.
Why a US LLC and not in Estonia?
Estonian companies have higher start-up and running costs compared to US ones.
The Estonian government has managed to make the bureaucracy of running a company cool and fancy, which is a huge marketing success. However, a pragmatic view of things indicates higher costs of running the company, 20% tax, VAT thresholds, etc.
Why Neubase and not Stripe Atlas, Firstbase, Clerky, or anyone else?
Because you can call us at any time if you need something or if a question arises that you need an answer to.
As far as we know, you can’t call Stripe to ask them anything. You can’t even expect them to make sure you obey the law every year.
Read more about how we differ at this link.
What are the possible scenarios?
You are thinking about opening a US LLC to work with foreign clients and you want to know how it will affect your rights and obligations in your home country, especially those from an employment relationship.
Here we will look at several possibilities.
Scenario 1. You do not have a company in your home country
It only works through an American company. In your home country, you do not enjoy employment rights and there is no way to pay yourself wages.
You will pay yourself money as a management fee, and you will have to pay a personal income tax on it (only on what you will send here, not on all that you have earned).
Scenario 2. You also have a company in your home country. If you want to be self-employed and pay social security contributions, as well as employ other people, you will need your own local company.
The American company will pay your local company, and the local company will pay salaries and social contributions.
If you need more information on how to start and run a remote LLC in the USA feel free to book a free 30 min consultation with us.