How Foreign Investors Can Set up a Business
Corporate Direct works with foreign individuals, trusts and companies that want to invest in the United States. We have experienced staff members who speak Spanish. We can also refer you to experienced chartered accountants to assist you with U.S. tax filings. We will work with you and your advisors to set up the right entity.
New Filing Requirement as of January 1, 2017: Are you a foreign owners of a single member U.S. LLC? If so, click here for the new filing requirement.
In most cases, the entity you use to protect your U.S. assets will be determined by your home country’s tax system. For example, Canadians find that U.S. limited partnerships (versus LLCs or C corporations) work best and match up well with Canada’s tax system. On the other hand, Australians use U.S. LLCs when investing their Superannuation Funds (retirement monies) into American real estate.
The key is to work with your local accountant to determine which is the best way, given your home country’s tax regime, to invest in the U.S.A. We will follow their lead and set up the correct protective entity here in America.
Please know that foreign individuals, trusts and companies are free to invest in US assets. Given that we are a litigious society, an entity (be it an LLC, LP or even a C corporation) is always suggested. Owning assets in your individual name can lead to unlimited personal liability. Please also know that foreign investors living outside the USA cannot own stock in an S corporation. However, the S corporation is the only restricted entity when it comes to foreign ownership.
Can foreign individuals own American LLCs? Can U.S. companies have LLC foreign members?
Yes, while foreign individuals cannot be owners of S corporations, they most certainly can be owners of an LLC or members. In fact, most investors from outside the United States utilize the LLC for their real estate investments.
Is a separate LLC required for each property or asset?
That is a judgment call on your part. Segregating assets between several LLCs is always a good idea. If you have an LLC owning nine properties and a tenant sued over a problem at one property they could reach the equity in all nine properties. Many of our foreign clients hold each property in a separate LLC for the best protection.
Where should we set up our entities?
You can form an entity in all 50 states. In most situations, you will form an LLC in the state where the property is located. One or more of these in state LLCs will then be held by a parent LLC based in Nevada or Wyoming, both of which offer superior asset protection. Graphically, supposing one property in Ohio and one in Texas, the structure would appear as:
Why do investors prefer Wyoming instead of Nevada?
While both states offer strong charging order protection, Wyoming offers two advantages over Nevada. First, Wyoming is more affordable. On an annual basis, the Wyoming state fee is only $50.00, compared to the $350.00 a year in Nevada. Secondly, Wyoming does not list owner names on the internet (which Nevada does). You have more privacy with a Wyoming LLC. We maintain complete offices in both Wyoming and Nevada.
What is the best entity for real estate investors?
In general, the best entity for both U.S. and foreign real estate investors is the limited liability company or LLC. The LLC offers the benefits of both asset protection and flow through taxation. LLCs are affordable to set up and maintain and are the entity choice for real estate investors. In some cases, Canadians will use an LLC taxed as a C corporation to match up U.S. taxation with Canadian taxation. Again, it’s worth consulting your home country’s tax system.
Do you arrange for Individual Tax Identification numbers (ITINs)?
We do not obtain Individual Tax Identification numbers (or ITINs) for our clients. We have found that when filing the first LLC tax return the Internal Revenue Service (IRS) will then issue an ITIN.
How to I obtain an ITIN?
There is a form which needs to be filed with the IRS. The IRS also has a service through Accepted Agents who can assist with the process. In many cases, when you file your first LLC tax return the IRS will then assign you an ITIN.
How long does it take to set up an LLC?
Allow at least a month for the whole process to be completed. Nevada has an expedite service whereby an LLC can be set up in a matter of hours. Wyoming takes about 10 days for a formation. It is best to allow for three to four weeks for the complete process (including tailored document preparation) to be finalized.
What about U.S. bank accounts?
It has become fairly difficult for foreign investors to set up a U.S. bank account. You have several options. You can work with a US bank in your home country and see if they will set up a United States based LLC or corporate account (not all will). Or you can see if a bank in your home country will allow you to set up an account for your U.S. LLC or corporation (many will). Finally, you can travel to the U.S. and open an account in person.
Can I set up a U.S. management company to manage my U.S. LLCs and LPs?
Yes, many of our foreign and American clients will set up a separate U.S. management company to manage their activities. This company can be a C corporation or LLC, depending upon your situation.
Do I need a US address?
You need a registered agent in each state you form in and qualify to do business in. This is your US address for entity purposes. We offer this service in all 50 states for just $125 per year. If you need mail forwarded to you in your home country we can also provide this service. Sign up for a free 15-minute consultation or call 1-800-600-1760 or 1-775-782-2201 to learn more.
Is it better to be manager managed or member managed?
We prefer that you have your LLC be manager managed for the flexibility involved. A future manager may not have to be a member.
Can you provide privacy?
Yes. Wyoming offers excellent privacy and does not list the managers or members on the internet. If you want to use a Nevada entity we can provide a nominee officer or manager for $650.00 per year.
What does Corporate Direct provide to those who set up an LLC?
We file the articles, prepare the operating agreement, minutes and membership certificates, and provide you with a complete package for safely investing in the USA. Please request our free incorporation package from Corporate Direct by filling out the form on this page.
New Filing Requirement as of January 1, 2017 for Foreign Owners of a Single Member U.S. LLC:
Foreign owners of a single member U.S. LLC must file a new form with the U.S. government beginning on or after January 1, 2017. Disregarded entities for tax purposes (including single member LLCs) wholly owned by foreign persons must now file a Form 5472 with the Internal Revenue Service (IRS).
Previously, foreign owners did not have to report their U.S. activities. However, with the release of the Panama Papers, increased scrutiny towards foreign ownership of U.S. assets has arisen.
It is important to know that the new rules only create informational reporting obligations. Filing Form 5472 does not in and of itself create a U.S. federal income tax liability for the foreign owner based on their entity’s activities in the U.S. But it may lead to such taxation. As always, it is strongly recommended that clients work with accountants and tax advisors experienced in both the U.S. and their home country tax systems.
Many IRS filings are subject to de minimis exceptions, meaning when the amount involved is small enough you don’t have to file. Interestingly, no such exception applies to Form 5472. Even if the amount is ten cents you have to file. The IRS clearly wants to know what is going on.
Their interest is evidenced by the penalties. Failure to file a Form 5472 for each entity results in an initial penalty of $10,000 per entity. After 90 days the penalty is increased by $10,000 for each 30 day period in which the filing is not made.
These significant penalties call for you to discuss the filing of Form 5472 with your advisor. The IRS will not send you a notice that the form must be filed. (Chances are they are not even aware of your entity yet.) Please be proactive with your advisors to avoid any problems and penalties.