How Foreign Investors Can Set up a Business
Corporate Direct, Inc. works with foreign individuals, trusts and companies that want to invest in the United States. The U.S. is a big market with many opportunities. Our doors are open for foreign investors.
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 and C-Corporations (versus LLCs) 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. We will follow their lead and set up the correct protective entity here in America. Or we can refer you to a U.S. accountant specializing in cross border taxation for your benefit.
While foreign individuals, trusts and companies are free to invest in U.S. 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 U.S. cannot own stock in an S Corporation. However, the S Corporation is the only restricted entity when it comes to foreign ownership. We will help you set up the right U.S. entity for protection of your American assets.
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 a C Corporation or Limited Partnership). 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 ten properties and a tenant sued over a problem at one property they could reach the equity in all ten 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 is in Ohio and one is 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 $350.00 a year in Nevada. Secondly, Wyoming does not list owner names on the Secretary of States’ website (which Nevada does). You have more privacy at a lower cost with a Wyoming LLC. We maintain 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 accountant as to the best deal with your local tax system.
Can you provide a 100% asset protection guarantee?
No, no one can (or should). Laws and regulations change. Court cases reinterpret laws. Beware of any provider offering such a guarantee. Either they don’t know or don’t care about the true nature of our legal system. That said, we will do our best to keep you constantly updated of any changes through our newsletters.
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, which is the easiest route to obtain one.
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?
Nevada and Wyoming Articles can take 24 hours for approval. Other states may take longer. Forming an entity several weeks before it is needed is always prudent. 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. 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 or resident 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. When you form an entity with us the first year’s registered agent fee is included in the package price. If you need mail forwarded to you in your home country we can also provide this service from certain key states. Call ++ 1-775-824-0300 or sign up for a free 15-minute consultation 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 Secretary of States’ website. 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, LP or C Corporation?
We file the articles with the appropriate state, prepare the operating agreement, minutes and membership certificates and serve as your registered agent for the first year. We provide you with a complete package for safely investing in the USA. Our fee is $695 (plus the state filing fee, which varies from state to state). Please request our free incorporation package from Corporate Direct by filling out the form here.
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.
Corporate Direct will work with you and your advisors to set up the right entity. We can also refer you to experienced chartered accountants to assist you with U.S. tax filings. When compared with other providers and all the services we include, our formation fees are very affordable. For $695 (plus state filing fees) we will provide you with a complete LLC and/or corporate formation including all necessary governing documents so you may properly operate in the United States.