US Tax for Foreign Nationals with US Businesses

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Over the last couple of days, we have talked about American taxpayers who have decided to live and/or work offshore. It may seem that these Americans are eager to cut all ties with the US. That’s simply not true. The fact remains that the US is a huge economy.

Many people want to get involved in selling or renting to American citizens. And, if you have a business structure in the US, you have a lot more possibilities for your merchant service accounts. You’ll pay lower fees and you’ll get more favorable terms.

Those are just a few of the many reasons why the world wants to do business in the US.

For a foreign national who is not a US taxpayer (no Social Security number or ITIN substitute nor desire to get one), a common strategy is to set up a foreign owned LLC. The LLC is in a state with little to no state income tax and low franchise tax so the entity itself is not expensive. The LLC is owned by a foreign entity.

In this case, there is no nexus with the state. If you have inventory that you own and ship stored inside the state, you will create nexus. So, this is a strategy that works better when it’s completely nexus-free with the US such as with affiliate marketing, Software as a Service (SaaS) or consultations/work performed outside the US. You may still owe sales tax, though, so talk to a sales tax nexus specialist regarding your own situation.

You are still required to file a US tax return, though, even though the ownership of the entity is foreign and you are a foreign national. In this case, you have a domestic US entity (LLC) that is owned by a foreign corporation. There is a form for that, Form 5472. Form 5471 is filed by US individuals who have ownership in foreign entities. And Form 5472 is filed by US entities that are owned by foreign persons or entities.

It doesn’t mean that there is US tax to pay, just that you need to file a form.

We have a lot of foreign national clients who own US real estate. Typically, they bought after the real estate crash of 2008-2009 when prices were rock bottom and the dollar wasn’t as strong against other currencies. In most cases, the property is owned by an LLC and the individual owners have applied for, and received, an ITIN (substitute social security number). The LLC is a disregarded entity and so they file a Form 1040-NR, which is somewhat similar to a regular US Form 1040. And they pay tax on the income from the property. There will also be a state income tax return for the state in which the property is located.

Bottom line, the US has a lot of tax forms to file. If you have any business with the US, you’ll end up needing to file some kind of tax form even if you’re not a US citizen or resident.

The US can be relentless when it comes to chasing down tax debt. Make sure you’re in compliance!

If we can help, Contact Us.

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