How To Register Your Business In A State With No Income Tax

U.S. Taxation for Foreign Entrepreneurs

What Is Covered Here

Let'south start from a piddling disclaimer: U.Due south. taxation of nonresidents can exist a adequately complex issue and involves many specific fact points that decide if the not-residents are field of study to US taxation or not. This article attempts to capture the nearly typical scenarios and analyze them in the context of current (2014-2018) U.Due south. tax rules.

It is impossible to know your specific taxation obligations without a lot more information almost your U.South. related business, so please utilise the information presented here for reference only. If you demand more specific tax communication refer to the information at the finish of this article.

Ok, at present that we take cleared this very of import signal, allow's move on and analyze a few of the most common cases. If y'all don't find your case amidst those listed here no worries - only ask your questions here and nosotros will effort to aid.

General Revenue enhancement Questions

What are the principal types of business taxes in the U.Southward.?
Are there whatever other taxes I should be concerned about?
How does U.S. income tax work?

Sales Revenue enhancement Questions

How does the sales tax work?
How do I know if I need to apply sales tax on the stuff I sell?
Should I annals in a state that has no sales tax, to avoid having to deal with it?
If I am registered in one land, only my vendors are drop shipping the stuff I sell in other states - which country do I need to collect sales tax in?
I know that I need to collect sales tax. How do I register?
After I register, how do I do reporting and remit sales tax?
My concern is registered in ane country, only my dropshipper is in another. They want me to show sales tax registration in their state - how practice I do it?
I want to buy products in the U.S. and sell them in my country - do I demand to annals for sales taxation?
How do I report sales taxation in all u.s. I am registered in?
Do I need to register as foreign entity in states where I am registered to collect sales tax?

U.S. Business organisation 100% Endemic past Not-U.S. Person(s)

I am a unmarried owner of a U.South. LLC, not-U.S. person living abroad. My visitor provides remote services. Practice I need to file revenue enhancement return and pay income revenue enhancement?
What if I import and sell goods in the U.Southward. - does it modify the previous answer?
What if the LLC has more than than one owner? What happens then?
Ok, I got the point about LLC. But what if it's corporation instead?
What is the best way to reduce the taxable income of my LLC or Corporation?
Ok, permit's talk about wages. Can I pay myself a salary equally a corporate officeholder, this way fugitive double revenue enhancement?
What if we spend all or most of the income of the U.S. company on services provided by our other company, registered in our country?
What if nosotros retain all the corporate profits in the U.South., pay the corporate income taxation, and not distribute information technology to shareholders? Tin can we just reinvest this coin into the business?
So given all the owners are non-U.S. persons, from income revenue enhancement point of view is it more beneficial to register LLC or Corporation?
How and when exercise I file taxation return?
Do I need an ITIN to file taxes? If yep, how can I get it?
What about state income tax?
Should I register my company in the state that has no income tax?
I heard as not-resident alien I need to pay xxx% income taxation on my U.S. income. Is it true?
What is course W-8BEN, and when do I need to file it?
What about tax treaty between U.Southward. and my state? How does it influence my income tax obligations?

U.South. Business Owned by U.South. and Non-U.S. Partners

Is at that place any disadvantage of having a U.Southward. partner in the company owned past non-resident aliens?
Since we have a U.S. partner in our corporation, can we elect information technology to exist S Corporation?
I am US citizen and I desire to open a business with a 50% partner who is a not-resident alien living abroad. What blazon of taxes will my partner pay if we form a C Corporation?
Double taxation doesn't sound like a good thought. What if we choose LLC (taxed equally partnership) instead?

U.Southward. Business Owned by a Foreign Business

Can a not-U.Due south. company own a U.S. company?
Is it better to own the U.S. company with my non-U.S. company from tax point of view?
I own a company in my country, and I desire to register an LLC to be owned by this visitor. Tin I so distribute U.Due south. profits of this LLC to my company, and pay the taxes in my country?
What if I own the U.S. company with my non-U.S. company, and the not-U.S. company will sell the U.S. company products for resale for the aforementioned price the U.S. company will sell them in the U.Southward.? I want to avoid having to pay taxes in the U.S.

U.Due south. Business Endemic by U.S. Person(s) Living Away

I am US citizen and a sole possessor of an LLC. I live abroad, and my business is online just, without any concrete connection. What kind of tax would I accept to pay?
I am U.S. citizen living away. Is there a way for me to run a business concern from abroad and avert beingness taxed in the U.Southward.?

General Tax Questions

Q. What are the main types of business taxes in the U.S.?

The main two types of taxes a foreign U.Southward. business owner should exist concerned nearly are income tax and sales revenue enhancement. Those are two completely dissimilar, unrelated taxes.

Q. Are there any other taxes I should be concerned about?

Some types of products have additional tax (and licensing) requirements, for example liquor and tobacco products, as well as other products. If you are not sure if your product or service has licensing or taxation requirements contact u.s.a. and we will aid yous with the research.

Q. How does U.S. income taxation piece of work?

This is a simple question, withal it's U.South. income tax we are talking about. Technically, each taxpayer must pay tax on the income created in the U.S., and in some cases (such as the instance of U.Due south. citizens or permanent residents) on income created away. The income revenue enhancement is paid to the federal government (IRS), and in many cases to the country of residence, and in some cases even to the local jurisdiction (e.g. New York Urban center).

However, we created this article precisely for the reason we cannot merely but respond this otherwise cracking question - the existent respond is "information technology depends, because information technology'southward complicated". Keep reading the next items to see if U.Due south. income tax applies to you, and how.

OK - now that we know the divergence between sales tax and income tax let's handle the sales tax portion of U.S. taxation, before diving into the depths of income revenue enhancement.

If you lot want to skip the Sales Revenue enhancement section click here.

Sales Tax Questions

Q. How does the sales tax work?

Sales taxation is a tax paid by the end user (consumer) of a tangible product (and in some cases service) sold by a retailer. This revenue enhancement is paid on a land level (at that place is currently no national sales tax or VAT).

For instance, if you lot own electronics store in NYC, and a customer comes in and buys an particular in your store, you lot would apply 8.875% (as of 2013) tax on top of the cost paid past the customer. So y'all are responsible to file a sales tax study to NY land and remit (pay) all the tax coin collected from the customers.

Q. How practice I know if I need to apply sales tax on the stuff I sell?

Excellent question. Earlier reaching a decision y'all must answer three questions first:

Are you selling to end users, or are yous a wholesaler? Only retailers selling to end users are required to collect and remit sales tax.

Does your business accept nexus in any state that has sales tax? Nexus is physical connection, and we hash out it later in this article. Some states (Alaska, Delaware, Montana, New Hampshire and Oregon) take no sales tax to begin with.

Is your production/service taxable to brainstorm with? Continue in mind, near tangible goods are taxable, while most services are not, only each jurisdiction has its ain rules, so it's not that unproblematic.

Q. Should I register in a state that has no sales tax, to avert having to deal with it?

Sorry, but it'southward not that easy.

For example, let's assume you annals in Delaware (that has no sales tax) and you are selling some tangible items past shipping them from Communist china to buyers in the U.Southward. Since in this case your business but has nexus in Delaware (as land of registration), y'all volition not have to worry about sales taxation at all. Notwithstanding, if y'all are using a U.S. dropshipper that ships the product from warehouses in California, Kentucky and New Jersey, technically yous are required to collect sales tax from buyers of your product in all three mentioned states.

If yous register your visitor in Wyoming instead of Delaware, yous add Wyoming equally another state to collect sales tax in. Sounds inconvenient, but simply if you assume that a serious number of consumers of your product are roaming the vast stretches of the least populated U.South. state. We are deeply in love with Wyoming, but your chances of selling annihilation in that state are mostly close to zero, so you might not even demand to worry about registering for sales tax at that place until you make a few Wyoming sales outset.

How do y'all annals for sales revenue enhancement in all these states? Read further.

Q. If I am registered in 1 land, but my vendors are drop shipping the stuff I sell in other states - which state do I need to collect sales tax in?

Every bit y'all learned from the previous question, your company nexus spreads to all states where your dropshipper has nexus. And so unless your dropshipper processes the payment side of your sales, or unless yous make no sales in whatever of these respective states, you demand to obtain permits in each of these states (likewise equally in your country of registration, if it has sales tax).

Q. I know that I need to collect sales taxation. How do I register?

We tin can assist y'all with the registration in any country. Depending on the land this permit will exist called "sales taxation ID", "sales permit", "reseller permit", "vendor ID", or only "tax ID". Nosotros have this detail both on its own and as part of our LLC/Corporation registration applications.

Q. After I register, how do I do reporting and remit sales tax?

You will find a good CPA (accountant) who will handle your sales tax filing likewise every bit your income tax filing. You can endeavor doing it on your own, only we don't recommend it.

Q. My business is registered in one state, but my dropshipper is in another. They desire me to show sales tax registration in their state - how do I do it?

Almost all states have procedures to obtain sales tax permit without having to annals the company equally "strange entity". It is usually chosen "out-of-state vendor ID" or something of the kind. Nosotros aid with these permits every bit well.

Keep in mind though, if your dropshipper is also the one processing the payment then they will exist collecting sales tax and reporting it to the state themselves, so you don't really need to obtain your own allow in case similar this.

Q. I desire to buy products in the U.Southward. and sell them in my country - do I need to register for sales tax?

Obviously you don't need to collect sales revenue enhancement in the U.S. on these sales, simply y'all might need to collect some sort of VAT taxation in the country were you sell, so check the rules at that place.

However, the real question is this - can you buy from U.S. vendors without having to pay sales tax on these purchases (in wholesale)? The answer is yes, provided yous obtain sales taxation ID. That's why it's as well called "reseller permit" - yous want to resell the products you buy at wholesale, to the end users, without being considered end user yourself. Check with a CPA if the country in which you obtain the allow requires yous to file zero revenue enhancement reports.

Q. How practise I report sales tax in all u.s.a. I am registered in?

Just as yous practise in one state - have your CPA file reports in each state you are registered in for sales taxation, and cutting checks for each state (or pay online, whatsoever the process is).

Q. Do I need to register as foreign entity in states where I am registered to collect sales taxation?

Not necessarily. We distinguish the 2 cases as "soft nexus" and "hard nexus" (this is non official designation, nosotros only similar to phone call it this way).

"Soft nexus" has to exercise with connection strong enough to require you to register for sales taxation (for example, if your have a dropshipper who ships from a specific state), which is usually washed with state's taxation department (or it's equivalent), merely non strong enough for registration with Secretary of State (or any authority registering companies in the given country).

"Hard nexus" is when you accept physical connexion to a state, for example if you have an role, warehouse, employees, or if you lot are managing the business from this state and are physically located there.

And then register for sales revenue enhancement merely in states where you have "soft nexus", and register foreign entity and sales tax in states where you lot have "hard nexus"

Ok, the question of sales tax should exist more or less articulate past now. Let'southward proceed to more complex topic of income taxation.

U.S. Business 100% Endemic by Non-U.S. Person(s)

Q. I am a single owner of a U.Southward. LLC, not-U.Due south. person living abroad. My company provides remote services. Do I need to file tax return and pay income taxation?

A unmarried fellow member LLC that elected to be a disregarded entity (a default election) would only pay tax based on the taxation condition of the possessor. Since the owner is not physically present in the U.s. and is providing services remotely there would be no income finer connected to the U.s.. That means the LLC would owe no US tax, except for the annual registration fee in the land of LLC registration, and there would exist no United states federal taxation obligation (in other words in that location is no requirement to file income revenue enhancement either).

Keep in mind though - you might not technically be producing income in the U.S., merely y'all notwithstanding could be (and chances are) liable to income tax on this income in your land.

Q. What if I import and sell goods in the U.S. - does it change the previous respond?

If your business is selling tangible appurtenances in the US, you lot are required to study the income from this business to the IRS. Non-US residents report their United states of america sourced income on form 1040NR.

Don't try to effigy this course out - it is our recommendation to hire a CPA to handle all your U.South. taxation issues. Yous will likewise need to obtain ITIN, something your CPA will be in the best position to assist yous with.

Q. What if the LLC has more than than 1 owner? What happens then?

LLC that has more than one owner (partnership), or if it is elected to exist taxed as S or C Corporation (any number of owners), must file federal tax return, even if it has zero income.

Q. Ok, I got the indicate about LLC. Just what if it's corporation instead?

A corporation is a separate revenue enhancement entity from its owners. That ways the corporation files its ain tax return and pays its own tax liability. That also ways that one cannot freely transfer coin between the owners (shareholders) and the corporation. The corporation tin can reimburse the owners for expenses they pay on behalf of the business, and the corporation can pay owners for services they provide to the corporation, both of which are revenue enhancement deductions for the business.

The only other option for the shareholders to accept funds from the business is if the corporation pays them dividends. Dividends are non a tax deduction and are generally taxable income to shareholders as the individuals. As a shareholder, your personal income is field of study to the income revenue enhancement rules in your country of residence.

Q. What is the best mode to reduce the taxable income of my LLC or Corporation?

Nearly businesses take both revenues and expenses. The IRS keeps a list of eligible business expenses, and it is safe to say that expenses that tin can are obviously related to maintaining and running the business organization (eastward.g. hosting, advertising, salaries of employees, etc.) are considered deductible expenses. Other expenses might be partially deductible, and it is best to have your CPA handle the question which of your expenses are deductible and to what degree.

To minimize your tax obligation you would desire to report every bit many eligible expenses equally possible, nevertheless you should be able to prove these expenses were real, so keeping receipts and/or bank and credit card statements is a must.

Q. Ok, let'southward talk well-nigh wages. Can I pay myself a bacon as a corporate officer, this way avoiding double revenue enhancement?

If you are non-resident alien you probably don't have piece of work permit, which ways you cannot receive a salary as a resident alien or U.S. denizen would. Sorry.

You could however provide services, such every bit direction services, to the U.S. company, and receive payment in course of consulting fees. Y'all will then exist required to report this income in accord with your country taxation rules.

Q. What if we spend all or most of the income of the U.S. visitor on services provided past our other company, registered in our state?

You could do that, provided you can prove services were indeed provided and properly documented. You also want to make sure these services are provided outside of the U.S., in club non to be considered U.S. sourced, and as such bailiwick to 30% withholding requirement (more than nearly it below).

Q. What if nosotros retain all the corporate profits in the U.S., pay the corporate income tax, and non distribute information technology to shareholders? Can we just reinvest this money into the business?

Yes, you lot can.

Q. And then given all the owners are non-U.Due south. persons, from income tax point of view is it more beneficial to register LLC or Corporation?

Tricky question that depends on lots of factors. Both entities have their pros and cons, and so before reaching a conclusion you should analyze your specific state of affairs, make some forecasts on how your business organisation volition evolve, and also - consult a CPA, it will help you a lot.

Proceed in listen, there is not always a "correct" and "wrong" answer - oftentimes times either entity that you would form for your business organization would work just fine.

Q. How and when practise I file revenue enhancement return?

By hiring a knowledgeable U.Due south. CPA (accountant). The borderline in most cases is or effectually April fifteen (each twelvemonth can exist a bit different). Y'all tin can file extension by that engagement, and the new due date is September 15 for companies and October xv for individuals.

Keep in heed, corporations take to file quarterly reports, while LLCs taxed equally partnerships file once a year. This could result in slightly higher cost of accounting services for corporations.

Q. Practise I demand an ITIN to file taxes? If yes, how can I get it?

Whether yous need to obtain an ITIN will depend on if yous have US tax reporting obligations due to your Usa business interests. Information technology is possible that you will demand an ITIN if yous have membership interest (buying) in an LLC, but most probably you won't need ane as a shareholder of a corporation.

KEEP IN Heed: Individuals must have a filing requirement and file a valid federal income taxation return to receive an ITIN, unless they run across an exception.

Q. What about state income tax?

This taxation is only applicable to C Corporations, not LLCs. Information technology applies to income earned past the corporation in the country, unlike federal income that applies to all U.S. sourced income.

Even though LLCs don't pay income tax, it is a good idea to check with your CPA if there are any filing requirements for the LLC in the state of registration.

Q. Should I register my company in the country that has no income taxation?

Over again, information technology doesn't matter if y'all choose LLC. For corporations it matters, only just to the extent that you believe yous will accept lot'southward of income in the land of registration. For example, if yous have a Delaware Corporation and your business has no income coming from sources in Delaware then yous will have no corporate tax to pay to the state of Delaware, but the federal corporate tax.

Q. I heard as not-resident conflicting I demand to pay 30% income tax on my U.Due south. income. Is it true?

It is truthful in certain cases. Information technology is called NRA (not-resident conflicting) withholding, meaning your payee keeps 30% of the sum they are paying you, and remits this sum to the IRS.

According to IRS rules "in club for a payment to be subject field to NRA withholding, it must be a payment of FDAP income. FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more mutual expenses paid by US withholding agents which would result in FDAP income to their vendors and other service providers are interest, royalties, compensation for personal services, rents, pensions or annuities and gains from the sale or exchange of the patents, copyrights and similar intangibles..."

Here is a primal - for FDAP income paid to a foreign person to exist subject to NRA reporting and withholding, the payment must exist U.S. sourced. So how practice you lot know if your FDAP income is in fact U.S. sourced? Here are some examples:

Interest: If the debtor is a U.S. resident, the interest is generally U.Due south. sourced.
Royalties: If the subject property is used in the U.S., the royalty payment is U.S. sourced. Payments made in connection with the sale of sure intangible avails, including copyrights and patents, are generally sourced similar to royalties when the payments are contingent on the productivity, utilize or disposition of the intangible.
Rents: If the rental property is located in the U.S., the rental payment is U.Southward. sourced.
Personal Services: If the services are performed in the U.S., the payment for those services is generally U.South. sourced.

Q. What is class W-8BEN, and when do I demand to file it?

Grade W-8BEN is a Certificate of Strange Status of Benign Possessor for United states of america Tax Withholding. You need to fill up this course out and give to the withholding amanuensis or payer if yous are a foreign person and you are the benign owner of an amount subject area to withholding. In other words, if yous have U.Due south. sourced FDAP income your payer will be responsible to withhold the 30% tax based on the data listed on the Due west-8BEN.

Keep in mind, you demand to submit Form W-8BEN when requested past the withholding agent or payer whether or non y'all are challenge a reduced rate of, or exemption from, withholding.

Q. What nigh tax treaty between U.South. and my country? How does it influence my income tax obligations?

If you equally foreign vendor are a resident in a land that has a revenue enhancement treaty with the The states, the 30% rate may be reduced. Each treaty has specific provisions which determine the reduced withholding charge per unit. These provisions reduce the withholding rate based on the type of income and the status of the recipient.

To know if your land has tax treaty with the U.S. please visit this page. You can study the text of the treaty to understand how information technology influences your withholding situation, although I would recommend using the help of a CPA for that likewise.

U.S. Business Owned by U.S. and Non-U.South. Partners

Q. Is there any disadvantage of having a U.South. partner in the company owned by non-resident aliens?

Not that we know of. The rules of tax use first on the entity, and only then on each individual partner, based on each partner's individual tax situation.

Q. Since we have a U.S. partner in our corporation, can we elect it to exist Due south Corporation?

No. South Corporations cannot have non-U.Southward. owners.

Q. I am US citizen and I want to open up a business with a 50% partner who is a not-resident alien living abroad. What blazon of taxes will my partner pay if we form a C Corporation?

There are pros and cons to both structures for a non-resident. A C-Corp would mean your partner is not necessarily required to file a US tax return. He tin can be paid dividends from the C-Corp, but as with any C-Corp at that place is no taxation deduction for dividends paid out so the earnings are likely to be double taxed, one time by the corporation and then past the owners - in the United states for you lot and in your partner's country for him - every bit dividend income.

Q. Double taxation doesn't sound like a good idea. What if we choose LLC (taxed as partnership) instead?

An LLC taxed equally partnership would eliminate the double taxation, simply definitely subjects the non-US partner to U.Southward. taxation for his share of earnings and profits from the business concern. The partner would then have to file a 1040NR and written report his share of profits and pay Usa tax on those profits. The partnership would likewise demand to withhold revenue enhancement at thirty% for the foreign partner. Depending on his earnings the withheld tax would be credited and potentially refunded against what he may owe when he files his individual non-resident tax return.

U.South. Concern Owned by a Foreign Business concern

Q. Can a non-U.S. visitor own a U.S. visitor?

Yep, it can, provided the U.S. company is not S Corporation (or LLC taxed as South Corporation).

Q. Is it better to ain the U.Due south. company with my non-U.Southward. company from tax point of view?

Not necessarily. Buying does not control if tax is due on US operations of the business. You will need to consider US taxation of non-resident aliens, and if the profits earned in the Usa are what is known every bit income finer connected to performance of a Usa business organisation, to understand how tax would work in your specific case.

Q. I ain a company in my country, and I want to annals an LLC to exist owned past this company. Can I and so distribute U.S. profits of this LLC to my company, and pay the taxes in my country?

It is non uncommon for an online business organisation to avoid US taxation, just in that location are a number of specific factors that are unique to every business which you will take to consider. As you tin see from a previous answer, ownership is not the merely gene in defining if tax is due, so cases like this should be discussed with a US based tax professional

Q. What if I ain the U.S. company with my not-U.S. company, and the non-U.South. company will sell the U.S. company products for resale for the same toll the U.South. company volition sell them in the U.S.? I desire to avoid having to pay taxes in the U.S.

You would not be able to sell at nil profit, due to what are known equally transfer pricing rules, which establish how related entities located in ii different taxing jurisdiction must establish the price they accuse each other for items that are transferred between themselves.

U.S. Business organization Owned by U.S. Person(s) Living Away

Q. I am US citizen and a sole possessor of an LLC. I live abroad, and my business is online merely, without any physical connectedness. What kind of tax would I have to pay?

Online businesses are taxed simply like any other business for income revenue enhancement purposes and equally a Usa citizen you are subject to tax on worldwide income. If yous are living abroad, you may qualify for an earned income exclusion for wages you earn overseas, only profits from your US business would still be subject to land and federal income taxes in the United states.

An individual can qualify for a foreign earned income exclusion, but the amount of exclusion is $97,600 for 2013 and earnings over that amount in any one twelvemonth are taxable.

Q. I am U.South. citizen living away. Is there a way for me to run a concern from abroad and avoid being taxed in the U.S.?

There is the potential to avert or at to the lowest degree delay, Us taxation through setting up a non-U.s.a. subsidiary, but that is typically only temporary as whatsoever earnings would be taxable in the US if or when those earnings are brought back into the Us.

Depending on the long term goals of the taxpayer he might at least defer paying US tax, simply if he intends to bring that money dorsum into the US at some bespeak it volition probably be taxed as foreign profits. There are some methods to further defer or avoid US taxation of repatriated profits, but it is a complex area of the revenue enhancement lawmaking that is very specific to the taxpayer's state of affairs and way beyond what we would try to explain here.

Conclusion

Well, equally we mentioned earlier, U.S. taxation is anything but piddling. We hope this article was educational plenty to give you lot some idea on how U.Southward. taxation works, and what to exercise next.

Keep in mind two important points:

no affair what your situation is, it is always a good idea to consult a knowledgeable U.South. revenue enhancement expert who volition exist able to analyze your specific situation, and give you qualified advice. Noesis gained from this article volition already save you some fourth dimension, so you can focus on agreement the deeper issues related to your situation. Those $50 or $100 spent on a thirty minute revenue enhancement consultation might exist the best money spent on our business organisation.
chances are at that place is no "right" or "wrong" solution - a few solutions that you would consider to your particular situation might all be "more or less right".

If you think you have a revenue enhancement question that deserves to exist answered and published in this article by all means electronic mail it to us, and nosotros will do our best to answer and publish information technology. For other, more specific questions nosotros recommend our 30 minute tax skype or phone consultation that yous can order directly here.

Good luck with your business organisation!

DISCLAIMER REGARDING LEGAL Communication: This article is not intended to provide any tax advice or management. None of data contained on this spider web site is intended to constitute legal or other professional person advice, and yous should not rely solely on the information contained on the site for making legal decisions. When necessary, you should consult with an attorney for specific advice tailored to your situation.

Nigh The Writer

Robert Kowalski is a seasoned incorporator and business filing specialist with over x years feel consulting emerging companies with their business filing needs. Robert served every bit the chief editor and one of the top contributors to Answers @ MyUSACorporation.com.