The Internal Revenue Service classifies taxpayers as U.S. citizens, resident aliens, or non-resident aliens. Resident aliens are non-citizens who pass certain IRS tests, such as the “green card test” or “substantial presence test” and thus are subject to U.S. worldwide information and income reporting. An alien who does not pass either of these tests is generally classified as a non-resident alien. However, some taxpayers are classified as “dual status” aliens. As the IRS explains, a dual status alien is an individual who “can be both a non-resident alien and a resident alien during the same tax year.” If you are a dual status or non-resident alien, there are certain factors you must keep in mind when starting a company or doing business in the United States, such as how different business entities compare, what types of entities you may legally own as a non-resident, and what types of tax documents you may need to file.
When forming a business entity in the United States, non-residents (foreigners) must choose between forming a corporation, limited liability company, partnership or a sole proprietorship. However, there are federal laws that prohibit non-residents from owning certain types of businesses and entities.
There are two types of corporations in the United States: S corporations, which are “pass-through entities,” taxed at the individual level only and C corporations that are taxed first at the entity level and subsequently at the shareholder level when dividends are paid. Non-residents may own and operate C corporations but are prohibited from owning S corporations.
Though a non-resident cannot be the owner, or shareholder, of an S corporation, he or she can still avoid double-taxation by forming a limited liability company instead of a C corporation, as there are no citizenship requirements to form an LLC in the United States. An LLC can elect for federal purposes to be taxed as a partnership or as an S or C Corporation. However, a single member LLC taxed as a partnership is a disregarded entity for federal purposes and thus taxed as a sole proprietorship and nonresident aliens are prohibited from electing to have an LLC taxed as an S Corporation. This effectively leaves, LLC’s taxed as C Corporations and LLC’s taxed as a partnership where two or more owners, available to nonresident aliens.
Below, our business tax lawyers have compiled some important issues for non-residents to be aware of when forming a business in the United States.
At the Tax Law Office of David W. Klasing, our international business & tax attorneys and CPAs have decades of experience providing tax planning services for foreign companies and non-residents. Working with entities all over the world, we use our in-depth knowledge of international tax regulations to help make doing business in the United States simpler and more cost-efficient.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
Helpful Q and A Library: https://klasing-associates.com/topics/international-tax-law-faq/