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LLC Formation in the USA for Foreign Nationals: Which States Offer the Most Affordable Company Setup in 2023?

In 2023, non-resident offshore or foreign companies continue to be a popular choice for business planning. These are not just the island nations (such as the Caribbean) everyone knows about that allow you to pay low taxes. Apart from them, there exist specific territories, regions, and states in large countries where establishing an LLC at a low cost is feasible. Consequently, you won’t have to pay taxes on global income there.

cheapest llc formation

Here, the paradox is rooted in the fact that these zero or low-tax regimes are being offered by the state that is most dedicated to global deoffshorization and transparent tax policies. Yes, we mean the United States of America. The registration of an LLC in the USA, coupled with access to favorable tax rates, is not a prevailing trend for the entire country though. Rather, these are the conditions that particular states come with.

Where in the USA will you find the cheapest LLC formation procedures for foreign nationals? What are the lowest business tax states in the USA in 2023? What makes it advantageous for foreign entrepreneurs to establish LLCs in the United States and how will this impact the tax liabilities of founders and shareholders?

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Advantages of establishing an LLC in the USA for non-resident entrepreneurs

You should factor in several critical considerations when determining the top location for registering a global company. These considerations encompass more than just tax incentives. They extend to the reputation of the jurisdiction and the accessibility of financial products. Among these top-ranking nations, the United States holds a prominent position.

Here’s why some foreign entrepreneurs opt for the United States as their preferred international business hub for company incorporation:

  • World-renowned jurisdiction.

Despite actively combating offshore practices, American companies maintain a robust global reputation. Remarkably, the United States remains an esteemed jurisdiction for both startup and offshore LLC setups.

  • World-class financial services.

In the USA, LLCs enjoy privileged access to the world’s premier banking institutions and an extensive spectrum of financial services tailored to small and medium-sized businesses. International companies can effortlessly establish bank accounts, use online banking services, and harness platforms such as Stripe, Braintree, and others.

  • Zero taxes.

In select US states, the potential to lower the effective corporate tax rate to an astounding 0% exists through the adoption of pass-through taxation for LLCs. The regime places tax liabilities squarely on the shoulders of company members and shareholders. For non-resident partners, this avenue proves particularly advantageous, as profits are taxed in their nation of permanent residence.

  • Privacy.

Several US states have instituted internal regulations designed to safeguard the privacy of personal data belonging to LLC participants. Notably, states like Wyoming and New Mexico exemplify this practice. You won’t find the names of LLC founders in company registries, with only the designation of the registered agent being disclosed.

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Strategies for minimizing taxes on global income in the USA

To retain the right to pay zero tax on global income in one of the US states, certain conditions must be met by the company owner (in the case of an LLC with a single founder), its shareholders (if the LLC has multiple members), as well as the company itself:

  • Non-tax resident status: Shareholders, founders, and companies formed in the USA have no tax resident status.
  • No local employees: The presence of local employees residing within the USA should be avoided.
  • No physical presence in the USA: The company should not have any physical premises in the USA.
  • Income sources outside the States: The company’s income sources must be outside of the USA.

FYI: Two tests are used to identify a company’s or an individual’s tax residency. They are the green card test and the substantial presence test. If a foreign individual meets the criteria of either of these tests during a calendar year, they will be classified as a US tax resident.

Top US states for foreign-owned LLCs: balancing taxation, privacy, and legal requirements

When deciding on the most suitable state for your LLC in the USA, it’s crucial to consider several key factors:

  • Differences in formation costs: The costs of establishing an LLC can differ significantly from one state to another. Typically, they encompass a one-time fee paid to the state as well as agent fees.
  • Annual franchise tax: Some US states impose an annual franchise tax to ensure the LLC stays compliant and upholds its reputation. Failure to pay this tax may result in your LLC being removed from the national company registry.
  • Privacy: The opportunity is not available in every US state and it is not absolute privacy in any case. Your registered agent will always store your business data, and if so requested by the regulatory authorities and/or law enforcement agencies, they are obliged to share such data for audit and inspection purposes.
  • Other laws and regulations: The above laws and regulations may offer protection against legal actions and specify the tax liabilities of LLC shareholders. These provisions are established at the local level in various US states and as such, they can vary.

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Which US state offers the most cost-effective and advantageous conditions for foreigners to establish an LLC in 2023? You are welcome to explore the current offerings from International Wealth and benefit from the recommendations and advice of our skilled experts.

BUSINESS INCORPORATION IN THE USA: BENEFIT FROM INTERNATIONAL WEALTH SERVICES

How to ensure privacy: exploring top US states for anonymity in LLC ownership

What do foreign company founders need to be aware of as far as confidentiality levels in the USA are concerned? The most sought-after and secure states for foreign companies include Wyoming, Delaware, and New Mexico. In these states, the identity of LLC’s beneficiaries is shielded from public access. However, registered agents are obliged to have information about the LLC owners. Upon request, they may share the above data with the government.

Here are some examples to illustrate this:

  • In Delaware, the identities of LLC members and managers are not disclosed in public records, which solely contain details of the registered agent and the company’s founder. To maintain complete confidentiality, you can enlist the services of a professional director or business founder.
  • In New Mexico, information about LLC members and managers is neither collected nor shared with the company registrar. Furthermore, there are no annual reports, fees, or corporate taxes in this state.
  • States like Nevada and Wyoming remain favored choices in the USA for foreign entrepreneurs, allowing for the use of nominee services. In this case, you have an opportunity to keep the business founder’s details confidential, with public records indicating only the nominee.

With anonymous LLCs in the USA, certain oversight bodies, including the IRS, may demand information disclosure and identity verification when EIN is assigned. However, this information remains confidential and is not subject to disclosure.

US states with the lowest LLC tax rates

Certain US states impose corporate income taxes on companies, while others opt for a gross receipts tax as an alternative. Additionally, numerous states enforce sales taxes on businesses, although this does not extend to foreign LLCs that generate income in other countries.

Some US states have either minimum or no corporate income tax rates. However, you should also account for the expenses associated with running such a business as well as the related registration fees.

These are the facts foreign company owners should know about taxes in the USA:

  • Corporate Income Tax (CIT) is subject to specific rates in each state, varying from 0% to 12% in 2023.
  • Corporations pay CIT on their global income, as well as the income of individual shareholders.
  • LLCs in the USA are solely liable for taxes on income sourced within the country.
  • The highest corporate tax rate, reaching 11.5% in 2023, is paid in New Jersey.
  • North Carolina boasts the lowest tax rate in the USA at 2.5%.
  • South Dakota and Wyoming refrain from imposing both CIT and gross receipts tax.
  • While Nevada, Ohio, Texas, and Washington do not impose corporate income tax, they do levy a gross receipts tax.
  • Besides CIT, states such as Delaware, Oregon, and Tennessee impose gross income taxes. Similarly, certain states like Pennsylvania, Virginia, and West Virginia allow imposing gross income taxes at the local level, though not at the country level.

When assessing the cumulative costs of taxes, franchise fees, and company registration in the USA, experts often deem Delaware, Nevada, Wyoming, and New Mexico as the cheapest states for taxes that foreign founders can find.

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FYI: Under the newly introduced Pillar 2 Plan, offshore companies in the USA have been granted an exemption from the OECD global tax till 2026. The 15% tax is temporarily lifted!

Unpacking the LLC franchise tax in the USA

In the USA, certain states impose franchise taxes on businesses as a fee for the privilege to operate. This franchise tax is an annual payment, separate from income tax. Typically, it amounts to a few hundred dollars.

NB: Franchise taxes are levied on LLCs in 13 US states only.

Overview of government charges applicable to LLCs across the nation

In every US state, an annual fee shall be paid alongside the annual report submission. Company registration fees in the USA can amount to USD 500, while business renewal fees range from USD 0 to USD 300. If you neglect these regular payments, the result might be your company’s dissolution.

Costs associated with LLC setup across different US states (as of 2023)

To realize what the most straightforward and budget-friendly state for LLC registration is, take a look at the latest information regarding LLC formation costs in various states of the USA.

As of 2023, the average cost for forming an LLC in the USA is USD 132.

LLC incorporation stateLLC incorporation feeLLC renewal fee in USD, per annum or for any other period
LLC in AlabamaUSD 200USD 50 or more per annum
LLC in AlaskaUSD 250USD 100 (paid once every 2 years)
LLC in ArizonaUSD 50USD 0 (no fees or information reports required)
LLC in ArkansasUSD 45USD 150 per annum
LLC in CaliforniaUSD 70USD 800 (per annum) + USD 20 (paid once every 2 years)
LLC in ColoradoUSD 50USD 10 per annum
LLC in ConnecticutUSD 120USD 80 per annum
LLC in DelawareUSD 90USD 300 per annum
LLC in FloridaUSD 125USD 138.75 per annum
LLC in GeorgiaUSD 100USD 50 per annum
LLC in HawaiiUSD 50USD 15 per annum
LLC in IdahoUSD 100USD 0 (with information reports submitted on an annual basis)
LLC in IllinoisUSD 150USD 75 per annum
LLC in IndianaUSD 95USD 31 (paid once every 2 years)
LLC in IowaUSD 50USD 30 (paid once every 2 years)
LLC in KansasUSD 160USD 50 per annum
LLC in KentuckyUSD 40 USD 15 per annum
LLC in LouisianaUSD 100USD 35 per annum
LLC in MaineUSD 175USD 85 per annum
LLC in MarylandUSD 100USD 300 per annum
LLC in MassachusettsUSD 500USD 500 per annum
LLC in MichiganUSD 50USD 25 per annum
LLC in MinnesotaUSD 155USD 0 (with information reports submitted on an annual basis)
LLC in MississippiUSD 50USD 0 (with information reports submitted on an annual basis)
LLC in MissouriUSD 50USD 0 (no information report is required and no fees are paid)
LLC in MontanaUSD 35USD 20 per annum
LLC in NebraskaUSD 100USD 13 (paid once every 2 years)
LLC in NevadaUSD 425USD 350 per annum
LLC in New HampshireUSD 100USD 100 per annum
LLC in New JerseyUSD 125USD 75 per annum
LLC in New MexicoUSD 50USD 0 (no information report is required and no fees are paid)
LLC in New YorkUSD 200USD 9 (paid once every 2 years)
LLC in North CarolinaUSD 125USD 200 per annum
LLC in North DakotaUSD 135USD 50 per annum
LLC in OhioUSD 99USD 0 (no information report is required and no fees are paid)
LLC in OklahomaUSD 100USD 25 per annum
LLC in OregonUSD 100USD 100 per annum
LLC in PennsylvaniaUSD 125USD 70 (paid once every 10 years)
LLC in Rhode IslandUSD 150USD 50 per annum
LLC in South CarolinaUSD 110USD 0 (no information report is required and no fees are paid unless LLC is taxed as S-Corp)
LLC in South DakotaUSD 150USD 50 per annum
LLC in TennesseeUSD 300USD 300 per annum
LLC in TexasUSD 300USD 0 for most LLCs (with tax exemption report to be submitted on an annual basis)
LLC in UtaUSD 54USD 18 per annum
LLC in VermontUSD 125USD 35 per annum
LLC in VirginiaUSD 100USD 50 per annum
LLC in WashingtonUSD 200USD 60 per annum
LLC in Washington, DCUSD 99USD 300 per annum
LLC in West VirginiaUSD 100USD 25 per annum
LLC in WisconsinUSD 130USD 25 per annum
LLC in WyomingUSD 100at least USD 60 per annum

As of YE 2022–2023, the top states in the USA to incorporate foreign LLCs are Delaware, Wyoming, and New Mexico.

Changing landscape: US states that have lost popularity among foreign investors

What US states should you steer clear of when considering the registration of an American company with foreign founders and management? Based on extensive research data, certain states in the USA have experienced a decline in popularity due to the potential adverse financial consequences associated with business incorporation costs:

  • California: This state enforces a substantial franchise tax for the registration of any LLCs (up to USD 800).
  • New York: While registration fees aren’t exorbitant, a requirement to publish an article about company incorporation in a local newspaper increases financial costs by a few hundred dollars.
  • Nevada: Once a favored choice for foreign company registration, Nevada now requires you to pay not only registration fees but also an additional USD 150 for filing an initial list of company officers and an extra USD 200 to USD 500 for a mandatory business license to operate in the state in 2023.

The most budget-conscious approach to establishing an LLC in the USA is to engage a seasoned agent. Here’s what they can do for you:

  • handle all paperwork without the founder’s involvement
  • offer their address and nominal services
  • assist in opening a bank account and selecting the most suitable state for company registration. 

To book any of the above company incorporation services and more, you are welcome to message International Wealth seasoned pros!

On a final note: which US state comes with the simplest LLC formation procedures?

Regardless of the US state you choose, registering a company in the United States requires the participation of a registered agent based in that state. There is a notable exception for US residents, as they have the option to manage this aspect themselves.

This is what international entrepreneurs shall do to establish an LLC in any US state:

  1. Identify and engage a local registered agent.
  2. Compile and authenticate the required documentation.
  3. Pay the applicable service fees.
  4. Initiate the procedure to open a dedicated bank account.
  5. Finalize the official business registration and subsequently oversee company operations and management.

For better business planning, make sure to pick the right state to start your company in the USA. If you want to optimize taxes as well, don’t wait too long to get valuable advice on the subject from International Wealth experts.

Take a closer look at some of the services International Wealth has to offer:

  • registering an LLC in the USA with one or several foreign partners
  • opening a US or foreign bank account for your company
  • accounting services for US-based LLCs
  • incorporating a non-resident company in the USA (the specific state is chosen on a case-by-case basis)
  • registering and maintaining a foreign trust in the USA
  • free consultations and comprehensive support from the International Wealth team of professional experts at every stage of company formation and business management in the USA.

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For any questions you may have about the taxation system in the USA and the country’s states, you are welcome to consult the USA country section of our website. For individual consultations, please, don’t hesitate to contact International Wealth experts via our online chat or use the contact information provided on our website.

Do LLCs in the USA have to pay taxes?

Basically, they don’t. In the USA, LLCs are not directly taxed at the state or federal level. The taxation system for LLCs in the USA is known as pass-through taxation. In this case, profit taxes are paid by the individual owners (partners or members). The only exception is when LLC owners choose a different tax treatment, such as becoming an S-corporation or a C-corporation.

Can you register an LLC in the US for free?

No, regardless of the state you choose to register an offshore or local company as an LLC in the USA, expenses are unavoidable. In the United States, every limited liability company is obliged to pay state registration fees and ongoing expenses (such as annual registration fees, franchise tax, or fees for business license registration).

Is it possible for an American LLC to have a foreign address?

Unfortunately, it isn’t. An American LLC is required to use either a rented business address or the address of its registered agent.

Which US state offers the lowest taxes and most affordable LLC registration fees?

Delaware, Wyoming, and New Mexico are the top choices for foreign individuals looking for popular and budget-friendly states to register an LLC in the USA.

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