TABLE OF CONTENTS
Can Non-citizens Be Business Owners in the U.S.A.?
Ownership of LLCs, Partnerships, and Corporations
Can Foreign Nationals or Non-citizens Own a U.S.-Based Business? If so, how?
Yes. As a non-citizen, you can be a foreign business owner in the U.S., though some limitations apply.
Non-citizens, foreign nationals, or resident and non-resident aliens can all own or be partners, members of LLCs, or shareholders in Corporations. Business ownership is a contractual right and citizens and non-citizens have the right to contract.
Non-citizens and U.S. citizens take ownership of a business in the same way, though an agreement, either verbal or written: always get it in writing and preferably through a contract drafted by a qualified attorney. This will help ensure you get what you think you are getting and avoid costly lawsuits.
The more important and complex questions might be:
(1) do some states place limitations on foreign business owners?
(2) are non-citizens or foreign nationals required to pay taxes in the United States?
(3) how do non-citizens or foreign nationals pay taxes in the U.S.?
Do some states place limitations on foreign ownership? Rarely, but sometimes.
Depending on where the potential business entity is based, foreign ownership may be limited by each individual state’s laws. Each state has particular rules regulating the ownership, though most are fairly accepting of foreign investment and ownership. For example, Delaware has very liberal ownership statutes allowing ownership and investment by foreign individuals and entities. This promotes economic growth. Because most states desire growth, most states allow for foreign investment and ownership. Before taking ownership of a business in a particular state, check with an attorney in the specific state to verify any limitations that might exist on foreign owners.
Are foreign business owners required to pay taxes in the United States? Probably, yes.
Second, almost all businesses in the US must pay taxes in the US. However, there are exceptions and the US can be a tax haven for many foreign owners. Generally, In most cases, a foreign national or non-resident alien is subject to federal withholding tax on U.S. source income at a standard flat rate of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign national’s country of residence and the United States.
Effectively, foreigners are only subject to US tax if they are “engaged in a trade or business in the United States” (ETOB). A person or entity is engaged in a trade or business (ETOB) in the US if:
(1) you have at least one “dependent agent” in the US, which are employees or companies that work for you almost exclusively, and
(2) this dependent agent does something substantial to further your business in the US, as opposed to something purely administrative, or
(3) you are engaged in “considerable, continuous, and regular” business in the US.
If your business is not ETOB, even if it generates income in the US, the income is not taxed in the US.
How do non-citizens or foreign business owners pay taxes in the U.S.? Just like everyone else…kind of.
U.S. citizens pay taxes under their social security number or their tax identification number. If you are not a citizen or a legal resident you can’t get either of these. Though, if required to pay taxes, you will need to obtain an ITIN.
The majority of business owners have an SSN and an EIN. ITINs, on the other hand, have a specific use case. Here is a quick look at the differences of each:
ITIN vs. SSN
Essentially, an SSN is for U.S. citizens and authorized noncitizen residents — such as green card holders and students on visas. An ITIN, on the other hand, is for residents with foreign status. This includes undocumented aliens and nonresident aliens that conduct business in the United States. Foreign entities that operate in the United States, including corporations, partnerships and LLCs, would also need an ITIN.
EIN vs. SSN
An EIN is like an SSN for your business. For those simply operating sole proprietorships, they can use their SSN with the IRS for tax purposes and to open a business bank account. If you form an LLC, want to hire employees or would like to establish business credit, though, you’ll need to obtain an EIN.
EIN vs. ITIN
The main difference between an EIN and an ITIN is that an EIN is used to identify a business, while an ITIN is a federal tax ID for folks who must file a tax return but who are not allowed to work in the United States. Individuals who do business in the U.S. but are ineligible for SSNs need ITINs.
CONCLUSION
Ownership and formation can be complex so ask for help!
Ownership in a business is a serious endeavor with many risks. Let us help you navigate these complex issues. We can save you time and money by avoiding missteps early on in the formation process or during the evolving nature of your business.
Our attorneys will assist you with entity formation, planning (including asset planning), dissolution and exit strategies, issues, and ownership disputes. We help clients identify the entity’s current and future goals and balance the management structure, tax benefits, liability protection, and profit-sharing. If you have questions about where to form your business entity, please reach out to our attorneys. They can answer your questions and guide you to form your LLC in the right state depending on your goals.
NOTICE: Neither this site nor its contents create an attorney-client relationship. The contents are provided for educational purposes only and not as legal or tax advice.
Related Topics:
Manager-Managed vs. Member-managed?
What is a Business Entity?
What is the “Corporate Vail”?
How do I my limit personal liability?
What kind of business entity should I form?
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