If you’re a non-US person looking for the best business structure to minimize your tax burden, a Wyoming LLC is the way to go. Thanks to the pass-thru taxation system, LLCs are not subject to corporate income tax. And as long as you don’t have any effectively connected income, you won’t owe any personal income tax either!
What is a Wyoming LLC?
A limited liability company (LLC) is a business entity that offers its owners limited liability protection. This means that if the LLC is sued, the owners’ personal assets are protected. LLCs can be owned by one person (a single-member LLC) or by multiple people (a multi-member LLC).
Wyoming pass-thru taxation system protects your money
In the US, LLCs are not subject to corporate income tax. In Wyoming (other states also), the income passes thru to the owners (members) and uses a pass-thru taxation system. This means that the income from a Wyoming LLC passes thru to the owners or members and if the owner does not have effectively connected income to the US then there is no tax owed. That’s why a Wyoming LLC is the best business structure for non-US persons!
Effectively connected income
There is one caveat to this rule: if you have what’s called “effectively connected income,” you will be required to pay taxes on that income. Effectively connected income is defined as “income from sources within the United States which is effectively connected with the conduct of a trade or business within the United States.” So, for example, if you have an office or employees physically located in the US then you have effectively connected income.
Non-resident aliens (NRAs) are not subject to US taxation on their Foreign Earned Income unless they have Effectively Connected Income (ECI) from US sources or they choose to be taxed as if they were US residents by filing Form 1040 NR or Form 1040 NR EZ. If an NRA does not have ECI then there is no US tax owed, and the LLC needs to only file an IRS form 5472 informing the IRS that the LLC is owned by a foreigner.
If an NRA has ECI then taxes are only owed on that specific amount of money and not on the entire Foreign Earned Income like resident aliens are taxed. An NRA may also reduce their foreign tax liability by claiming Foreign Tax Credits which could completely eliminate double taxation on their Foreign Earned Income. The bottom line – an NRA can run his/her business thru a Wyoming LLC with no US tax liability as long as there is no Effectively Connected Income.
There are many reasons why a Wyoming LLC is the best business structure for non-US persons. Thanks to Wyoming’s pass-thru taxation system, LLCs are not subject to corporate income tax. And as long as you don’t have any effectively connected income, you won’t owe any personal income tax either! If you do have effectively connected income, you’ll still get a lower tax rate than if you were subject to regular corporate taxation. So if you’re looking for a way to minimize your tax burden, a Wyoming LLC is the way to go!