Are you a Canadian expat or digital nomad who’s successfully exited the Canadian tax system? The United States can function as a completely tax-free jurisdiction for your business income. Establishing a US LLC for Canadian expats can be an effective strategy to achieve this.
This isn’t a loophole. It’s a legitimate structure recognized by the IRS that allows Canadian non-residents to operate profitable businesses while paying zero US federal income tax on properly structured income.
As a Canadian who no longer qualifies as a tax resident in Canada and doesn’t reside in the United States, you can form a US Limited Liability Company that provides asset protection, access to world-class banking infrastructure, and complete tax transparency on non-US source income.
We’ve been helping Canadian expats and digital nomads navigate US business formation for over 20 years. This guide shows you exactly how to establish and maintain a tax-advantaged LLC for your location-independent lifestyle.
Who This Guide Is For
Canadian Citizens Living Abroad: You’ve left Canada, established residency elsewhere, and severed sufficient ties to no longer be considered a Canadian tax resident by the CRA.
Digital Nomads with Canadian Passports: You travel continuously without establishing tax residency in any single country, or you’ve established residency in a territorial or zero-tax jurisdiction.
Expat Entrepreneurs: You’re building location-independent businesses while living outside both Canada and the United States.
Who This Is NOT For: Canadian tax residents living in Canada. The Canada Revenue Agency treats US LLCs as foreign corporations for residents, creating potential double taxation.
How the Tax-Free Structure Works
Pass-Through Taxation Meets Non-Resident Status
A Limited Liability Company operates under “pass-through” taxation. The LLC itself doesn’t pay federal income tax. Instead, profits pass through to you, the owner.
Here’s where it gets powerful for Canadian expats: The United States doesn’t tax non-resident aliens on their worldwide income. According to IRS regulations, you’re only taxed on:
- Income effectively connected with a US trade or business (ETOB)
- Certain types of US-source passive income (FDAP income)
Real-World Example: You’re a Canadian expat in Portugal running a consulting business through a US LLC. You provide services to clients worldwide (including US clients), perform all work from your laptop outside the US, have no US employees or office, and manage your business entirely remotely.
Tax Result: Zero US federal income tax on your consulting income.
Combined with strategic personal tax residency (territorial tax country or genuine digital nomad status), you achieve completely legal zero taxation on your business income.
Critical: What Triggers US Tax Obligations
Activities That Create ETOB (Avoid These)
- Physical US Operations: Conducting business regularly from within the United States
- Dependent Agents: Employing people in the US who work almost exclusively for you
- Permanent Establishment: Maintaining offices, warehouses, or fixed places of business in the US
- Providing Services in the US: Physically performing services while present in the United States
Activities That DON’T Trigger Taxation (Safe for Service Businesses)
- Remote services to US clients while you’re physically outside the US
- Digital products and online courses delivered electronically
- Affiliate marketing performed from outside the US
- Using US independent contractors who serve multiple clients
CRITICAL WARNING: Physical Goods Are Different
If you’re selling physical goods in the United States, the tax situation changes dramatically. According to IRS sourcing rules for nonresident aliens, income from sales of inventory property is sourced where the sale occurs.
Key Rule: If you sell personal property (inventory) and title passes to the buyer in the United States, that creates US-source income taxable to non-resident aliens.
What This Means:
- Amazon FBA: Products stored in US warehouses and sold to US customers typically create US-source income subject to taxation
- Dropshipping from Abroad: May have different sourcing treatment
- Physical Products in US: Generally create US tax obligations when located in the US at sale
Service-based businesses can often achieve zero US tax. Physical goods businesses selling in the US typically cannot. Consult IRS Publication 519 and work with a tax professional for e-commerce.
The Substantial Presence Test: Track Your US Days
If you spend too much time in the United States, you may become a US tax resident under the substantial presence test.
The Formula: You meet the test if physically present in the US on at least:
- 31 days during the current year, AND
- 183 days during the 3-year period calculated as:
- All current year days
- 1/3 of prior year days
- 1/6 of second prior year days
Example: 120 days (2025) + 30 days (90 x 1/3 in 2024) + 10 days (60 x 1/6 in 2023) = 160 days (safe)
Important: There’s no special “183-day rule” for Canadians. All foreign nationals use the same weighted formula. Track your days using a substantial presence calculator. Staying under 120 days annually provides a safe buffer.
Beyond Tax Savings: Why Canadian Expats Choose US LLCs
US Banking Infrastructure
Access to US dollar banking eliminates 3-6% in currency conversion fees. On $100,000 in annual income, that’s $3,000-$6,000 saved. Modern fintech banks like Mercury, Relay, and Wise offer:
- No-fee business checking and savings
- Multi-currency management
- Integration with Stripe and PayPal
- Remote account opening for non-residents
See our guide on opening a US business bank account and the best banks for foreign transaction fees.
Asset Protection
According to the American Bar Association, properly maintained LLCs provide substantial liability protection. Unlike sole proprietorships, your personal assets remain separate from business liabilities – valuable protection that works regardless of where you’re physically located.
Operational Flexibility
Unlike corporations, LLCs don’t require board meetings, formal minutes, or complex governance. Start as a single-member LLC, add partners later, or convert to a C-Corp when raising funding. Learn more about why US LLCs are ideal for digital nomad businesses.
Choosing Your State: Wyoming, Delaware, or New Mexico
Wyoming: Best for 95% of Canadian Expats
Costs: $100 filing fee, $60 annual report ($700 over 10 years)
Why Wyoming Wins:
- Strongest privacy protections (member names not public)
- No state income tax
- Superior asset protection laws
- Created the LLC structure in 1977 (most experienced)
- Widely accepted by banks and payment processors
Best For: Online businesses, consulting, digital products, service-based ventures
Learn exactly how to start an LLC in Wyoming.
Delaware: For Raising Investment
Costs: $110 filing fee, $300 annual franchise tax ($3,110 over 10 years)
Why Choose Delaware:
- Required by most venture capitalists and angel investors
- Specialized Court of Chancery for business disputes
- Well-established precedents and business-friendly laws
Best For: Startups planning to raise significant funding or sell to US companies
See our guide on how to start an LLC in Delaware.
New Mexico: Absolute Lowest Cost
Costs: $50 filing fee, $0 annual fees (only $50 over 10 years)
Considerations:
- Good privacy protections
- Some banks (especially Stripe) scrutinize New Mexico LLCs more carefully
- No Certificate of Good Standing issued
Best For: Budget-conscious expats with minimal banking needs
Check out how to start an LLC in New Mexico.
States to Avoid
- California: $800 minimum annual franchise tax regardless of income
- New York: Expensive publication requirements in newspapers
- Any State With Income Tax: Creates unnecessary filing requirements
For comprehensive comparisons, read our guide to the best state to incorporate your online business.
Formation Timeline: 4-6 Weeks
Week 1-2: Planning
- Choose your state (Wyoming for most)
- Select your LLC name
- Arrange registered agent service (first year free with BusinessAnywhere)
- Gather passport and proof of address
Week 2-3: Filing
- File Articles of Organization (3-7 business days processing)
- Create Operating Agreement
- Receive Certificate of Formation
Week 3-4: EIN Application
- Complete IRS Form SS-4
- Submit by fax (4-7 days) or use our EIN application service ($97)
- Note: Canadians without SSN cannot apply online
Learn more about whether your LLC needs an EIN.
Week 4-6: Banking
- Apply to Mercury, Relay, and/or Wise simultaneously
- Provide LLC documents, EIN, Operating Agreement, passport, and proof of address
- Approval typically takes 3-7 days
Total Timeline: 4-6 weeks from start to fully operational. BusinessAnywhere streamlines this to 3-4 weeks. Start your LLC formation today.
Banking Strategy for Digital Nomads
Primary Operating Account (Mercury or Relay):
- Receive client payments
- Pay US contractors and expenses
- FDIC-insured
- Integrate with QuickBooks or Xero
Currency Conversion (Wise):
- Convert USD at mid-market rates
- Send international payments with minimal fees
- Hold multiple currencies
- Not FDIC-insured but excellent for transfers
Personal Accounts (Your choice):
- Keep completely separate from business
- Receive LLC distributions
Ongoing Compliance: Simple and Essential
Annual State Requirements
- Wyoming: $60 annual report
- Delaware: $300 franchise tax (due June 1)
- New Mexico: No annual report
Set reminders 30 days before due dates. Late fees and administrative dissolution risk aren’t worth saving $60-300.
Federal Compliance: Form 5472 (Don’t Miss This)
What: Form 5472 reports transactions between you and your LLC
Who: All single-member LLCs owned by non-US persons
When: April 15 (or 15th day of 4th month after year-end)
What It Reports:
- Capital contributions
- Distributions to you
- Loans between you and LLC
- Total LLC assets
Penalty: $25,000 for failure to file, plus additional $25,000 for continued failure
Even with zero income, you must file Form 5472. Most Canadian expats hire a US tax preparer ($300-800 annually) to ensure accurate filing. This investment prevents $25,000+ penalties.
BOI Reporting: Eliminated March 2025
Good news: As of March 2025, FinCEN eliminated beneficial ownership reporting requirements for all US companies. According to the interim final rule, you do NOT need to file BOI reports for your US LLC.
Maintain Good Standing
- Keep your registered agent active
- Separate business and personal finances (never commingle funds)
- Update state records if you change members or management
- Keep Operating Agreement current
Your Compliance Advantage: No Canadian tax returns, no US state income tax returns (for service businesses), no US personal tax returns. Just annual state reports and Form 5472.
Maintaining Canadian Non-Resident Status
Ensure you’ve properly severed ties with Canada per CRA guidelines:
- No Canadian home available for your use
- No spouse or dependents in Canada
- Minimal Canadian property
- No Canadian driver’s license or health insurance
- Non-resident bank accounts
Warning: Spending 183+ days in Canada can deem you a tax resident even after departure.
Tax Residency Options
Territorial Tax Countries: Panama, Paraguay, Georgia, Malaysia, Philippines (your US LLC income isn’t taxed locally)
Digital Nomad Status: Continuous travel, fewer than 183 days in any country
Low-Tax Residency: Jurisdictions with favorable treatment of foreign business income
Consult a tax professional specializing in Canadian non-resident taxation, US taxation of foreign persons, and international tax planning.
Frequently Asked Questions
Can I have a US LLC while living in Mexico/Portugal/Thailand?
Yes. Your physical location doesn’t affect your LLC’s validity as long as you’re not conducting business from the United States.
Do I need to visit the US to form an LLC?
No. Everything is done remotely – formation, EIN application, and bank account opening.
What about selling on Amazon FBA?
Physical products stored in US warehouses generally create US-source taxable income for non-residents. This is different from service businesses. Consult a tax professional familiar with e-commerce.
Do I pay myself a salary?
No. Single-member LLCs don’t pay salaries to owners. You take distributions (withdrawals) as needed. Document these for Form 5472.
What if I return to Canada?
The CRA will treat your US LLC as a foreign corporation, potentially creating double taxation. Consult a cross-border tax professional before returning about dissolving, converting, or restructuring your LLC.
Do I still need BOI reports?
No. As of March 2025, BOI reporting was eliminated for all US companies.
Real Success Stories
Marc (Software Developer in Bali): Left Toronto in 2019, formed Wyoming LLC in 2020. Serves US tech companies via Mercury bank account. Saved $25,000+ in four years through exchange rate optimization alone while paying minimal tax.
James (Marketing Consultant in Portugal): Delaware LLC gives credibility with corporate clients. Zero US federal tax on consulting income, favorable treatment under Portugal’s NHR program.
Sarah (Course Creator in Mexico): Exited Canadian tax system in 2021, formed Wyoming LLC. Sells courses on Teachable and Kajabi. Reduced overall tax burden by 60% with zero US tax plus Mexico’s territorial taxation.
Your Action Plan
Phase 1: Confirm Eligibility
- Verify Canadian non-resident status
- Confirm work performed outside US
- Understand substantial presence test
- If selling physical goods: Know you may have US tax obligations
Phase 2: Choose Your State
- Wyoming (best for 95% of expats)
- Delaware (raising investment)
- New Mexico (absolute lowest cost)
Phase 3: Form Your LLC
Professional Service (Recommended): Complete with BusinessAnywhere – state filing, registered agent (first year free), EIN acquisition, banking guidance. Timeline: 2-3 weeks.
DIY: File Articles of Organization, arrange registered agent, draft Operating Agreement, apply for EIN by fax. Timeline: 2-4 weeks.
Learn about LLC formation costs and filing fees by state.
Phase 4: Set Up Banking
Apply to 2-3 banks simultaneously (Mercury, Relay, Wise). Approval: 3-7 days.
Phase 5: Implement Compliance
- Calendar reminders for annual reports
- Engage US tax preparer for Form 5472
- Set up bookkeeping system
- Track US days for substantial presence test
Why Canadian Expats Choose BusinessAnywhere
For over 20 years, we’ve specialized in helping Canadian expats and digital nomads establish US business entities. We understand the unique needs of location-independent entrepreneurs.
What We Provide:
- Strategic state selection
- Complete LLC formation and Operating Agreement
- Registered agent service (first year free)
- EIN acquisition for non-residents
- Banking introductions and application support
- Annual report filing services
- Access to US tax professionals for Form 5472
- Updated guidance on regulations
The Value: Get operational in 3-4 weeks instead of 6-8+ weeks DIY. Avoid $25,000+ penalties from compliance mistakes. Benefit from 20+ years of experience.
Start your US LLC formation today.
Compare us with Bizee and Doola, or read our BusinessAnywhere review.
Summary
For Canadian expats who’ve properly exited the Canadian tax system, the US LLC offers a powerful combination:
- Zero US federal tax on service business income
- World-class USD banking infrastructure
- Strong asset protection under US law
- Simple compliance (no BOI reporting as of March 2025)
- Operational flexibility as you scale
Critical Distinction: Service businesses can achieve tax-free status. Physical goods businesses with US inventory typically face US taxation.
Success Requires:
- Maintaining Canadian non-resident status
- Avoiding ETOB activities in the US
- Understanding sourcing rules for physical goods
- Annual compliance (state reports + Form 5472)
- Tracking US days (substantial presence test)
- Separating business and personal finances
Ready to establish your tax-efficient US LLC? Begin your formation today and join thousands of Canadian digital nomads operating the world’s most tax-efficient business structure.
About BusinessAnywhere: For over 20 years, we’ve specialized in helping Canadian expats and digital nomads establish and operate US business entities. Contact us to discuss your specific situation.
Additional resources: Virtual address services, Virtual addresses for EIN, Free LLC formation services.
This article provides general information and should not be considered legal or tax advice. Always consult qualified professionals familiar with cross-border taxation, Canadian non-resident status, and US taxation before making business decisions. Information current as of November 2025.
