Functions as a corporation under corporate and liability law
Considered a partnership for tax purposes
Provides limited liability like a GmbH but requires minimal deposit
Taxation Aspects
Partnership Taxation:
LLC does not pay direct taxes
Profits taxed at member level
Example: Shared profit among members for personal income tax filing in the USA
Single-member LLCs:
Considered a "Disregarded Entity"
Does not file separate tax returns
Income reported on owner's tax return
Advantages of an LLC
Liability Protection:
Shields personal assets from business liabilities
Tax Transparency:
No double taxation
Flexibility:
Suitable for digital nomads and international entrepreneurs
Non-Taxable Status Conditions
Single Shareholder:
Must be a natural person
No Permanent Establishment in the USA:
No commercial activities or physical presence in the USA
Doing Business with an LLC
Serving US Market:
Possible without a tax liability if no business presence in the USA
Be cautious of employing someone or having business operations in the USA
European Union Operations:
Must register for VAT if supplying private customers
Apply reverse-charge mechanism for B2B transactions
Adherence to EU VAT rules mandatory
Myths and Misconceptions
Foreign Income in Tax-free Countries:
LLC income generated locally may not be considered foreign income
Legal advice recommended
Banking for LLCs
Opening Bank Accounts:
Possible with online banks like Mercury, Wise, and Payoneer
Need proper documentation, website, and LinkedIn profile for bank account approval
Suitability of LLCs
Suitable for digital nomads and residents in tax-favorable countries
Not suitable for residents with unlimited tax liability in high-tax countries like Germany
Comparing LLC with UK Limited
UK Limited:
Higher transparency and tax obligations
Possible use alongside an LLC to manage perceptions and legal requirements
Visa and Residency Implications
Exempt LLC not conducive for obtaining US visas or green cards due to tax avoidance nature
Conclusion
LLCs provide numerous advantages for entrepreneurs abroad, especially those not tied to high-tax countries or intending to do business directly in the USA. However, careful legal and tax planning is necessary to avoid pitfalls.