Important disclaimer. Below text is written with the best intentions and with all the knowledge I have about this subject. However, I am not a lawyer and not an accountant. So, it should be considered as information and not as legal advice. Always consult a professional before making the final decision to choose the best option for your personal circumstances.
In the US there are different type of businesses. One of those simple forms is called an LLC, which stands for Limited Liability Company. The name already suggests it´s goal. It´s a construction to keep your private capital separate from your business capital.
This is a good thing. When, for example, your publishing business gets sued for whatever reason, the worst thing that can happen is that your business goes bankrupt. But the money and capital you own as a personal cannot be touched.
This is not the case when are a sole proprietor in Europe, when you get sued, you are personally liable (responsible) pay all the fines and debts caused by your company.
As a foreigner it´s quite easy to set up a company through an online service. There different type of LLC´s. It´s not important to go all in detail through all of these in this article, but here is an overview.
⦿ Single Member LLC
⦿ Multiple Member LLC
⦿ LLC elected as a C-Corp
⦿ LLC elected as a S-Corp
When you create an LLC through online service, without a partner, you by default end up with a Single Member LLC. This means that one person owns the whole LLC.
A single member LLC is also called a pass-through LLC or disregarded entity for tax-purposes. This entity protects your personal money and it´s an official registered US entity. But for US National tax-purposes, it´s disregarded, which means ignored. For tax purposes it does not exists.
For a person in the US this means that all the income and the costs are passed-through their personal tax. For a foreigner (non-US resident) this means that all the income and costs are passed-through the country where the person lives (or where the owning company resides).
Until now, no problem. But in our case, the only reason why we want to set up a business is to able to create an ACX account, so we are allowed to create and publish audiobooks.
One of the requirements to be able to open an ACX account is that you (which can also be your business) is resident in the one of these 4 countries:
When you have created an LLC (single member LLC) as a foreigner, you have an entity which resides in the US. But now it becomes tricky.
In the ACX Tax Interview they ask the following question:
For U.S. tax purposes, are you a U.S. person?
If you own a single member LLC as a foreigner, someone who doesn't live in the U.S, you have to select ´Individual´ for the first question and ´No´ for the second question. And this means, you are not officially eligible (allowed) to create an ACX Account.
But, don´t worry. The workaround is to become a tax-paying business entity (=legal person) in the U.S.
An LLC with more than 1 member, has to be pay tax by itself, before passing it through the individual members. This makes it a tax-paying entity. But then you have to find a partner for your business. This can be your wife, or someone from your family or a friend. You have to split the profit (and losses) between all the partners.
Electing your LLC to be taxes as a C-Corporation. This transforms your disregarded entity for tax-purposes in an entity that pays corporate tax in the US. The corporate tax rate is 21%. Your salary is considered as costs and can reduce the profit, which means you pay less tax in the US.
In this way you can elect in the ACX Tax interview Business and Yes. You have to pay tax or do a tax-declaration for the next 5 years if you elect your LLC to be taxed as a C-Corp. BTW: if you don´t make profit, you also don´t pay tax of course, but you still have to do the yearly tax declaration.
In my free training I go more in-depth why and how to do this. I also cover ways to reduce the total tax you pay, in the US and your own country together.
So don´t wait longer and subscribe for the free-training: email@example.com
But for now click to read the next article on which service to use to create your LLC.