Thousands of foreign nationals decide to start a business in the US each year, but it can be an overwhelming process. After all, most of the information you will find about American businesses and incorporation is designed for residents and does not consider the unique needs of a non-resident.

As a non-resident, you can follow these basic guidelines to choose a business entity:

If your company is going to do business in the United States, a corporation is the best option.

If you are going to operate entirely outside of the United States and there will be no resident owners in the United States, a limited liability company (LLC) is the best option.

Why an LLC?

If your business will be conducted entirely outside of the United States and you have no US resident owners, your LLC will likely not be subject to US income tax or reporting. A single member LLC, your business is a disregarded entity, which means it doesn’t even exist for tax purposes. The global income of a corporation, on the other hand, is taxable and requires the filing of a corporate tax return annually.

Why a corporation?

If you are going to conduct business in the US in any way, including renting space or hiring employees, a corporation makes more sense. A corporation pays a regular tax rate regardless of whether it is owned by a resident or a non-resident. With an LLC, the tax situation becomes more complicated. Continuous taxation means that non-residents will need to obtain a US taxpayer identification number and file a US income tax return for non-residents.

Any money the LLC earns that is sent to the owners is reduced by 30% for withholding tax. The IRS can then issue a refund for the excess over the amount owed. If you do business in the US and form an LLC, you will also need to appoint a withholding agent and prepare and submit the IRS information each year.

A foreign-owned LLC is also subject to branch income tax, which is designed to prevent foreign-owned companies from avoiding capital gains tax.

Incorporation in the USA

While the process of incorporating or forming an LLC as a non-resident can be a bit complex, it is often worth it. When you form an LLC, you’ll go through the same basic process as a US resident – no citizenship or residency is required, and there will be few hurdles to overcome.

Incorporation, on the other hand, is done at the state level, not at the federal level. The process varies by state.

You will need to obtain an individual taxpayer identification number from the IRS if you will have to pay taxes. To get a rollover distribution of earnings, you will need to form an LLC. If you form a corporation, you will be subject to double taxation. This is why many foreign residents opt for an LLC.

You can be a director or corporate officer, but you cannot work in the US or receive compensation for services rendered in the country unless you have a work permit. If you open a bank account in your home country or a local government office requires proof of training, you may need to certify your business documents with an Apostille, which is an agreement between countries to accept documents.