In most cases, the entity you use to protect your U.S. assets will be determined by your home country’s tax system. For example, Canadians find that U.S. limited partnerships (versus LLCs or C corporations) work best and match up well with Canada’s tax system. On the other hand, Australians use U.S. LLCs when investing their Superannuation Funds (retirement monies) into American real estate. The key is to work with your local accountant to determine which is the best way, given your home country’s tax regime, to invest in the U.S.A.
Please know that foreign individuals, trusts and companies are free to invest in US assets. Given that we are a litigious society, an entity (be it an LLC, LP or even a C corporation) is always suggested. Owning assets in your individual name can lead to unlimited personal liability. Please also know that foreign investors living outside the USA cannot own stock in an S corporation. However, the S corporation is the only restricted entity when it comes to foreign ownership.
Can foreign individuals own American LLCs? Can U.S. companies have LLC foreign members?
Yes, while foreign individuals cannot be owners of S corporations, they most certainly can be owners of an LLC or members. In fact, most investors from outside the United States utilize the LLC for their real estate investments.
Is a separate LLC required for each property or asset?
That is a judgment call on your part. Segregating assets between several LLCs is always a good idea. If you have an LLC owning nine properties and a tenant sued over a problem at one property they could reach the equity in all nine properties.
Where should we set up our entities?
You can form an entity in all 50 states. In most situations, you will form an LLC in the state where the property is located. One or more of these in state LLCs will then be held by a parent LLC based in Nevada or Wyoming, both of which offer superior asset protection. Graphically, supposing one property in Ohio and one in Texas, the structure would appear as:
Why do investors prefer Wyoming instead of Nevada?
While both states offer strong charging order protection, Wyoming offers two advantages over Nevada. First, Wyoming is more affordable. On an annual basis, the Wyoming state fee is only $50.00, compared to the $325.00 a year in Nevada. Secondly, Wyoming does not list owner names on the internet (which Nevada does). You have more privacy with a Wyoming LLC.
What is the best entity for real estate investors?
In general, the best entity for both U.S. and foreign real estate investors is the limited liability company or LLC. The LLC offers the benefits of both asset protection and flow through taxation. LLCs are affordable to set up and maintain and are the entity choice for real estate investors. In some cases, Canadians will use an LLC taxed as a C corporation to match up U.S. taxation with Canadian taxation. Again, it’s worth consulting your home country’s tax system.
How to I obtain an ITIN?
There is a form which needs to be filed with the IRS. The IRS also has a service through Accepted Agents who can assist with the process. In many cases, when you file your first LLC tax return the IRS will then assign you an ITIN.
How long does it take to set up an LLC?
Allow at least a month for the whole process to be completed. Nevada has an expedite service whereby an LLC can be set up in a matter of hours. Wyoming takes about 10 days for a formation. It is best to allow for three to four weeks for the complete process (including tailored document preparation) to be finalized.
What about U.S. bank accounts?
It has become fairly difficult for foreign investors to set up a U.S. bank account. You have several options. You can work with a US bank in your home country and see if they will set up a United States based LLC or corporate account (not all will). Or you can see if a bank in your home country will allow you to set up an account for your U.S. LLC or corporation (many will).
Can I set up a U.S. management company to manage my U.S. LLCs and LPs?
Yes, many of our foreign and American clients will set up a separate U.S. management company to manage their activities. This company can be a C corporation or LLC, depending upon your situation.
Do I need a US address?
You need a registered agent in each state you form in and qualify to do business in. This is your US address for entity purposes. We offer this service in all 50 states for just $125 per year. If you need mail forwarded to you in your home country we can also provide this service. Call 1-800-600-1760 or 1-775-782-2201 to learn more.
– Garrett Sutton