U.S. Banking for Real Estate Investors
Organizing Your U.S. Real Estate Business Cashflow
So as a non-U.S. based investor you decided to invest your money in the U.S. real estate market. Assuming you already read our articles on how to organize your real estate holdings in the U.S. using legal entities such as LLC and corporation, as well as how the taxation of your new business would work, the next logical question would be how to arrange the actual flow of cash from your renters into your real estate business.
There are different ways to solve this logistical questions. Because of the recent difficulties on opening U.S. business bank accounts, in this article we will first cover all the alternatives, and only then touch the tough issue of opening U.S. bank account.
Using Personal Bank Account for the U.S. Real Estate Business
In general, it is strongly recommended that a business entity maintains a separate bank account. This would help keep entity in compliance with IRS record-keeping requirements and will provide for a better way to manage company’s cash flow. Therefore we recommend seeking solutions to open business bank account for your U.S. company, and not use personal bank accounts.
Using Management Company
Using management company for your real estate investment business could solve the problem of having to open a U.S. business bank account (as well as many other problems related with managing cash-flowing real estate investments). A management company would collect the rents, deduct all the fees andexpenses related to managing the property, and withhold whatever taxes necessary to be withheld before making a deposit to your account, which in this case could be based outside of U.S.
Bank Account In Your Country
Your U.S. company can have foreign bank accounts opened in its name. Having such account in your country would make it easier for you to manage your business’ cash-flow and might even assist in tax management. With a bank account in your country a management company would be able to wire your periodic payments directly to you.
Keep in mind, in order to open a bank account for a U.S. company in your country the company documents need to be certified through a process called “Apostille/Embassy Certification” (see below).
Bank Account in Another Country
You might as well opt for opening a bank account in an offshore jurisdiction. Many jurisdictions are known for their beneficial environment for business activity and make it easy to open bank accounts remotely, so you might want to consider researching this option further.
Ways to Open a Business Bank Account in the U.S.
After 9/11 and with the passing of the Patriot Act it became really hard for foreigners to open U.S. bank accounts. Today all U.S. banks are required to document verification that the person opening the account is the person on the I.D. they’re receiving. The easiest solutions practically all banks chose to go with is simply having one of the employees in their branches make sure that the person opening the account in the branch is the same person in the photo I.D.
If you still want to open a business bank account for your business in the U.S. there are different ways to possibly accomplish that.
A trip to the US would present you with the best opportunity to open a bank account. If you plan a trip anyway, or have the financial ability (as well as spare time) to make a trip to the US then it would probably be the best solution.
Keep in mind that you need to bring a number of documents, both personal and business related, and it’s always a good idea to contact the bank directly prior to arrival to ensure you have all the documents in your possession at the time of visiting the branch.
Below we list all the documents required (or those that might be required) by a typical U.S. bank (however keep in mind that even within the same bank different branches might have slightly different requirements).
If You Have a Personal Bank Account in the U.S…
If you visited the U.S. in the past and have opened a personal bank account your best bet would be to try to contact your bank (preferably the same branch) and see if the would open an account for your business remotely.
Try a Few Online Bank Options
Periodically it’s possible to find an opportunity to open an account remotely with an online bank. For example, you can try such banks as Silicon Valley Bank）or EverBank. Also, eTrade seems to have the option of opening a bank account, even though they are technically a brokerage. It’s a long shot, but worth trying before anything else.
Keep in mind: online banks typically require an SSN (Social Security Number), but would open an account if you have ITIN (individual Tax Identification Number) as a replacement (ITIN has the same number of digits as SSN).
Use a Reloadable Prepaid Debit Card Account Instead of Traditional Bank Account
In most cases what you need is not a bank account per se, but the functions provided by a traditional bank account. For that you can use a reloadable prepaid debit card from companies such as NetSpend，Payoneer，Payza , etc. What you get is an internationally recognized debit card and an account number with routing and ABA numbers.
With such an account you can set up free Direct Deposit of your paycheck, have your card reloaded at various locations (for example NetSpend list on their website more than 100,000 NetSpend Reload Network Locations throughout the U.S. to add cash or checks), and transfer money using PayPal®, a checking or savings account, or another card account (NetSpend or Payoneer). You should even consider opening accounts with several of those companies, to diversify your financial option.
Verify Your Identity in U.S. Embassy
Some banks would accept I.D. verification through US embassy. A person in a foreign country looking to open a U.S. bank account could go to a U.S. embassy in their country, and someone there at the embassy could sign the I.D. verification form. Obviously, this is really only practical for someone who lives close to a U.S. embassy, however if the only alternative is to travel to the US then it could be a better solution.
Of course, this is only meaningful if you first verify with the U.S. bank of your choice that they would accept it.
Partner with Someone in the U.S.
If traveling to the US or using the embassy solution is not an option, one way to do it is by partnering with someone in the U.S. Many people have friends and family in the U.S. that could assist them in opening a bank account. It is very important to understand that a person you partner with, who will also be the one listed as company representative at the bank, should be trustworthy, so choose carefully.
Keep in mind that this person will have access to all company funds going through this account, and as long as you are not listed as a co-signer on the account, would have exclusive authority to perform such operations as closing or blocking it.
Hire a US Manager/Executive Officer
If you want to keep the ownership to yourself an alternative would be to hire a manager or executive officer for your company, who would represent it at the bank. LLCs for example can be formed as “manager-managed”, which in some states would require you to list the manager on company’s Articles of Organization. Similar to previous solution that person would have exclusive authority in questions of managing the bank account, so choose carefully.
This solution is different from the previous one in that fact that here you will compensate the manager with a salary (or one time payment), while in the previous solution you compensate them with shares or member interest. To grant this person an authority to represent your company you might need to issue them a Certificate of Incumbency (see below).
When opening a bank account in the US a company representative appearing in person in the bank would need to bring specific company and personal documents. Below you can see the list of all possible documents a representative would be required to have in his/her possession:
Articles of Incorporation/Organization
To open a business account in the U.S., a company must be registered in one of the US states or D.C., and a representative would submit proof of this entity formation to the bank. The type of documentation required depends on the type of entity formed: a corporation must submit Articles of Incorporation, and an LLC must submit Articles of Organization. Some banks would accept filing receipt instead, but majority require a certified copy of Articles.
EIN Confirmation Letter
EIN (also known as federal employer identification number) Confirmation Letter (form SS4) is required by all banks to open a business account. The basic reason is that the bank (and yourself) have tax reporting requirements to the Internal Revenue Service (IRS) based on your account information, and the EIN is required as the reporting identification number.
Typically a bank would require 2 pieces of identification for the company representative opening the account, at least one of these must have a picture. A passport would work just fine, but make sure its not expired.
Proof of Address (Applicant)
Banks require the company representative opening the account to submit a personal proof of address. Examples of eligible documents are utility bills, or foreign bank account statements (preferred). Keep in mind – the document MUST be in English. If it’s in language other than English it must be officially translated and notarized. Keep in mind, some banks have multilingual bankers, authorized to accept documents in the language they are certified for, but you shouldn’t count on that.
U.S. Business Address
Most U.S. banks will not open a business account without a U.S. physical address. Sometimes the bank will accept the street address of a Registered Agent, otherwise known as a Registered Office. Banks are usually accommodating on this requirement, especially if your type of business is one in which having a physical branch is impractical, for example a company that does business mainly over the Internet.
Some banks also require that the U.S. physical location be within a certain distance (e.g. 10 miles) of the bank branch at which you open the business account. For example, you cannot open a business account in New York if your U.S. physical address is in California.
Minimum deposits vary from bank to bank, with most brick-and-mortar banks requiring as little as $100 (some banks might even have $0 deposit requirements). Check with your bank what would be their minimum deposit requirement for foreign clients.
Letter from a CPA or Company Attorney
This document might be required in some banks, if the bank is located in a state other than the state of registration. For example, if you register a Wyoming LLC and want to open an account in a New York bank, the bank would want to see a statement, written by a company accountant or an attorney, stating that this company does not do business in their respective state (in our example, New York). This should not be a complicated letter, something along the lines of, e.g., “I am such and such, confirming that company ABC, formed under the laws of Wyoming, does not and has no immediate plans to conduct business in the state of New York…”. The letter must be dated and signed.
Certificates of Good Standing
Many banks require that companies submit Certificates of Good Standing (also called Certificate of Existence) to show that they are currently doing business and in good standing in the state in which they formed their business. Please contact the bank to see if they have this requirement.
Certificate of Incumbency
Certificate of Incumbency (also called “Incumbency Certificate”) is an official document that lists the names of incumbent directors and officers within an organization, and their corporate position within it. An Incumbency Certificate is used as confirmation of the identity of the signing authorities of a company and to prove that they are authorized to enter into legally-binding transactions on the company’s behalf. This certificate can be drafted on demand (there are plenty of samples online), and must be signed by the company secretary and sealed by a company seal.
Banking Resolution is a company document issued by the Board of Directors (for corporations) or by Members (for LLCs), giving certain individuals the authority to open a bank account on behalf of the company. Some banks have specific language that they require to include in the resolution (and would often supply a sample), other bank accept resolutions issued by the company, as long as it clearly presents and identity of the individual(s), and the extent of the authorization.
Operating Agreement / Bylaws & Minutes
An operating agreement is an agreement among LLC Members governing the LLC’s business, and Member’s financial and managerial rights and duties. Corporate bylaws are generally concerned with the operation of the corporation, setting out the form, manner or procedure in which a corporation should be run. Bylaws come with minutes of meetings (in the beginning they would include the initial meeting, where bylaws are adopted by the board of directors).
Some banks would require a company representative to present the bank with a copy of those documents (operating agreement for LLC, and bylaws with minutes to corporations) when opening a bank account (albeit its quite rare).
If you plan to open a bank account in your country or in one of the offshore locations you should be aware of the local regulations and inquire at the bank which documents would be needed to open an account. Typically, at least the Articles of Organization/Incorporation would be required, and this document then needs to be certified for international use.
If you plan to open a bank account in any jurisdiction that is a signatory of a Hague Convention (also called “Apostille Convention”) then you would need to have an Apostille attached to a certified copy of your company’s Articles (this is done on a state level only).
If you plan to open the bank account in any other country or jurisdiction that is not a signatory of the Hague convention then the process is a bit more complicated and involves certification of the document at the US State Department and then at the Embassy of the country/jurisdiction in question.
Banks to Try
In the current banking market, customers can choose between brick-and-mortar banks, typically big national banks with numerous local branches throughout the country, or Internet-only banks.
The advantage of brick-and-mortar banks, such as Chase, Citi Bank, Bank of America, Wells Fargo, or HSBC, is that they have many local branches where you can visit and speak to representatives in person. On the other hand, the main advantage of Internet-only banks, like Silicon Valley Bank, EverBank, ING Direct and HSBC Advance, is that they do not have the overhead expenses of operating local branches, and therefore can afford to offer their customers better rates on their accounts.
Internet-only banks might be more flexible in terms of accepting applications of foreigners, however many of those banks reject applications without Social Security Number, but would open an account if you have ITIN (individual Tax Identification Number) as a replacement (ITIN has the same number of digits as SSN).
It’s a good idea to contact several banks and see what options they have for foreigners who cannot travel to the US. If you can travel in person then you should have no problem opening a bank account, provided you are equipped with all the documents when you show up at the bank. Most banks would permit you to fax or email them whatever document that would be missing, the most important thing for them is to go through identity verification process of the applicant.
Although opening a bank account in the US might seem a complicated issue, it is really only complicated by the requirement of personal appearance at the branch. Therefore its a good idea to plan ahead before a company is formed and see if (a) a bank account in the US is absolutely necessary, or one of the alternatives would work just fine, (b) is it possible (or feasible) to make the trip to the US in person, or (c) is there are third party (friend, relative, someone you would choose to trust) located in the US who would agree to join the company as partner or manager.
Good luck with your new business venture!
U.S. Taxation for Real Estate Investors
What Is Covered Here
When investing in the U.S. you need to be aware of the basics of U.S. taxation. Certain taxes such as sales and use taxes typically would not concern a real estate investor, while other taxes such as income tax and property taxes are crucial to understand. We will cover these two types of taxes in this article.
Let’s start from a little disclaimer: U.S. taxation of nonresidents can be a fairly complex issue and involves many specific fact points that determine if the non-residents are subject to US taxation or not. This article attempts to capture the most typical scenarios and analyze them in the context of current (2014-2016) U.S. taxation rules. Beware that U.S. taxation of non-residents can be a complex topic and simply changing one fact can change your tax reporting obligation.
It is impossible to know your specific tax obligations without a lot more information about your U.S. related business, so please use the information presented here for reference only. If you need more specific tax advice refer to the information at the end of this article.
Ok, now that we have cleared this very important point, let’s move on and analyze a few of the most common cases. If you don’t find your case among those listed here no worries – just ask your questions here and we will try to help.
Explaining Types of Taxes
U.S. Income Tax
How does U.S. income tax works? This is a simple question, however it’s U.S. income tax we are talking about. Technically, each taxpayer must pay tax on the income created in the U.S., and in some cases (such as the case of U.S. citizens or permanent residents) on income created abroad. The income tax is paid to the federal government (IRS), and in many cases to the state of residence, and in some cases even to the local jurisdiction (e.g. New York City).
However, we created this article precisely for the reason we cannot just simply answer this otherwise great question – the real answer is “it depends, because it’s complicated”. Keep reading the next items to see if U.S. income tax applies to you, and how.
Property taxes are paid to the local jurisdiction (city, county, etc.) where the property is located and are due once a year. Property taxes cover government services such as government administration, fire, police, schools, infrastructure maintenance, etc.
If your property carries a mortgage then the lender typically takes over the responsibility of paying the property tax to the authorities. The lender would then collect prorated tax payments together with monthly or byweekly mortgage payments, accumulate it in escrow, and then remit to the authorities by due date.
If your property carries no mortgage but is managed by a management company then paying property taxes could be part of the services provided by such company. Otherwise it is your responsibility as the property owner to pay the tax on time. Nonpayment of property taxes would result in tax lien being attached to the property, which might result in you loosing the title to the property.
U.S. Company Owned by Non-U.S. Person(s)
LLC Owned by a Sole Foreign Owner
Per IRS guidelines: Rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investor’s personal tax status and regardless of whether the United States has an income treaty with the foreign investor’s home country.
In simple words: if you are a non-U.S. person living abroad, are a sole owner of a U.S. LLC, and that LLC holds a cash-flowing real estate property in the U.S., you still must file a U.S. tax return and report your income for taxation. To do so you would need to obtain an Individual Tax Identification Number (ITIN) and file personal tax return that includes the return of your LLC.
Don’t try to figure this out on your own – it is our recommendation to hire a CPA to handle all your U.S. tax issues. Our company can assist with both obtaining ITIN and filing all necessary returns.
LLC Owned by Two or More Foreign Owners
LLC that has more than one owner (partnership), or if it is elected to be taxed as C Corporation (any number of owners), must file federal tax return, even if it has zero income. Each owner then must file individual tax return, and report their share of the LLC income.
Corporation Owned by Foreign Owners
A corporation is a separate tax entity from its owners. That means the corporation files its own tax return and pays its own tax liability. That also means that one cannot freely transfer money between the owners (shareholders) and the corporation. The corporation can reimburse the owners for expenses they pay on behalf of the business, and the corporation can pay owners for services they provide to the corporation, both of which are tax deductions for the business.
The only other option for the shareholders to take funds from the business is if the corporation pays them dividends. Dividends are not a tax deduction and are generally taxable income to shareholders as the individuals. As a shareholder, your personal income is subject to the income tax rules in your country of residence.
Choosing Entity Type
So given all the owners are non-U.S. persons, from income tax point of view is it more beneficial to register LLC or Corporation?
Thats a tricky question that depends on lots of factors. As was mentioned above, it is highly recommended to select LLC registered in the state where property is located as the entity type for holding the actual investment property. If you choose to own all your property-holding LLCs with one holding entity, that entity could be LLC or C-Corporation registered in an incorporation-friendly state.
Since using each of the entity types fot that purpose has its pros and cons before reaching a conclusion you should analyze your specific situation, make some forecasts on how your business will evolve, and also – consult a CPA, it will help you a lot.
Keep in mind, there is not always a “right” and “wrong” answer – often times either entity that you would form for your business would work just fine.
U.S. Company Owned by U.S. and Non-U.S. Partners
Any disadvantage of having a U.S. partner in the company qwned by non-resident aliens?
Not that we know of. The rules of taxation apply first on the entity, and only then on each individual partner, based on each partner’s individual tax situation.
I am US citizen and I want to open a business with a 50% partner who is a non-resident alien living abroad. What type of taxes will my partner pay if we form a C Corporation?
There are pros and cons to both structures for a non-resident. A C-Corp would mean your partner is not necessarily required to file a US tax return. He can be paid dividends from the C-Corp, but as with any C-Corp there is no tax deduction for dividends paid out so the earnings are likely to be double taxed, once by the corporation and then by the owners – in the US for you and in your partner’s country for him – as dividend income.
Double taxation doesn’t sound like a good idea. What if we choose LLC (taxed as partnership) instead?
An LLC taxed as partnership would eliminate the double taxation, but definitely subjects the non-US partner to U.S. taxation for his share of earnings and profits from the business. The partner would then have to file a 1040NR and report his share of profits and pay US tax on those profits. The partnership would also need to withhold tax at 30% for the foreign partner. Depending on his earnings the withheld tax would be credited and potentially refunded against what he may owe when he files his individual non-resident tax return.
U.S. Company Wholly-Owned by a Foreign Company
Can a non-U.S. company own a U.S. company?
Yes, it can, provided the U.S. company is not S Corporation (or LLC taxed as S Corporation).
Is it better to own the U.S. company with my non-U.S. company from tax point of view?
Not necessarily. Ownership does not control if tax is due on U.S. operations of the business. You will need to consider U.S. taxation of non-resident aliens, and if the profits earned in the US are what is known as income effectively connected to operation of a US business, to understand how taxation would work in your specific case.
Other Important Tax Related Issues
Ways to Reduce the Taxable Income of Your U.S. LLC or Corporation
Most businesses have both revenues and expenses. The IRS keeps a list of eligible business expenses, and it is safe to say that expenses that can are obviously related to maintaining and running your real estate investment business (e.g. fees to contractors, management company, etc.) are considered deductible expenses. Other expenses might be partially deductible, and it is best to have your CPA handle the question which of your expenses are deductible and to what degree.
To minimize your tax obligation you would want to report as many eligible expenses as possible, however you should be able to prove these expenses were real, so keeping receipts and/or bank and credit card statements is a must.
Working for Your U.S. Company
If you are non-resident alien you probably don’t have work permit, which means you cannot receive a salary as a resident alien or U.S. citizen would. Sorry.
You could however provide services, such as management services, to the U.S. company, and receive payment in form of consulting fees. You will then be required to report this income in accordance with your country tax rules.
Providing Services to Your U.S. Company
What if you spend all or most of the income of the U.S. company on services provided by your other company, registered in your country?
You could do that, provided you can prove services were necessary for proper management of your real estate investment, and were indeed provided and properly documented. You also want to make sure these services are provided outside of the U.S., in order not to be considered U.S. sourced, and as such subject to 30% withholding requirement (more about it below).
Retaining Corporate Profit
If your country has very high personal income tax, or you just want to reinvest the profits of your company instead of distributing them to owners, you could use C-Corporation as the tool for all your U.S. business holdings.
You are still required to pay the corporate tax on those profits, but since you are not limited in the choice of stte we always recommend picking a state with no corporate income tax such as Wyoming (this way your company profit is only subject to federal corporate tax).
How and When to File Tax Return?
Best way to file your U.S. taxes is to hire a knowledgeable U.S. CPA (accountant). The deadline in most cases is or around April 15 (each year can be a bit different). You can file extension by that date, and the new due date is September 15 for companies and October 15 for individuals.
Keep in mind, corporations have to file quarterly reports, while LLCs taxed as partnerships file once a year. This could result in slightly higher cost of accounting services for corporations.
Individual Tax Identification Number
Whether you need to obtain an ITIN will depend on if you have personal U.S. tax reporting obligations due to your U.S. business interests. As mentioned above, it is most certain that you will need an ITIN if you have membership interest (ownership) in an LLC, but most probably you won’t need one as a shareholder of a corporation.
KEEP IN MIND: Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.
For more information on ITIN please visit this IRS page. Our company helps obtaining ITINs for qualifying tax payers.
State Income Tax
This tax is only applicable to C-Corporations, not LLCs. It applies to income earned by the corporation in the state, unlike federal income that applies to all U.S. sourced income. For your holding C-Corporation we recommend using incorporation-friendly state of registration such as Wyoming.
Even though LLCs don’t pay income tax, it is a good idea to check with your CPA if there are any filing requirements for the LLC in the state of registration.
I heard as non-resident alien I need to pay 30% income tax on my U.S. income. Is it true?
It is true in case of rental income. It is called NRA (non-resident alien) withholding, meaning your payee keeps 30% of the sum they are paying you, and remits this sum to the IRS.
According to IRS rules “in order for a payment to be subject to NRA withholding, it must be a payment of FDAP income. FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more common expenses paid by US withholding agents which would result in FDAP income to their vendors and other service providers are interest, royalties, compensation for personal services, rents, pensions or annuities and gains from the sale or exchange of the patents, copyrights and similar intangibles…” (see more details here).
Since the rental property is located in the U.S., the rental payment is U.S. sourced and as such the person paying rent must withhold 30% of the rent to be paid to the IRS. If you are using a management company to handle rents then the withholding can be done by the management company.
For the purpose of such withholding the IRS uses a form called W-8BEN. Form W-8BEN is a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. You need to fill this form out and give to the withholding agent (such as your management company) or payer if you are a foreign person and you are the beneficial owner of an amount subject to withholding. In other words, if you have U.S. sourced FDAP income your payer will be responsible to withhold the 30% tax based on the information listed on the W-8BEN.
Keep in mind, you need to submit Form W-8BEN when requested by the withholding agent or payer whether or not you are claiming a reduced rate of, or exemption from, withholding.
How do you avoid such withholding? One of the sure way to do so is to use C-Corporation as the holding entity for all your LLCs. This way you still need to pay the corporate income tax, but avoid paying further U.S. income tax on that profit.
International Tax Treaties
If you as foreign investor that is a resident in a country that has a tax treaty with the United States, the 30% rate may be reduced. Each treaty has specific provisions which determine the reduced withholding rate. These provisions reduce the withholding rate based on the type of income and the status of the recipient.
To know if your country has tax treaty with the U.S. please visit this page. You can study the text of the treaty to understand how it influences your withholding situation, although I would recommend using the help of a CPA for that as well.
Well, as we mentioned earlier, U.S. taxation is anything but trivial. We hope this article was educational enough to give you some idea on how U.S. taxation works, and what to do next.
Keep in mind two important points:
- No matter what your situation is, it is always a good idea to consult a knowledgeable U.S. tax expert who will be able to analyze your specific situation, and give you qualified advice. Knowledge gained from this article will already save you some time, so you can focus on understanding the deeper issues related to your situation. Those $50 or $100 spent on a 30 minute tax consultation might be the best money spent on our business.
- Chances are there is no “right” or “wrong” solution – a few solutions that you would consider to your particular situation might all be “more or less right”.
If you think you have a tax question that deserves to be answered and published in this article by all means email it to us, and we will do our best to answer and publish it. For other, more specific questions we recommend our 30 minute tax skype or phone consultation that you can order directly here.
Good luck with your business!
U.S. Company Registration for Real Estate Investors
Specifics of U.S. Company Registration for Real Estate Investment Purposes
Many international investors are looking into the U.S. real estate market as their next source of investment. This is due to the robust nature of that market, and reliable legal framework ensuring lower risk than in most developing markets.
MyUSACorporation.com specializes in helping foreign investors with proper registration of the legal entities needed to serve as holding companies for their real estate assets.
Choice of Legal Entity
Very important: it is a highly recommended and a common practice to register a unique legal entity for each individual real estate asset, in order to limit the liability of that particular property to itself and shield the investor and his/her other properties from any potential liability related to that property. We invite you to read our article on Limited Liability Protection to understand this very important issue in depth.
Foreigners can choose primarily between two types of entities: LLC and C-Corporation. LLC is the entity of choice when it comes to real estate and practically all real estate assets in America are held in LLCs. It is also the most common type of entity chosen by our foreign clients due to its simplicity, flexibility and single taxation. C-Corporation mostly chosen by young entrepreneurs looking to obtain Angel or VC financing.
It is however important to also know that an investor does not need to own those LLCs directly, and instead can opt for a holding schema where one company (possibly a C-Corporation, in a friendly state such as Wyoming or Delaware, for tax and other reasons), holds all LLCs that in turn hold the real estate assets. This structure also helps preserve anonymity (read more about that below).
You can see a comparison between LLC and C-Corporation here: LLC vs. Corporation.
Choice of State
As mentioned above, for real estate holding purposes an investor should opt for registering an LLC. Since we are talking about a physical cash-flowing asset the choice of state is limited to the state where the asset is located. So for example, to buy a condo in Miami, Florida, one must register a Florida LLC.
When looking to register a holding company that would be listed as the owner of all asset-holding LLCs it is recommended to form your company in one of the incorporation-friendly states, such as Delaware, Wyoming, or Nevada.
Majority of our clients choose either Delaware or Wyoming, due to more expensive fees in Nevada. You can see the comparison between those 3 states here: DE vs. NV vs. WY.
One important note on anonymity: both Wyoming and Delaware offer sufficient anonymity for corporation and LLCs to ensure the holding company cannot be easily traced to an individual owner. This way all LLCs in states that are less anonymous will have the owner listed as the anonymous Delaware or Wyoming company.
One more state is famous for its anonymity – New Mexico. However, keep in mind that only New Mexico LLCs are known to be anonymous entities, therefore when choosing New Mexico as the state of choice for a holding company make sure to opt for LLC, not corporation.
What Documents Are Needed?
First of all, to register a company in the U.S. you don’t need to present any documents – only information. Documents would be necessary in case you want a US address or need to open a bank account, but not for company registration.
Do I Need To Be In The U.S. To Open My Company?
Not at all. All filings can be done remotely, with us serving as your proxy in the U.S. In almost all cases when we need a signature from our clients this can be done electronically.
Restrictions and Things to Consider
First of all, as a foreigner you are not required to have Social Security Number to open your company and obtain EIN (company tax ID). You also don’t need to have a U.S. address or phone number, however if you like to have U.S. address and/or phone it’s possible to obtain them from specializing vendors (see phone vendors here, and our U.S. address solutions here).
Banking in the US is a more complicated topic. There are some companies on the internet that promise international clients help in opening a bank account remotely, but we warn our clients to be careful with those who claim they can help that way. To learn more about banking in the U.S., associated problems, and possible solutions specifically for real estate investment purposes please read our article “Opening a Bank Account for Real Estate Investment in U.S.“.
Finally, international clients would need help filing their U.S. company taxes. We addressed this issue in our article U.S. Taxation for Foreign Real Estate Investors.
If you have any questions about all of the above and anything else our customer service representatives are here to help. You are invited to contact us via chat, email, or call our customer service at +1-877-330-2677.
We also maintain a free answering service at IncorporationAnswers.org. You are welcome to browse questions asked by our clients, or ask your own, and we will typically reply within 24 hours.
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