Will the USA re-open for business again?
Those who were familiar with the ‘Corporate Industry’ will remember towards the end of the 1990s, US Registered Companies were perhaps the most in-demand worldwide Business Corporate Entities structures. The primary reason for its popularity was; Simplicity; Price; Quality Services; and Flexibility. And the traditional Offshore Jurisdictions such as the British Virgin Islands; Seychelles; Panama; and Belize were also vying for business but they could not compete with the US jurisdictions such as Delaware; Wyoming; Florida or Nevada. This popularity can be measured by the number of registered companies in Delaware for example, and the other above-mentioned states.
In 1998 the ‘Check-the-Box’ regulations made it clear, that a single-owner LLC did not require to submit tax returns at the federal level, and pay taxes if the owners were foreigners and the activity of the company was done outside of the US. And therefore, it became acceptable for many banks all over the world to make it relatively easy to open a bank account for such LLCs. Meanwhile, Countries such as Liechtenstein; Switzerland; Austria; Latvia; Hungary, and Cyprus, welcomed such Companies for bank account opening and their daily transactions.
However, the situation significantly changed at the beginning of the 2000s when the banks started to follow the so-called ’40’, later ’40+9′, recommendations from the OECD (Organisation for Economic Co-operation and Development). The aim of these recommendations was to combat money laundering and the financing of terrorist organizations worldwide. By these recommendations the financial institutions set up compliance departments, monitoring the process of bank account opening and the ongoing transactions on the accounts. Regardless of the strict rules dictated by the compliance departments, banks became more and more strict, but the popularity of US registered LLCs went unchanged.
The Internal Revenue Service (IRS) does not view an LLC as a separate vehicle for tax purposes, which allows for greater flexibility. Members can choose how they are taxed. They can be treated as a sole proprietorship, a partnership, or a corporation. The most common tax option of an LLC is taxation similar to a sole proprietorship. A member has to pay taxes themselves on the profits of the LLC as opposed to the LLC paying the taxes. The profits and losses of an LLC are passed through the business to the owner. The owner then has to report the profits or losses on their own personal tax returns. The LLC itself does not pay any corporate tax. This method avoids double taxation, which is a drawback of corporations.
As it was not required to submit tax returns, the US LLC Companies became increasingly popular by using the so-called ‘Flow-Through Taxation’ method. Effectively, the profit of the company could be taxed at the owners level and not at the company level which increased the popularity of the US LLC Companies. Therefore, the company by being taxed at the owners level, and not at the company level, and, in the most popular states, Delaware and Wyoming, the authorities required minimum information about the managers and members of such entities, thus providing a high level of anonymity for the real owners. Making US entities popular for trading enterprises; investment or services provision purposes vehicles, or for use as a simple project company.
Subsequently, further changes happened in 2011, and reporting was clarified. FinCEN’s (Financial Crimes Enforcement Network) would revise the Bank Secrecy Act regarding FBAR’s (Foreign Bank Account Reporting). ‘Who’ will be required to file FBAR’s, and which account will be reportable? By defining several new terms, and amending some already defined terms. FinCEN attached to its proposed regulation instructions for FBAR to reflect the changes that would take effect.
Prior to this, most banks of the world would request identification of ‘Ultimate Beneficial Owners’ of bank accounts. The US Federal Authorities made it mandatory, US-registered LLCs must be subject to FBAR (Foreign Bank Account Reporting Rules). By these rules all US LLCs should report to the IRS (Internal Revenue Service) their foreign opened bank account and subsidiaries. By this mandate it had broken the success story of these LLC Companies due to reluctance to report to the most powerful tax authority of the world, to the long arm of the IRS, and, Confidentiality.
By 2014 the rules of FBAR were revised, and new legislation came to force worldwide; FATCA Reporting, (Foreign Account Tax Compliance Act) where all banks of the world were obliged to report to the IRS the bank accounts kept by US persons in any country outside of the US. In effect, voluntary reporting was no longer required as the IRS was automatically informed through the banks. This legislative change made US companies persona-non-grate to have an external bank account. Nobody wanted to get into conflict with the most powerful country in the world, taking a risk that the bank will be discriminated against or its US dollar’s correspondent account closed by the US banking system. It was easier to close the existing bank accounts for US companies and or, not to open any new ones. Fundamentally, the story ended there, and there remained no US companies with foreign bank accounts. The US company with a non-US bank account became a ‘mission-impossible’ up until now.
Running parallel to this revised US legislation, another change was taking place in the world economy, which we can name as the ‘Demise of Offshore’. There were 2 main reasons for this process. The first is the banks were no longer offering banking facilities to the traditional offshore companies, and indeed closed the existing ones too. The second reason, these traditional offshore jurisdictions, where the clients could relatively easily register a new offshore company, changed their legislation. They did this under pressure from the OECD making it no longer effective to have a new offshore entity in Panama or British Virgin Island. These dramatic changes made it no longer attractive and increased the cost and fees payable to have an offshore company as we knew it, thus they became unattractive for its customers. Moreover, the maintenance costs of a traditional offshore company in Belize or Seychelles for example, increased for the owners, to substantially more than it was about 10 years ago, and this was not taking account of the increased requirements of annual administration, causing a permanent headache for the UBOs.
Is there any solution to this?
Yes of course. In spite of the fact that we live in the globalized world, the recommendation of OECD is, ‘live in your home country, register a company there. If you go outside of your home country, it will be very hard to open a bank account for your new company, even in your neighboring country, even if you go to the bank with the help of your friend in that country’. This scenario has been confirmed by the played-out story of many clients of LAVECO Ltd. In the 21st century everything should be totally ‘opposite’: anybody, anywhere in the world at any time, should be able to have and open a new legitimate business, a new company, for a few seconds even from a ‘home office’. But if you have tried to do it, you very quickly become aware, that this is not so simple.
Is there no demand for simple, relatively cheap, tax-free offshore companies anymore? The answer is definitely no. There is a demand, as many entrepreneurs want to start such companies even now. But the banks are not open to returning to the ‘golden period’ of the offshore era. We think this is impossible, the convenient solutions of the past will never come back. That is why we shall consider seriously, even as temporary solutions, if some of them open a new door for business. One of these doors is opening/re-opening, the registration of US companies now. All right, this is not new, but where can it be opened with a bank account for such a company?
In the US.
It sounds impossible, but the US offers the best solution for foreigners, the solution that satisfies the requirements of OECD, as the company and the bank account are in the same country.
What do we offer you?
From now 2022, LAVECOWORKING Ltd, offers a US-registered LLC with a bank account. A US Tax Identification Number, (EIN-Employer Identification Number) and, a local US telephone number are also part of the package. The set-up procedure of the whole package consists of the following 4 steps:
Step 1: an LLC registration in Delaware or in Wyoming (you choose)
Step 2: installation of a local telephone number (diverted to the home or mobile number of the client)
Step 3: obtaining the EIN number and Certificate from the IRS
Step 4: opening and activation of a US bank account.
How long does it take to implement the above described 4 steps?
If the client cooperates with LAVECOWORKING Ltd and sends us all the required documents and information without delay, it takes about 50-60 calendar days.
Will the client have to travel to the US for the opening of a bank account?
No, this is not necessary, everything can be done from the client’s home office.
5 reasons, why you should start a US company in 2022:
- A US Company is respected. When compared with traditional offshore companies registered in ‘banana republics’, a US LLC is an acceptable business all over the world.
- The US is a respectable country and nobody will discriminate against a US registered company with a local US bank account. Your money is in a safe place.
- A US-registered company can also operate in the US. Whereas the traditional offshore companies did not have a right ‘due to their own internal Laws’, to conduct any business internally and make banking transactions. This restriction often created a degree of suspicion within the International Business Community.
- The US has a stable legal environment without unwise changes in the law. Whereas, it was extremely difficult, even for professionals, to follow the constantly changing legislation in the traditional offshore jurisdictions.
- Simple administration. The US LLC also has to keep books and submit tax returns to the IRS, but the financial statements are much simpler than in many other countries of the world. Without mention; the traditional offshore jurisdictions companies are required to keep up-to-date records that must be kept for at least 7 years.
One further Plus: US companies are meaningful and workable into the future, and it is not necessary for company owners to change the US company from year to year. If the corporate infrastructure is created properly, it will provide a long-term solution for customers implementing real business transactions through the company and operate all over the world, including the USA.
2 practical thoughts of advice for the owners of US companies.
- It was often typical for the traditional offshore companies to use nominee owners and directors, and we strongly advise not to consider this avenue with US LLCs. The US banks will not tolerate these ‘Creative Solutions’ in the US, and it will be almost impossible to open a bank account. This is not just a US feature today. Generally, banks throughout the world do not welcome ‘multi-level-corporate structures’. They are all required to know the UBO. (for KYC, Know Your Customer.)
- You should Set-up a legitimate company and conduct real business transactions with related supplementary documentation. A company, making fake transactions, or moving money between 2 offshore companies is unacceptable for compliance. And the banks of the US are strictly monitored for compliance. If the banks notice anything suspicious, or a company cannot prove transactions with evidences (invoice, contracts, fulfilment documents, etc), then the bank account will be suspended for further clarifications and your money can be frozen even for weeks. So, always be ready for random checks from the compliance departments. But again; this is not something exceptional today. Almost all over the world, banks require the same due diligence documentation for transactions’ monitoring.
For further information please feel free to contact our colleagues:
Names: Mrs Katalin Szabo, Mrs Anita Németh
Tel. numbers: +36 (1) 456-7200, +36-20-520-9975, +36-20-479-6200
Emails: orderschecking@laveco.com, kati@laveco.com
This is an ideal opportunity for you; because one of the biggest benefits of being a non-US resident starting a US LLC is that an LLC is a ‘pass-through entity, meaning, that taxes can pass through to the owners. This means that your business would not be subject to US Tax as long as your LLC company is 100% owned by non-US residents either natural or legal persons.
After a silence of 10 years that ended in 2021, and by careful research by LAVECOWORKING Ltd, we think we have found a workable alternative solution for our clients. This solution should provide a convenient and effective way forward for many businesses.
Kind regards,
Laszlo Varadi
CEO
LAVECOWORKING Kft.