Did you know that Indian freelancers can start a US company? Well, the answer is ‘YES’.
It may seem difficult at first to start a US company from India. However, after reading this article, it seems easier than before. In fact, many Indian freelancers benefit from this opportunity. Since it is easy to set up a US LLC from your home country as an Indian freelancer, it is also beneficial from a tax perspective.
So before we get into how you can set up a US company or set up a US LLC tax free as an Indian freelancer, you need to know a little about US tax policy, what US LLC is, how it differs from a US corporation and how you can benefit from it in your US freelance business.
So, let us get started…
And why? Because it is advantageous to register as a US LLC freelancer. But you may ask, why the USA? Why not other popular countries like Singapore, Hong Kong or Estonia? Well, if you are not considering the US as your first option, you have missed out on some of the US opportunities such as tax-free business, low maintenance, great banking options, easier transaction options and more. If you want to know the benefits of starting a US business, Startfleet wrote a very comprehensive article on the benefits of US LLC for foreigners
With so many benefits that come with a US business, it is more helpful for you to work as a freelancer, i.e. choose a US LLC instead of a US company. Working as a freelancer is easier than working for a company, and there are many opportunities to do what you enjoy as an individual. Freelancing offers a wide range of opportunities, including graphic and web design, video editing, writing articles, working as a virtual assistant, software development, and so on.
So I am assuming that you are convinced to start a freelance business in the United States, so let us get to how to start a freelance business.
To start a freelance business in the United States, you need to follow the steps below:
- Choose the state where you want to form your LLC.
- Register with a service provider to form your US freelance LLC.
- Obtain an EIN (Employer Identification Number).
- Open your online banking to process your payments.
Now you know the strategy on how to start a US business as an Indian freelancer. But before you do business in the United States, you should know the two types of US corporate structures available to Indians and the differences between them. One type of business structure is the US Corporation, the other is the US LLC (Limited Liability Company) we are dealing with.
Under U.S. law, a corporation is a legal entity distinct from the persons who may control or own the corporation. However, a corporation is not a legal entity until a state issues it a certificate of incorporation. Then the corporation can sue, sign contracts, and issue other legal documents.
A corporation in the United States is essentially managed by its members or shareholders. So long as they serve the corporation as directors or officers, these members are liable for the debts of the corporation. This liability of the corporation’s shareholders is generally referred to as “limited liability.”
Under U.S. law, a corporation is required to pay taxes to the state in which it is incorporated. Normally, the current corporate tax rate in the United States is 21%. After a corporation files its taxes with the state, its profits can be distributed to shareholders. When they do, they are called dividends.
In addition to corporate and LLC structures, there is another type of business form known as partnership structures. To properly understand the LLC, you must first understand partnership structures.
If you are a business owner, you are probably familiar with partnership structures. Partnership structures are nothing more than a business between two or more people who share profits and losses and pay taxes separately, unlike a corporation.
Basically, this business structure is a pass-through entity. This means that the profits or losses of the business are allocated to each of the participants in the business individually and that tax payments are allocated in a similar manner. As a result, the partnership structure has the disadvantage or differs from a corporation in that it has no limited liability protection and must pay federal taxes separately.
Let us now turn to our main focus, the US LLC. Basically, a US LLC is more advantageous than a corporation or a partnership because it is a hybrid of these two forms of business. With an LLC, you benefit from the limited liability options of a corporation and the flexible tax efficiency of a partnership.
Member means that the owners of the LLC can be a corporation or individuals such as freelancers. Unlike the U.S., most countries do not have these features of the LLC that allow for tax- free freelancing.
As for taxation in the US LLC or Indian freelance market with the US, you have the option of pass-through taxation like a partnership where you only have to pay taxes individually. This means you do not have to pay like a corporation. You also have the option of limited liability, which means you have to pay taxes until you start your freelance business.
It should also be noted that only one person can form an LLC or freelance business and there is no partnership; this one person is called a one-man LLC or one-person LLC.
As you can see from the above description, there are two types of benefits to forming an LLC: the limited liability option and pass-through taxation. With pass-through taxation, you do not have to pay regular taxes like a US corporation, but you do have to pay them in India.
And here is the big advantage of forming an LLC, especially for Indians. Since you live in India and not in the United States, you do not have to pay U.S. federal taxes via the LLC’s pass-through taxation. The Internal Revenue Service (IRS) of the United States considers your LLC business to be transparent and does not collect taxes from you.
The IRS also wants to find out whether you have to pay the tax as an individual or not, which depends on some factors.
1. do you have US citizenship or not?
2.Do you have a permanent residence in the US or not?
3.do you have a US green card or not?
I bet as an Indian freelancer you have none of these characteristics and will be classified as a Non-Resident Alien (NRA). As a NRA, you are taxable only if your income is derived exclusively from sources in the United States and is directly related to U.S. Trade or Business
In summary, you are only required to pay Indian taxes individually at your place of residence, not to the U.S. federal government.
So, now we have reached the end. I hope I did not bore you with too much information and you understood why an LLC is the best option for you as an Indian freelancer and how you can start your freelance business in the US without paying taxes.
So, what are you waiting for? Start your US business as an Indian freelancer and expand your market. Good luck!