LLCs for Foreign Investors
LLC and Foreign Investors
An LLC(Limited Liability Company) is the recommended entity for the holding of any long term investment, particularly real estate. Through the unique structure of the LLC, most specifically the charging order protection, the investor is not only protected from any potential lawsuit from the tenant but also the property is protected in case the investor would have any unrelated lawsuit. In other words, if the investor would have a lawsuit due to a business failure or a bankruptcy or divorce, any potential judgment could not force liquidation of the property to meet the settlement.
There are some distinct advantages to the foreign national by utilizing an LLC for their investment property. Through proper tax reporting, the tax rate drops from 30% to 10%. In addition, through use of an LLC, this 10% is only withheld on the NET profit. If the foreign investor does not own an LLC or corporation, the withholding is done on the GROSS amount, which then has to be reclaimed from the IRS.
The taxes paid in the United States will then be credited against any current tax liability in the home country. According to IRS regulations, if no profit was earned in the US, this does NOT need to be reported in the home country.
In addition, all foreign investors do need an ITIN number, which is most easily obtained in conjunction with the filing of the tax return of the LLC at the end of the year.
We can provide an ein #(employer identification number) which can then be used to open up accounts with NV Power and other utilities that are required to maintain the home prior to rental. The ein # can also open up a corporate bank account, which makes it much easier for the prospective tenant to pay their rents and for the investor to pay other on-going costs.
We recommend the LLC is set up prior to the purchase of the property. In this way, the title is put in the name of the LLC and makes it a seamless transition. The LLC can be set up to hold existing properties through use of a quit claim but this requires additional paperwork, costs and time.