Offshore Company in USA: Achieve maximum tax and asset protection for US LLC for non-residents by combining it with a Hong Kong LLC.

An offshore company in the USA is also known as a US LLC for non-residents.
It is one of the biggest loopholes in the US tax laws that became of advantage for all non-US citizens or Non-residents of the US.

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TL;DR:

If you are neither an American citizen (passport holder) nor live there (permanent resident), then you can have the following benefits as a self-employed, freelancer or business owner:

• 0% corporate tax
• 0% personal income tax (if your country of residency does not tax foreign income – we discuss it in more detail below)
• You enjoy the reputation of an American company

It comes with a few drawbacks, like the difficulty of banking and personal income tax becoming a matter of interpretation.

You can eliminate these drawbacks with an offshore Hong Kong LLC.

The Hong Kong LLC can be 100% shareholder of your US LLC and you withdraw your money as dividends from your Hong Kong LLC.

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Introduction

This article taps into one of the unknown secrets to probably 90% of the world:

Opening a company in the US can be very cheap and very tax-friendly – but now comes the trick: It only works if you are not a US citizen.

Yes, you heard it right – how, why it works, and drawbacks we will discuss in this article.

Who can benefit from reading this article?

For freelancers or business owners (or those who seek to become one) who

•  are not US residents or US citizens 
• have an online business, which means they work with a client through their laptop

What you will learn from reading this article?

1. Requirements: What are the requirements for this company setup?
2. Benefits: What are the benefits of this company setup?
3. Explanation: Why does this company set up work?
4. Drawbacks: What are the problems of this company setup?
5. Solution: How can these drawbacks be solved?
6. Alternatives: What are the alternatives to this company setup?

Note:

Whenever we say “(US LLC) non-resident”, we mean a person that has neither

• a residency in the US (long-term visa, green card, etc.) nor
• a US citizenship

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1 – Offshore company in USA: Requirements.

To establish an offshore company in the USA, you must meet two key requirements:

1. Company formation: It has to be a US LLC, meaning a limited liability company. This setup does not work out with any other us company type, such as a US corporation.
2. Non-U.S. Residency or Citizenship: You cannot be a U.S. resident or citizen.
3. No employees: With this business, you cannot have any employees in the US. This will create a substance, and then this would not be an offshore company anymore by definition. You can have freelancers working for you.
4. Online Business: Your business must operate online. This means you should be a freelancer or business owner offering services or products over the Internet.

Examples of eligible online businesses:

• IT services
• Marketing services
• Online shops

Counterexamples:

• A restaurant (as it sells food in person).
• A doctor’s office (as it requires physical interaction with patients).

Important note:

You can have B2B US clients as an offshore company in the USA. Many people often think that with this setup you cannot have US clients.

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2 – Offshore company in USA: Benefits.

The benefits of setting up an offshore company in the USA include the following:

1. Tax Advantages: You don’t have to pay corporate taxes in the USA.
2. Enhanced Reputation: Operating under a U.S.-based company boosts your credibility and professionalism in the eyes of clients.
3. Cheap setup and maintenance: Setup and maintenance can vary from USD 100 per year up to USD 2000 per year depending on the provider.
4. Lower payment gateway fees: PayPal and Stripe charge lower fees for a US LLC.

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3 – Offshore company in USA: Explanation.

Let’s take a behind-the-scenes of an offshore company in the USA.

We take a look at U.S. tax laws to understand 

• why this setup works the way it does and 
• the mechanisms behind it.

First, it’s important to recognize that the U.S. LLC (Limited Liability Company) structure is unique to the United States.
No other country in the world has a structure quite like it. The key feature of a U.S. LLC is that it is treated as a company for legal purposes but does not pay corporate tax. This is a highly distinctive aspect of U.S. tax law.

Instead of corporate tax, an LLC’s profits are subject to pass-through taxation, meaning that all revenue and profits are passed directly to the owner’s (stakeholder of the offshore company in the USA) income. The owner then pays personal income tax on this income.

In essence, a U.S. LLC functions similarly to what is commonly referred to as a freelancer structure in other countries. However, it offers the additional benefits of legal protection and credibility associated with a formal business entity. 

Additionally and most importantly, it does not require you to be a resident in the US, and this is where the tax loophole is. In other countries, being a freelancer requires you to be a resident.

Let us see how this tax loophole plays out with different use cases and examples

Use case 1: No residency (digital nomad)

If you are not a U.S. resident, you must pay personal income tax in your country of residence. However, if you are a digital nomad and not a legal resident of any country, you may not be subject to income tax anywhere.

Use case 2: Residency in Germany

Now, let’s consider the scenario where you are a resident of a specific country—say, Germany. In this case, the U.S. LLC as a non-resident may not provide much benefit for two key reasons:

1. Worldwide Income Taxation: Germany taxes its residents on their worldwide income, unlike countries with territorial taxation systems (e.g. Thailand in use case 3)  that only tax income earned within their borders.
2. Reclassification as a Corporation: Germany may treat the U.S. LLC as a corporation for tax purposes. This would subject the LLC to corporate taxes in Germany, negating the benefits of the U.S. tax structure and potentially creating additional administrative burdens.

In such cases, the setup could result in more complications than advantages, including extra overhead and tax headaches.

Use case 3: Residency in Thailand

If you are a resident of Thailand, this setup with the U.S. LLC as a non-resident in the US can work favorably for you under the current laws (until 2024) due to a key provision in Thai tax law.

Thailand follows a territorial tax system, which is the opposite of worldwide income taxation. Under this system, only income earned within Thailand or money brought into Thailand is subject to taxation. Any income earned outside of Thailand and kept abroad is not taxed by Thai authorities.

This is why many foreigners with online businesses, remote jobs, or freelance work—particularly from countries like Germany, Bulgaria, France, the UK, and other European nations—choose to reside in Thailand. 

They can legally avoid paying taxes on their income as long as it remains outside of Thailand.

Use case 4: Residency in Portugal

Some countries fall between the tax systems of Germany and Thailand. These countries have worldwide income taxation but do not classify a U.S. LLC as a corporation for tax purposes within their jurisdiction.

For example, Portugal treats the profits of a U.S. LLC as foreign income rather than corporate income. In Portugal, foreign income classified as dividends is taxed at 0% under certain conditions, making the U.S. LLC an attractive option.

However, there is a potential issue. U.S. LLC laws do not automatically treat profits as dividends—they pass through directly to the stakeholder as income, not explicitly as dividends. This creates ambiguity, leaving it up to the interpretation of the local tax authorities in Portugal or even at the city level. If the profits are not recognized as dividends, they could be taxed differently, introducing some risk to this setup.

Other countries with similar tax treatment to Portugal include Vietnam.

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4 – Offshore company in the USA: Drawbacks.

The US LLC has two key drawbacks to consider.

Drawback 1: Ambiguity of payout interpretation to stakeholder

First, when combined with a tax residency where dividends are not taxed, the classification of dividends under a US LLC can be ambiguous. Technically, a US LLC does not issue dividends, as discussed earlier, which can leave the taxation of such distributions open to interpretation.

Drawback 2: Banking difficulties

Second, banking with a US LLC is becoming increasingly challenging. While it is still possible to open accounts with platforms like WISE, other banks, such as Revolut, are making it more difficult—or even impossible—without employing certain workarounds. This tightening of banking options stems from growing concerns among the US government and citizens. Many argue that foreign individuals benefit from the same advantages as American citizens through a US LLC while paying little to no taxes, creating what is perceived as an unfair advantage.

Drawback 3: Asset protection

Due to the banking problems, it becomes risky to hold too much money in a bank account of a US LLC. Usually, experts recommend not to keep more than USD 10k in the bank to have minimal risk in case the bank should freeze money.

On the other hand, such scenarios won’t happen with a Hong Kong LLC making it a perfect way to protect assets and build assets by investing in stock with your Hong Kong LLC.

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5 – Offshore company in USA: Solution.

To address the issue of dividends and asset protection, we need a way to:

• get the money paid out from a company with a proper dividend structure
• have a company structure with a robust banking infrastructure. 

Let us walk you through how with the Hong Kong LLC, there are two ways to solve the problems.

Solution 1: Hong Kong LLC as a backend company 

We can use the US LLC to bill clients and then set up a Hong Kong company to issue invoices to the US LLC. From the Hong Kong company, we can pay ourselves dividends, as Hong Kong has a legitimate corporate structure that allows for dividend distributions and salary payments. 

This structure works seamlessly because the US LLC serves as the client-facing entity, providing the reputation of a US company, while the Hong Kong company handles the financial operations in the background. Ultimately, the Hong Kong company receives all the funds, and we can withdraw everything from there in a way that complies with our tax residency requirements.

You would be a stakeholder of both companies.

Note:
To avoid questions from the American tax department (the IRS), it is recommended to keep at least 10 to 20% of the revenue in the US LLC to make it a profitable business.

Solution 2: Hong Kong company as the parent company

You would be the stakeholder of your Hong Kong LLC to pay yourself dividends.

Your Hong Kong company would be the stakeholder of your US LLC.

This way, all profit of the US LLC may be transmitted to the parent company (Hong Kong LLC).

This structure is highly scalable, and one of the biggest advantages is Hong Kong’s tax treatment of capital gains. Here’s what makes it powerful:

Key Advantage: Tax-Free Capital Gains
The Hong Kong holding company can:

• Buy and sell shares in other companies without paying capital gains tax
• Hold multiple subsidiaries in different countries
• Sell these subsidiaries later without tax on the profit from the sale

For example, if your Hong Kong holding company:

1. Sets up a US LLC for North American operations
2. Creates a UK company for the European market
3. Establishes a Singapore entity for Asian expansion
4. Later sells any of these companies for a profit

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6 – Offshore company in USA: Alternatives.

If you’re looking for a simpler or more tax-efficient structure from the start, and don’t necessarily need a US LLC to bill your clients, a Hong Kong company could be a great alternative. 

The decision depends on your unique needs, budget, and overall business goals. 

For some, a Hong Kong company offers a more streamlined and cost-effective solution than a US LLC. It all comes down to what works best for your situation.

Feel free to contact us via email or book an appointment if you have any specific questions about your situation.

Other related articles

• How to choose between a US LLC and a Hong Kong LLC
• What is everything you should know before a Hong Kong LLC setup?
• 13 reasons why others have chosen a Hong Kong LLC

FAQ

1 – What is offshore company in USA?

An offshore company in USA is a company that fulfills these requirements:

• a limited liability company registered under US law
• the stakeholder and company owner is a foreigner (not a US citizen)
• the stakeholder and company owner is not a US resident (does not live in the US)
• the company has no employees in the US (no substance)

2 – Can an offshore company own a US LLC?

Yes.

For example, a Hong Kong LLC can be 100% stakeholder of the US LLC.

The benefits of these could tax reductions and asset protection.

3 – Which country is best for offshore?

There is no best country, as it depends on your situation and your goals.

For tax reduction purposes, a US LLC and a Hong Kong LLC can be very beneficial.

For receiving tax certificates and having a seamless banking experience, then a Hong Kong LLC or a Singapore LLC are more beneficial for Non-US citizens.

4 –  Can I have an offshore company?

Yes, anyone can have an offshore company – there is no restriction in terms of nationality or residency.

5 – Can a foreigner own a US LLC?

Yes.

Actually owning a US LLC as a foreigner can be very beneficial in terms of tax reduction.

6 – Can a non-US citizen open a company in US?

Yes.

A US LLC for non-residents and non-US citizens has benefits such as fewer taxes (with the right setup – read the article above).

7 – Which state is best for an LLC for non-residents?

There is no best state in that sense.

Depending on the business model, some states can be more favorable.

Most people choose Florida as a state as it does not have state taxes and thus, it lowers the taxation.

On the other hand, Delaware US LLC may have a bad reputation outside the US LLC.

8 – What is the best country to open an LLC?

Good countries can be:

• Singapore LLC
• US LLC
• Hong Kong LLC

We do not recommend Dubai or Estonia due to new tax laws in 2024 unless you want to live there.

9 – Can a US citizen own an offshore company?

Yes, but the question is what the goal is.

A US citizen will be taxed by his citizenship, which means that there won’t be much ways to reduce their taxes.

10 – Can I do business in the USA without citizenship?

Yes, with a US LLC for non-residents anyone can do business in the USA.

But it needs to be an online business and no physical one (restaurants etc.).

11 – Why do people use offshore companies?

They use it for one of the following reasons:

• tax reductions
• less red tape
• employ people in a different country