In the world of LLCs, it is common to encounter a large amount of incomplete or incorrect information provided by managers or advisors who do not have a deep understanding of US taxation. Many of them simply reproduce content from YouTube videos, without truly understanding the legal and tax implications. In this article, we are going to talk about the maintenance and essential forms for the most common LLC among foreigners and Spaniards: the Single Member LLC (SMLLC) for foreign owners. We will also explore specific requirements in key states such as Delaware, Florida, Wyoming, and New Mexico.
1. US Federal Forms
These forms aim to report the LLC's activities, financial transactions, and beneficial ownership. Below, we detail the main required federal forms:
Form 5472 and Pro Forma 1120
What is it? This form reports substantial transactions between a foreign-owned LLC and its related parties.
When it is mandatory: If the LLC carries out any transaction (such as capital contributions or expense payments).
Penalties: Failing to file this form can result in penalties of $25,000.
Form W-8BEN
What is it? Declares that the foreign owner is not subject to certain US taxes.
When to use it: When opening a US bank account or working with US clients.
Form 1040-NR (if applicable)
What is it? Tax return for non-residents if the LLC generates income effectively connected with the US.
Form BE-13 (Bureau of Economic Analysis)
What is it? It is a mandatory form for certain foreign entities establishing operations in the US related to direct foreign investments.
When it is mandatory: If the LLC receives initial investments from foreign owners that meet established thresholds.
Form BOI (Beneficial Ownership Information Report)
What is it? Mandatory under the Corporate Transparency Act (CTA), it reports information on the beneficial owners of the LLC. (Perhaps it won't be mandatory in 2025 as it is considered unconstitutional)
When to file it: Since 2024, all new LLCs must comply with this obligation at the time of their creation and update.
FinCEN Form 114 (FBAR)
What is it? Report foreign bank accounts if total balances exceed $10,000 at any time during the year.
When to use it: If the LLC or the foreign owner has bank accounts outside the U.S.
2. State Forms by LLC Location
State compliance varies depending on the state where the LLC is registered. Each jurisdiction has specific requirements related to fees, reports, and maintenance. Below, we explore the key details for Delaware, Florida, Wyoming, and New Mexico:
Delaware LLC
Franchise Tax:
Fixed annual fee of $300.
No annual reports required.
Registered Agent:
Mandatory to maintain a registered agent in Delaware.
Deadline:
The tax must be paid before June 1 each year to avoid penalties.
Florida LLC
Annual Report:
Must be filed every year with a fee of $138.75.
Includes basic LLC information, such as address and registered agent details.
Registered Agent:
Mandatory to have a registered agent within the state.
Deadline:
The report must be submitted before May 1 to avoid late fees.
LLC in Wyoming
Annual Report Tax:
Based on the LLC's assets within the state, with a minimum of $60.
Registered Agent:
Requirement to maintain a local registered agent.
Deadline:
Must be paid before the anniversary of the LLC's formation.
New Mexico LLC
Simplified Maintenance:
No annual reports or franchise taxes required.
Only needs to maintain a registered agent in the state.
Registered Agent:
Mandatory to maintain a registered agent.
3. Tax Implications in Spain
For residents in Spain, any income generated through the LLC must be declared to the Spanish Tax Agency:
Form 100 (IRPF):
If the LLC transfers profits to the owner, these must be declared as personal income.
Form 720 (Declaration of Assets Abroad):
It is mandatory to declare ownership in the LLC if the value of assets exceeds €50,000.
Double Taxation Treaty:
The United States and Spain have a treaty to avoid double taxation. This allows taxes paid in the U.S. to be credited against the tax liability in Spain.
4. How to Close an LLC
Closing an LLC in the United States requires following a formal process to avoid penalties or legal problems in the future. Below, we explain the general steps and associated costs:
Pay Fees and File the Certificate of Cancellation:
In most states, you need to file a document called a "Certificate of Cancellation" or "Certificate of Dissolution."
Approximate costs:
Delaware: $204.
Florida: $25.
Wyoming: $60.
New Mexico: $50.
Additionally, make sure you have paid any pending fees such as the Franchise Tax.
Settle Financial Obligations:
Close all bank accounts associated with the LLC.
Pay any outstanding debt and distribute the remaining assets to the owners.
Notify the IRS and File Final Tax Forms:
File a final tax return for the LLC.
Include forms such as 5472 if applicable.
Comply with Local Requirements:
Some states require publications in local newspapers informing about the dissolution.
Documentation:
Keep copies of all documents related to the dissolution for your records.
5. Risks of Not Filing Forms and Penalties
Failure to comply with tax and administrative obligations can have serious consequences for LLC owners. Here we detail the most common risks and penalties:
Penalties for Unfiled Federal Forms:
Form 5472: $25,000 penalty for failure to file or for errors in the information.
BOI Form: Penalties of up to $500 per day of delay.
FinCEN Form 114 (FBAR): Civil penalties of up to $10,000 for non-willful non-compliance and harsher penalties for willful non-compliance.
Administrative Dissolution:
States like Delaware or Florida can dissolve your LLC if you do not pay annual fees or file required reports.
Loss of Good Standing:
An LLC out of compliance may lose its ability to operate legally or enter into contracts.
Tax Interest and Penalties:
Delays in paying federal or state taxes generate cumulative interest and additional penalties.
Legal and Financial Problems:
Failure to file can trigger tax audits, legal investigations, and loss of access to bank accounts or financing.
6. Practical Advice for Foreign Owners in Spain
Consult with a Tax Advisor:
The combination of U.S. and Spanish regulations can be complex. An advisor specializing in international taxation can help you maximize profits and avoid penalties.
Avoid Fiscal Transparency:
If you operate an LLC without demonstrating economic independence, you could face "fiscal transparency" issues in Spain.
Plan Fund Withdrawal:
Transfer income from the LLC to Spain in a structured manner to minimize the tax burden.
Conclusion
The Single Member LLC is a powerful tool for foreigners (Non-U.S. residents) operating online businesses, foreign partners, international clients, etc. However, its success depends on proper guidance and compliance with tax and administrative obligations in both the U.S. and Spain.
Ignoring these responsibilities can lead to severe penalties or legal problems. Therefore, having specialized consulting is key to ensuring compliance and maximizing the benefits of this structure.
At EluTax, we are here to help you manage your LLC and resolve any questions related to international taxation. We have been working with the United States for over 8 years and structures like LLCs, contact us here.
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