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What state should I form my LLC in as a U.S. non-resident?

For non-residents of the United States a few states are always the most popular:

  • Wyoming
  • Delaware
  • New Mexico
  • Florida

The traditional favorites have been Delaware and Wyoming, with New Mexico becoming more popular in recent years.

I have a strong preference for Wyoming with Delaware as the top choice for companies that are more concerned with image/prestige or who want to form as a corporation and receive angel investment or venture capital investments. Both of these states actively want to attract non-residents to form their entities there. This is important because in other states you can run into situations where their processes and forms just aren’t set up for non-residents, for example requiring a Social Security Number form or registration. You do not run into this with Wyoming or Delaware

Very importantly let me mention that these choices are primarily for forming businesses that are not going to have any physical presence in the United States. If you are going to have a physical presence in a single state, it almost always makes the most sense to form in the state. For example, if you are going to open a physical office in a state, or buy a property to offer for rent, you mostly likely need to register in the state this activity will take place in. If you are going to physical activity in many states, it may again make sense to consider forming in the states mentioned in this article.

Wyoming

Wyoming works well for non-residents, has low fees, and is anonymous which is important for some people. The anonymity means the state does not have your name and it is not published online. You do have to provide your name to your registered agent and the IRS will know your name from your EIN application. 

Wyoming charges a filing fee of $100 to form an LLC. They also require an annual report to be filed for which the charge is $60. The annual report is due each year on the first day of the month you initially opened your LLC. The annual report fee is actually based on the value of assets located in Wyoming, with a minimum of $60, but since most LLCs with non-resident owners have no assets in Wyoming, the fee is $60. If you ever decide to dissolve your LLC, Wyoming charges a fee of $60. 

One of the best things about Wyoming is that there is no harsh penalty if you are a little bit late filing the annual report. As long as you are not very late you can file the annual report with no penalty. If you are over a month late (usually around 2 or 3) you risk your LLC being administratively dissolved and then there is an additional fee of $60 to re-instate the LLC along with any past due fees. 

Wyoming has no state income tax. Wyoming does have a sales tax, but sales tax is only charged on physical products delivered to customers in Wyoming (though you may owe sales tax in other states). The existence of sales tax in Wyoming can actually be a good thing if you need a resale certificate to show a supplier. If you do need to register for sales tax, to get a resale certificate or for other purposes, the Wyoming charges a $60 fee.

Delaware

Delaware is another great state for non-residents. It is anonymous like Wyoming, with the same caveats that your registered agent and the IRS will know your identity. The main thing I do not like about Delaware is the fees. 

Delaware charges a $90 fee to form an LLC, which is not bad at all. Delaware charges a $300 annual franchise tax fee which is due by June 1 of each year. For some businesses the difference between $300 in Delaware and $60 in Wyoming will not make a difference, but for some it does. If you are even one day late paying the $300 fee, Delaware charges a $200 penalty and charges interest each month the original fee and penalty are late. If you don’t pay the fee before your LLC is dissolved, there is an additional $200 fee to revive the LLC. Finally, if you choose to dissolve the Delaware LLC, the fee is $200.

Delaware does have an income tax, but it is clear you only owe that tax if you have operations in Delaware, so it is not a concern for most non-residents. Delaware does not have a sales tax. This means you cannot get a resale certificate from Delaware. This is not as big of a problem as it sounds for businesses that need one, they can register for sales tax in another state and get a resale certificate. 

The only reason in my opinion to form in Delaware over Wyoming is public perception. Many major international corporations are formed in or have offices in Delaware. If your clients are going to be aware of what state your entity is formed it, and you think it matters to them, Delaware may carry more prestige. But for most businesses, this does not matter. 

New Mexico

New Mexico has become a very popular state in recent years. The main reason it has become popular is the lack of any annual report. Although this is a small savings, I do not think it puts it above Wyoming and Delaware.

Like Wyoming and Delaware, New Mexico is anonymous with the same caveats that your registered agent and the IRS will know your identity.

New Mexico has a low formation fee of $50. As previously mentioned, there is no annual report and thus no annual fee. If you choose to dissolve your LLC the New Mexico fee is $25.

New Mexico does have an income tax, but it should not apply to businesses without physical operations in New Mexico. New Mexico has a gross receipts tax that basically functions as its sales tax. The gross receipts tax is more aggressive than most states sales taxes in that it applies to many more services than most states sales taxes apply to. Still, it should not apply if neither the person providing services or the person receiving services are located in New Mexico.

If you need a resale certificate in New Mexico the registration requires a social security number or an ITIN. I have communicated with their Department of Revenue to confirm that this is enforced even with a paper application (sometimes these rules are just limits of an online application).

My primary hesitancy with New Mexico over Wyoming or Delaware are things like the need for a US personal tax ID to register for something like gross receipt tax. Unlike Wyoming and Delaware that have designed their systems to work for non-residents and attract non-residents, it appears to be by accident in New Mexico. There is also the issue that their gross receipts tax applies to a broader range of things than most states sales taxes. This being said, there is nothing wrong with New Mexico and it is okay to form there.

Florida

Florida is a good state to form in, I would place it on the same level as New Mexico because there are certain times it is easier to have a social security number or ITIN. 

The primary thing some people do not like about Florida is that it is not anonymous. At least one member of the LLC, or alternatively a manager of the LLC must be listed publicly. 

The total fee to form a new LLC in Florida is $125. There is an annual report fee of $138.75 that must be paid by May 1 of each year. If you choose to dissolve your LLC the fee is $25.

There is no state income tax for LLCs in Florida. There is a sales tax, but this would only be charged on sales of products in Florida. You can obtain a resale certificate in Florida. The application does ask for a social security number or ITIN, but a visa number can be used instead.