So you have decided registering an LLC as a Non-US Resident? Do you dabble in cryptocurrency trading as well? Or you are an avid trader and do not want to trade Crypto under your name but under a company structure?
Congratulations, you are in luck (as a Non-US resident)
Read on - this article is for you.
Note: Do not read this if you are a US Person (US citizen or green card holder)
This quick guide will teach you how you can use a US LLC structure as a foreigner to trade or HODL crypto.
The first question that comes into your mind then is, can you trade Crypto with your US company as a foreigner?
The answer to the above question is YES, you absolutely can trade crypto with a US company.
You are 100% allowed to buy and own crypto on Coinbase, Kraken, Binance.us, FTX.US or other US-licensed crypto exchanges with a US company.
if you are a non-us resident and not a US Person, we would recommend the US LLC structure to trade or hold the bitcoins and altcoins.
The reason has to do with taxation. In case you haven't read our US LLC for Foreigners guide, you can design a tax-free US company with an LLC structure, provided that you are deemed as a Non-Resident Alien by the IRS; and this applies to crypto investments as well. (reasons below).
Apart from the taxation benefits of using a US LLC to trade crypto, the other two main benefits of using a company structure are:
Firstly, it is important to realize that cryptocurrency (or virtual currency) is treated as a form of property by the IRS. A virtual currency could be considered personal, investment, or business property depending on how it's held.
All crypto assets you own will be viewed by a court of law as property, just like real estate, stocks, or any other type of investment or personal asset.
This means that in the event of a civil litigation, liability claim or creditor collection you can use your bitcoin to satisfy the liability as if it were any other asset you owned.
Therefore, by transferring your personal crypto assets to your newly formed limited liability company, your creditor would be precluded from seizing the assets owned by the LLC, if the US LLC operating agreement is properly drafted.
For example if you are being sued in your home country, the plaintiff will not be able to seize your crypto assets in an offshore US limited liability company.
In some countries, there are no clear regulations or guidelines for cryptocurrency trading, making it difficult to buy cryptocurrencies with fiat or legally sell cryptocurrencies to fiat. To make matters worse, even if your country allows cryptocurrency trading, your bank may frown on it if they see you making fiat transfers back and forth with the crypto exchange.
With a US limited liability company, there are no problems with this. You can easily apply for an account with Coinbase and buy cryptocurrencies with USD from your bank account. However, there is one caveat: some US banks are still dinosaurs when it comes to cryptocurrencies, so they may not allow you to transfer the money to a US crypto exchange. Therefore, it is important to choose the right bank that allows trading or investing in cryptocurrencies.
Am I liable to taxes when trading crypto as a Non-US Resident?
OK, if you are still with us, it means everything sounds good so far. The elephant in the room we haven't addressed is "What are my tax implications for trading crypto-assets with a US LLC as a Non-US Resident?"
Before we delve into the answer, let's take some time to examine how IRS treat cryptocurrency from a taxation point of.
In the United States of America, crypto assets have been classified as personal property and they are treated as such. One 2013 case involved online exchanges that didn't register with FinCEN, so the Maryland District Court ruled bitcoins were subject to forfeiture under 18 U.S.C. §1960, a statute that applies to real or personal property forfeiture.
Similarly, a U.S. bankruptcy court ruled bitcoin to be property for purposes of the bankruptcy code's provisions against fraudulent transfers.
In addition, the IRS has ruled that virtual currency must be considered personal property (rather than money) for the purposes of federal taxation. This guidance came from the IRS in 2014 through its issuance of Notice 2014-21, 2014-16 I.R.B. 938.
As we can see, it is pretty evident crypto assets are regarded as personal property since both the courts and government agency treat them as such [1].
Since crypto-assets are regarded as personal property (different from inventory property and real property), we need to look at how the IRS treats the sale of these crypto-assets by Non-Resident Aliens.
According to Internal Revenue Code § 865 and Chapter 2 of Publication 519 from the IRS, the sale of personal property by Non-Resident Aliens are "sourced" to their home tax residency, most of the time.
In other words, if your tax residency is not in the United States, but elsewhere in the world, the money received from selling your cryptocurrency owned by your US LLC (or you) is considered sourced to your foreign country, aka Foreign-Source Income [2].
If you read our US LLC for Non-US Residents guide before, you will be familiar with the Income Sourcing concept. "Foreign-Source Income" is mostly not taxable in the United States. And since the LLC is a transparent entity, the source of income from realized gains of crypto investment is assessed on your personal tax residency outside of the US.
To illustrate, refer to the table from IRS below:
Source: Internal Revenue Service
This is only true if you are using an LLC. If you were to use a C-Corporation, the situation would be different as the C-Corp is automatically a U.S. Person, and the source of income is sourced to where the U.S. Person is at, i.e. inside of the US.
Most of the US crypto exchanges will accept a US LLC account opening application, as the LLC is a legal entity.
From our research, these are the US Crypto Exchanges where you can apply for an account for your US company.
- Coinbase
- Kraken
- Gemini
- BlockFi
- Binance.US
- FTX.US
Note: Before applying for an account with the Exchange, please make sure that the Crypto Exchange has a Money Services Business License (MSB License) in the state where your US LLC is registered. Only if the Exchange has an MSB license in your state, only you can deposit USD into the Exchange's account from your bank account.
Cryptocurrency and taxation can be a topic with a lot of complexities, but that doesn't mean you should ignore them. Rather, this is an opportunity to educate yourself and make smart choices to structure a good plan for your crypto investments, so you can minimize the risks and maximize the profit when it is time to sell your crypto assets.
We are glad you have made it this far, but this is just the beginning of your journey to building your online empire with a US LLC. If you have any questions and want to register a US company, please follow the rest of the articles in this guide or contact us at hello@startfleet.io.
StartFleet helps you with your US Company formation. Apart from helping you to register a US company we offer a lot more:
Kathleen Schweitzer is an international taxation expert, providing strategic counsel to businesses with complex compliance, tax and financial issues in an effort to help them grow their business globally. She often gives lecture on U.S. tax developments, transfer pricing, taxes on the sale of goods and services, U.S. tax policy development, taxation of internet commerce and multi-jurisdictional global tax planning. Kathleen enjoys reading, photography, cooking and spending time with her husband and eleven-year-old daughter.
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