For those who move their tax residence to Paraguay, opening an LLC in the United States can be a very smart choice. A U.S. LLC, when it is considered non-resident, offers advantages in terms of taxation, bureaucracy, and access to the banking system. Since Paraguay has a territorial tax regime in which income produced abroad is not taxed, pairing a U.S. LLC with tax residence in Paraguay can become a smart way to reduce your taxes to zero in a completely legal way.
The popularity of this combination is indisputable, and it is enough to go to any expat or digital nomad event in Paraguay to realize how many foreigners have already chosen to rely on this setup. At the same time, it is not something suitable for everyone, and if handled the wrong way it can become a problem both in the United States and in Paraguay. If you are thinking of moving your tax residence here to take advantage of the benefits of the combination with a non-resident LLC, Paraguay Pathways can help you make this transition correctly. Feel free to get in touch with our team and we will be happy to help you obtain residence and manage your tax setup properly.
Why have a U.S. LLC with tax residence in Paraguay?
For all people who do business online or internationally, opening a company in Paraguay and running your business as a Paraguayan company is often not an advantageous choice.
Firstly because, due to the territorial tax system, the company would be subject to taxation as it is incorporated in Paraguay; secondly because the Paraguayan banking system is still very slow, very expensive, and not prepared to accommodate international entrepreneurs and online businesses that need to receive different currencies from different countries around the world.
A U.S. LLC can solve both problems. It solves the taxation problem because, under certain conditions, it is not taxed. It solves the banking problem because, unlike a Paraguayan company, it can access multi-currency accounts, cryptocurrency exchanges, and fintech accounts that make payment management easier. So, ultimately, a U.S. LLC is useful for doing business worldwide while maintaining your tax residence in Paraguay. And if the structure is correct, you end up paying zero taxes at both the corporate and personal level.
Is it worthwhile for me to form an LLC?
If you intend to use residence in Paraguay as a tool to lower your taxes, then it makes sense to form an LLC when:
- You are an entrepreneur or self-employed
- You are not a U.S. citizen and do not have a green card
- You do not intend to work from the United States
- Your business has no employees, offices, or production facilities in the USA
- Your clients are not located in Paraguay
If all these conditions are met, then your company will not pay taxes in Paraguay nor in the United States. In fact, your LLC will be considered non-resident and “disregarded for tax purposes,” and therefore not subject to federal taxes in the United States. Moreover, if it is formed in a state that does not impose state taxes such as Wyoming, New Mexico, Nevada, Florida, and Delaware, it effectively becomes a company that does not pay taxes.
The IRS and the U.S. tax code provide that a non-resident LLC is totally free of income tax. All income produced must be declared directly by the owner of the LLC in his or her country of residence, where it will be taxed according to the local tax regime.
Since Paraguay does not tax income produced abroad, the proceeds of the U.S. LLC are not taxed either. In short, the United States will not tax your LLC’s income because they will leave to Paraguay the task of taxing your proceeds. But Paraguay, likewise, will not tax them because such income will be considered produced abroad.
The advantages of residence in Paraguay with a U.S. LLC
Unlike the vast majority of countries in the world, Paraguay has a territorial taxation system. This means that in Paraguay only income produced within national borders is taxed, while income produced abroad is completely untaxed.
By combining the two things, it is possible to structure a 100% legal and transparent system with zero taxes. A person who works online or remotely has the possibility of running his or her business through the LLC in the United States, which in itself is not subject to taxation. At the same time, when this person receives the proceeds of his or her activity at a personal level, these are likewise not taxed since they are considered produced abroad and therefore excluded under the territorial taxation system. With few exceptions, this is a system that makes it possible to reduce the tax burden to zero both on the business side and on the personal side.
Unlike other tax optimization systems, it is also a model that is very easy to manage and with little bureaucracy. A non-resident LLC requires just one annual tax filing, to be completed by April 15, with no need for recurring bookkeeping or auditing. Setting one up costs a few hundred dollars and can be done entirely remotely, in just a few minutes.
Simple management
Managing an LLC in the United States is extremely simple. If you have a non-resident LLC, once a year you will only have to send two forms to the U.S. IRS: Form 5472 and Form 1120. They can be done either independently or through an accountant, with prices that usually do not exceed $100 to get professional help. Detailed bookkeeping is not necessary, audits are not required, and financial statements do not need to be published.
Access to the banking system
Unlike Paraguay, which is still a very limited country from a banking standpoint, the United States is the financial center of the world. Once you open a non-resident LLC, you can easily gain access to bank accounts such as Mercury, Jeeves, Airwallex, and many others that allow you to send and receive money easily anywhere in the world. If you wish, you can also request an ITIN and go physically to the United States to open a bank account at large traditional banks such as Chase or Bank of America.
Tax advantages
The non-resident LLC is considered a passthrough entity, that is, an entity that is not taxed as such. The LLC’s proceeds “pass through” the company without being taxed and are attributed directly to the owner of the company, who must declare this money as income in his or her country of residence. If your tax residence is in Paraguay, where foreign-source income is not taxed, then your setup is totally tax-exempt.
If you need help obtaining residence or structuring your tax setup based on residence in Paraguay, feel free to contact us without obligation. We will be happy to answer all your questions and assist you through every stage of this transition.
