Hello, I’m Cr. Maximiliano Mira Salas, and today in our Technical Wednesday we will explore how Non-Resident Aliens (NRAs) pay taxes in the United States. This topic is essential for freelancers, entrepreneurs, and Latin American investors who work or invest in the U.S. market. If this applies to you, keep reading!

What is an NRA?

A Non-Resident Alien (NRA) is anyone who is neither a U.S. citizen nor a tax resident under U.S. government criteria. This means you are not subject to worldwide taxation like residents, but only on income that comes directly from activities or investments in the United States.

For example, if you work from your country for a U.S. company or invest in a fund operating in the U.S., you will only pay taxes on those specific incomes according to applicable rules.

LLCs: A Flexible Tool

LLCs (Limited Liability Companies) are very popular legal structures among foreigners operating or investing in the U.S. As an NRA, the tax treatment of your LLC depends on the number of members:

Single Member LLC: If you are the sole owner, the LLC is not considered separate from you for tax purposes. In other words, any income it generates is considered yours directly, and it will only be taxed if it comes from activities or investments in the U.S.
Multi-Member LLC: If the LLC has more than one member, it is treated as a partnership. In this case, profits or losses are distributed among the partners, and each one pays taxes according to the rules applicable to their status.

For example, if you operate an LLC to invest in real estate or financial funds in the U.S., the income derived from those activities will determine whether you must pay taxes or not.

Types of Income: What is Taxed?

The U.S. tax system distinguishes between two main types of income affecting NRAs:

1️⃣ Effectively Connected Income (ECI): Income directly related to a business or activity conducted in the U.S. For example, if you have a physical store or provide consulting directly in the country, this income is connected to economic activities there.

2️⃣ Fixed, Determinable, Annual, or Periodical Income (FDAP): This technical term includes passive income, such as interest, royalties, or dividends. For example, if you invest in a U.S. company that pays you dividends, this income is subject to specific rules, even if you have not performed any activity directly in the U.S.

Practical Case: An LLC for Investing

Imagine you decide to create an LLC in the U.S. to invest in stocks or funds. If that investment generates income, such as dividend payments, you will be subject to U.S. regulations, but in a much clearer and direct way than if you invested without a formal structure. Also, depending on how you configure the LLC and your activities, you could simplify your tax compliance.

Why is it Important to Understand This?

Understanding tax rules for NRAs is crucial to avoid problems and seize opportunities. A well-designed structure can help you optimize your operations and reduce risks. At FINANCERS, we handle these matters so you can focus on growing your business or investment.

👉 If you relate to this topic or know someone who might need this information, share this content and work peacefully!

Cr. Maximiliano Mira Salas
International Tax Advisor | FINANCERS