Optimize the Accounting of your LLC

Of course it's possible! You can even register your business without having to travel, obtain a visa, a social security number (SSN) or an individual taxpayer identification number (ITIN). U.S. regulations do not impose restrictions on business formation for citizens around the world, except in some countries subject to trade sanctions.

If the LLC operates online without a physical presence in the United States, has no employees or dependent agents, and none of its partners are residents or citizens of the United States, it will be classified as Foreign Owned and will not be considered “Engaged in Trade or Business.” in the US” (Engaging in Trade or Business in the United States). By not having the ETBUS designation, it benefits from a territorial exemption in tax terms. In short, if the LLC meets these requirements, it will be exempt from taxes in the United States. Otherwise, you will not enjoy the exemption and must obtain an ITIN number and pay taxes in both the US and your country of tax residence.

Any entrepreneur can benefit in various ways to reduce tax payments at the end of the year. However, digital businesses (such as Amazon FBA, marketing specialists, consultants, coaches, mentors, therapists, etc.) that are also NOT face-to-face, have the potential to completely replace the role of the self-employed in Spain.

The LLC offers the possibility of billing WITHOUT VAT, NO SELF-EMPLOYED FEE, WITHOUT MANAGEMENT, and also allows you to pay less Income Tax at the end of the year by subtracting DEDUCTIBLE EXPENSES to the profits of that fiscal year.

If you have a physical 100% business, such as a restaurant, barbershop or beauty center, the LLC is not the only solution, but a tool that should COMPLEMENT your SL. This will allow you to generate expenses and pay less taxes in Spain at the end of the year.

Typical case: Juan, owner of a laundry, invoices and earns €1,000 net in April from his SL.

Theoretically, Juan would pay a % on the profits (Profit Tax), with a general rate of 25%. This means that €250 goes to the Treasury. Then, you withdraw €750 from your individual, which is again taxed in your personal income tax, say a 20%, resulting in €150 for the Treasury. Although there are other fixed costs (Self-Employed Fee, management), in this case there is not much room for maneuver. The result: Juan receives “net” of less than €600.

With LLC: Juan invoices €1,000 net from his SL, but this time he has an LLC.

It generates an expense of €1,000 from the LLC, labeled as “web management and social networks”. Juan pays €1,000 from the SL to the LLC. In the eyes of the Treasury, the SL has earned €0 that month. You save 25% of taxes for free. It is true that those €1,000 will later be taxed in personal income tax, but a FREE 25% is nothing to sneeze at.

End of story. Things become incredibly simple with an LLC.

• During each tax return in Spain, in the personal income tax you must indicate in the section “Income allocation regime” the data of your LLC and your profits for that fiscal year.
• Model 184 (Informative): If you have a VAT number and exceed €3,000 annually, you must present this form to the AEAT. Information is provided on the income obtained and deductible expenses, as well as the participation of each of the partners, community members or participants in the profits or losses generated by the entity during the fiscal year.

• Model 720 (Informative): The LLC must inform the State Tax Administration Agency (AEAT) about the assets and rights located abroad that belong to it, provided that the total value exceeds 50,000 euros. This filing is made annually and includes detailed information about bank accounts, securities, insurance, property, and other relevant assets.

• Model 347 (Informative): If the LLC has carried out transactions with third parties, whether suppliers or clients, for an amount greater than 3,005.06 euros during the fiscal year, it is required to submit Form 347. This form details the operations carried out, as well as the corresponding quantities.

• Model S1 (Informative): This model must be presented when transactions are made, whether inflows or outflows of money, that exceed 10,000 euros abroad. It must be submitted to the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses (SEPBLAC).

• Related transaction information: In the event that the LLC carries out transactions with related parties, whether they are people or entities with which it maintains a special relationship, it is necessary to maintain documentation that supports said operations and establishes its market value. In the case of an inspection, this information will be required to be provided to the AEAT.

Annually, we will file the following forms with the IRS on your behalf:

• Form 1120: This document informs the IRS about the income and expenses incurred by your LLC during the tax year.

• Form 5472: This form provides the IRS with information about the type of business and the details that will be filed on Form 1120.

Starting in 2024, it will be mandatory to submit the information form:

• Beneficial Ownership Information Report (BOIR): Beginning January 1, 2024, all corporations, LLCs and other entities created in the United States, whether by filing with the secretary of state or a similar office, or created in a foreign country and registered to do business in A state by filing a document with the secretary of state or similar office, unless exempt, must file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).

Counting from the year you founded the company and every 5 years, you must fill out a BEA report:

• BE-13: This form allows the Bureau of Economic Analysis to know how much money enters and leaves the country through companies.
• Form 114:  Before FinCEN (Financial Crimes Enforcement Network) ASA FBAR. This form is presented if your bank accounts have had more than 10.000$ at any time during the year.

Additionally, if you operate or plan to operate in the United States, you may need other forms. Initially, if your activity is focused on Europe, you probably don't need to worry about them:

• Form W-7: Used to request the ITIN number from the IRS, similar to the EIN, allowing you to comply with your tax obligations in the country.

• Form 1040NR: This form is essential at the end of the tax year to demonstrate to your country of tax residence that you have paid taxes in the United States, which could allow you to deduct them in your country of taxation.

• Form 8-BEN: Requested by companies that must pay taxes on behalf of your company in the United States. In this case, the ITIN will be required.

• FIRPTA 8288-B: If you are a foreigner, or an international investor, you must take into account the tax withholding on the sale of FIRPTA properties.

There is no VAT in Europe for most B2B services and for B2C services, the first €10,000 will be exempt: If you sell services to customers in Europe, having an LLC can save you from paying VAT. This is because LLCs are not subject to VAT in Europe for B2B companies, as long as they do not have a permanent establishment in any country in the European Union. Also, if you sell services to B2C, the first €10,000 will be exempt from VAT, thanks to the one-stop shop regime that came into force in 2021.

Before making any expenditure, it is crucial to keep a detailed record of it. You can use a spreadsheet like Excel to keep track efficiently, and in order to make this task easier for you, we will provide you with a template to use.

That said, it is important to note that there are certain expenses that your LLC will be able to deduct, and therefore, you will need to keep the corresponding invoices and transfer records and ensure that they are registered in the name of your LLC:

1. Common Deductible Expenses:

   • Office expenses: Rent, office supplies, utilities.
   • Personal expenses: Salaries, benefits, training.
   • Equipment and Supplies: Purchase and maintenance of equipment, business supplies.
   • Business trip: Transportation expenses, accommodation, business-related meals.
   • Marketing and publicity: Costs associated with business promotion.
   • Interest and Commissions: Interest on business loans and credit cards.
     
     

2. Automobile Expenses: If the LLC uses vehicles for business purposes, it is possible to deduct automobile-related expenses, such as gasoline, maintenance, and depreciation.

3. Business Education Costs: Costs associated with continuing education or business-specific training may be deductible.

4. Commercial Insurance: Insurance premiums for commercial coverage, such as liability insurance, may be deductible.

5. Charitable Contributions: Donations to charities may be deductible if they meet certain requirements.

6. Commercial Taxes and Licenses: The fees and licenses required to operate the business are deductible expenses.

Keep in mind that you will not be able to deduct expenses that are directly linked to the country, such as offices or property, as this could create tax complications for your LLC by operating exclusively from your country of residence.

If your LLC makes a clear separation between business and personal accounts, maintains accurate accounting in Excel, meticulously saves all invoices, and has an Operating Agreement, you have no reason to worry. However, if not, there is the possibility that a judge in the United States will 'pierce the corporate veil', putting the legal protection of the LLC at risk. For this reason, it is essential to rigorously comply with all the aspects mentioned above.

It is only required that the company be duly incorporated and current with all its documents, including the EIN number (company tax identification), and the manager's updated passport. It is not necessary to have a Social Security Number or ITIN. We cannot guarantee account opening, as banks must conduct a security check called KYC (Know Your Customer), which is mandatory under federal regulations established in the Patriot Act, before approving a customer. .

In the event that we are unable to register your business within 60 days due to an error on our part, we will refund the full amount you paid, with no questions or explanation required.