There are many different factors that are involved when a non-citizen wishes to open a business entity, but it is possible for a non-citizen to be a sole proprietor in the U.S. The process for establishing the business is mostly the same as for citizens, but the primary difference relates to paying tax.
A non-citizen is often referred to by the Internal Revenue Service IRS as a nonresident alien. This is any person who isn’t a U.S. citizen or a U.S. National, and who hasn’t passed the green card test or the substantial presence test. According to them, the moment that you are involved in trade or business in the U.S. in the year then you have the responsibility to file a return.
What is a sole proprietorship and why form one?
A sole proprietorship is an informal business structure where there is no legal separation between the business and the owner. The owner gets 100% of the profits but is also liable for 100% of the losses. As such, should the business fail or get sued, then the owner’s personal assets are vulnerable to being seized. These assets include cars, houses, and bank accounts. This is the most significant reason why many businesses choose other formal business structures.
Seeing as the business isn’t separate to the owner, the owner is responsible for signing checks, contracts, and leases in their own name. Payments are also made out to the owner’s name. However, should you wish to avoid this, there is always the choice of filing for a DBA (doing business as) which means you can conduct business in a fictitious name so that your surname is not made public. This also gives you the option to open a business bank account which strengthens trust in your business and gives customers a sense of reliability.
They are best suited to small businesses who are low-profit and low-risk and have customers mostly consisting of friends, family, and neighbors. These types of businesses generally start off as hobbies.
With regards to taxes, it’s important to remember that business income is included on your personal tax return, however you are liable to pay both income tax and self-employment tax annually.
Are there loans or financial aid opportunities for non-citizens?
The U.S. Small Business Association still offers SBA loans to non-citizens, however, there are limitations. The application process stipulates that every proprietor, partner, officer, director, LLC managing member, or 20%+ owner of a business requesting a loan has to show an SBA Form 912 which is a Statement of Personal History to their financier.
The SBA’s rules are that their financial support is applicable to businesses with a 51% ownership and control by non-citizens of the United States of America, solely if the individuals are residing in the U.S. legally. However, individual lenders do have the right to refuse to provide financial support to non-citizens and can decide to halt the loan application process.
What if I don’t have a Social Security Number (SSN)?
According to the Internal Revenue Service (IRS), Taxpayer Identification Numbers (TIN) are necessary when filing tax returns and when requesting treaty benefits. They must be evident on returns, statements, and any other documents connected to tax.
As a nonresident alien (or non-citizen), an Individual Taxpayer Identification Number (ITIN) is necessary. This number applies to some nonresidents and resident aliens, the people they’re married to and their dependents who are not eligible for a Social Security Number.
In order to get an ITIN, you have to fill in IRS Form W-7, IRS Application for Individual Taxpayer Identification Number which entails submitting documentation which validates foreign/alien status and provides a true identity for every person. There are various ways that this documentation can be processed as explained in the link above. Visit this site if you want more information on how you can form your sole proprietorship and which businesses are best suited to the informal structure.