US accounts: Protect your privacy with an LLC

Introduction

Many people know that the USA exchanges account information with German authorities. However, what is less well known is that this exchange of information only occurs with private accounts and not with accounts held by Limited Liability Companies (LLCs). This article explains why an LLC is an effective way to protect yourself from the extensive information sharing and how this can be achieved completely legally.

FATCA and the automatic exchange of information

The Foreign Account Tax Compliance Act (FATCA) was introduced by the USA to prevent tax evasion by US taxpayers with foreign accounts. This agreement obliges foreign financial institutions, Information on accounts of US citizens to the US tax authorities (IRS). Conversely, the IRS exchanges information on accounts held by German citizens in the USA with the German authorities.

Exchange of information for private accounts

If you open an account in the USA as a private individual, your account details, including account balance and income, will be reported to the German tax authorities. This exchange takes place automatically and is aimed at preventing tax evasion. Further information on this can be found on the website of the Federal Central Tax Office here.

The difference: LLCs as US entities

An LLC (Limited Liability Company) is a legal entity formed under US law. This structure offers a decisive advantage: as a US entity, the LLC is not considered a foreign person, which is why no data on the LLC's accounts is reported to foreign authorities, including the German tax authorities.

Advantages of forming an LLC in the USA

1. No data transfer: Accounts managed via an LLC are not covered by the automatic exchange of information. This means that your financial transactions and account balances are not reported to the German authorities.
2. Tax flexibility: An LLC offers flexible taxation options. Depending on your structure and business activities, you can benefit from various tax regimes that can be optimized for your specific situation.
3. Privacy and security: With a LLC you can better protect your financial privacy and at the same time benefit from the legal and tax advantages of the USA.

Practical implementation

In order to LLC in the USA and take advantage of the benefitsyou should observe the following steps:

1. Foundation of the LLC: The foundation process is relatively simple and can be online or via specialized service providers take place. It is important to choose the right legal form and the right federal state for incorporation.
2. Opening a bank account: Once your LLC is formed, you can open a business account with a US bank. To do this, you will need the LLC's formation documents, a US tax identification number (EIN) and a US address.
3. Compliance and administration: Make sure your LLC meets all legal and tax requirements. It may be helpful to consult a tax advisor or attorney to ensure that all regulations are met.

Specific examples of the advantages of an LLC

Scenario 1: Privacy problem with private accounts

A German citizen opens a personal account in the USA. This account is automatically reported to the German tax authorities, which can lead to a possible audit and additional tax requirements.

Scenario 2: Solution through an LLC

The same German citizen establishes an LLC and opens a business account in the name of the LLC. Since the LLC is considered a US entity, there is no automatic transfer of data to the German authorities and financial privacy is preserved.

Scenario 3: Using an LLC for international business

An investor with holdings in several countries founds an LLC in the USA to bundle international transactions. This protects it from the automatic exchange of information and preserves his financial privacy.

Conclusion

The Formation of an LLC in the USA offers an effective way to protect yourself from the automatic exchange of information and the associated monitoring. While private accounts are automatically reported, the financial transactions of an LLC remain hidden from the German authorities. This structure allows you to maintain your financial privacy while benefiting from the advantages of the US financial system.

Further information on the FATCA agreement and the specific regulations can be found on the website of the Federal Central Tax Office here.

FAQ

What is the automatic exchange of information between the USA and Germany?

The automatic exchange of information is an agreement between the USA and Germany in which account information is exchanged between the two countries in order to prevent tax evasion.

Does the exchange of information only affect private accounts?

Yes, the exchange of information only concerns private accounts and not accounts of Limited Liability Companies (LLCs).

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a US law that requires foreign financial institutions to report information on accounts held by US citizens to the US Internal Revenue Service (IRS).

How do LLCs differ from private accounts with regard to the exchange of information?

LLCs are US entities and are not considered foreign persons. Therefore, no data on LLC accounts is reported to foreign authorities, including the German tax authorities.

Where can I find more information on FATCA?

Federal Central Tax Office: https://www.bzst.de/DE/Unternehmen/Intern_Informationsaustausch/FATCA/fatca_node.html