Invoicing without being self-employed: the solution

If you have reached this article, it is possibly because you are looking for a legal way to be able to invoice sporadically to companies or freelancers for a specific job you have done or service you have provided.

If you live in Spain, you may have heard false urban legends that if you do not reach a minimum amount of income, if you have another job in the General Regime or if you do not do it on a regular basis, it is not mandatory to register in the General Regime of Self-Employed Workers (RETA) in order to invoice.

All these are... legends. In Spain, any person wishing to invoice other companies or individuals is obliged to register with RETA and bear the fixed monthly costs, regardless of whether or not you earn income. This aspect can be a considerable burden for entrepreneurs or small online businesses that are just starting out and do not yet have a regular income.

Create an LLC in the United States from Spain

To summarize it a lot and not to bore you with complex explanations that you might not even read, I will tell you about what could be the solution to your problems to be able to invoice: create an LLC in the United States from Spain.

At the beginning you may find it a little complex or confusing because of the small steps to create an LLC that you have to do from Spain, but once you have it constituted, you will see how it will be worth it.

A LLC o Limited Liability Company is a flexible legal form of business in the United States that combines features of corporations, such as limited liability protection, with the tax simplicity of partnerships.

For entrepreneurs, freelancers and small businesses, especially those operating online, it is a very attractive structure, and can be particularly interesting for Spanish residents who need to bill for services on an ad hoc basis.

And if you are the only one who is going to be behind an LLC, there is the formula Sole Proprietorship LLC (single-member LLC), even easier to form and maintain.

In addition, something that you must take into account when creating an LLC in the USA from Spain, is the choice of the state where you want to locate it. The United States has 50 states and, in some of them, it will be more economically favorable for you.

Advantages of LLCs

For Spanish residents looking for a flexible structure to bill for one-time services (such as freelance work, online consulting, or digital product sales), the U.S. LLC offers several significant advantages:

1. There are no fixed self-employment fees:
   • In Spain, if you want to legally invoice other companies or individuals, you are normally obliged to register with the Special Regime for Self-Employed Workers (RETA) and pay a monthly fee, even if you invoice only occasionally. Currently, the minimum fee for self-employed workers is around 300 euros per month, which represents a considerable cost if you do not have a regular income.
   • With an LLC, you are not subject to pay any fixed monthly fees to maintain the company. You only incur incorporation fees and minimal annual or biennial administrative costs that depend on the state (in New Mexico, for example, the costs are quite low).
2. Flexibility for international invoicing:
   • An LLC allows you to issue invoices as a legal entityThis can give you greater credibility with international clients, especially if you work with U.S. companies or clients who prefer to deal with a company rather than an individual. In addition, you can invoice in dollars or other currencies, which can facilitate transactions with international clients.
3. Simpler taxation for one-time services:
   • For those who bill only on a one-time basis, an LLC can be a simpler and more tax-efficient solution. By being taxed as a passthrough entity, the LLC's income is reported directly on the owner's personal tax return, making it easier to manage income from one-time services.
   • By not being a US resident, and if the LLC does not generate income within the US, you may not have to pay U.S. federal taxes.However, you will always have to declare such income in Spain.
4. Less bureaucracy:
   • Compared to an SL in Spain, which is obliged to file annual accounts and comply with greater accounting requirements, an LLC has fewer bureaucratic obligations. This makes it a much more streamlined option for someone who only needs to invoice on an occasional basis or run a small business with fewer legal complications.
5. Tax savings:
   • Depending on how you structure your LLC and your income, you may find that tax benefits in the U.S. versus the tax structure of the self-employed or SL in Spain. By avoiding self-employment fees and double taxation (typical of Spanish SLs), an LLC can reduce your overall tax burden.
6. Asset protection:
   • Even if you are the sole proprietor, the LLC offers you protection against potential liabilities derived from your business activity. If a problem or claim arises, your personal assets will be separate from the operations of the company, a level of protection that you do not have if you operate as a self-employed person in Spain.

Reasons to create an LLC in the USA

First of all, you must take into account that, with respect to the Spanish tax authorities, the creation of an LLC in the USA being a Spanish resident, must have justified reasons.

Here are the main justifications and considerations to take into account:

International business operations

• International customers or suppliersIf your online business works primarily with international customers or suppliers, especially in the US or outside of Spain, a US LLC may be a logical structure. This type of entity allows you to operate globally with a recognized and flexible legal entity.
• In addition, when invoicing in U.S. dollars or to U.S. customers.It is more efficient and professional to use a local entity such as an LLC. This simplifies transactions and can facilitate obtaining international clients, who may be more familiar with the LLC figure than with a Spanish SL.

Cost reduction and legal flexibility

• A legitimate justification may be the maintenance cost optimization and legal flexibility. As mentioned before, an LLC in states such as New Mexico has much lower maintenance costs than the self-employed or an SL in Spain, and offers advantages such as asset protection, management flexibility and anonymity.
• In addition, an LLC allows you to operate under a more flexible legal framework, which can be useful if your activity requires more freedom to make decisions or manage profits without as much bureaucracy as that found in Spain.

3. E-commerce activities or digital services

• If your online business is related to the e-commerce, digital marketing, software development or the provision of online servicesIn some cases, it may be justified to use an LLC to manage these activities. These sectors are highly globalized, and many companies prefer to invoice and operate from jurisdictions with lower regulatory and tax burdens, such as many U.S. states.

4. Asset protection and anonymity

• If your business has a asset protectionFor example, if you fear that public exposure in Spain could put you at risk from competitors, suppliers or potential lawsuits, an LLC in New Mexico may offer you a level of anonymity which is not possible in Spain. This privacy is not an illegal or questionable ground, as long as it is properly managed and the income of the LLC is properly declared in Spain.

5. Participation in U.S. financial markets

• If you plan to investing or participating in the U.S. financial market. or if your business is related to financial services, technology startups or international investments, a US LLC can offer you direct access to these markets. The US legal and financial framework can be an advantage, as many international banks and platforms require a local entity to operate.

Tax obligations and key recommendations

A LLC in the United States has a series of tax and filing obligations, but these obligations are depend on the state in which it is registered and how the owner has chosen to be taxed.

As I explained before, the LLC is a flexible structure, and the tax obligations vary depending on whether the LLC is owned by a single owner (sole proprietorship) or has multiple owners, as well as whether the owner is a U.S. or non-U.S. resident.

Below I detail the main tax obligations for an LLC, with a focus on the obligations of a sole proprietorship and non-resident LLC in the US.

Federal tax obligations of a U.S. LLC.

1. Income tax ("Passthrough taxation")
   • By default, the LLC does not pay taxes at the corporate level. Instead, income or loss of the LLC passes directly to the owner and are reported on the owner's personal tax return.
   For a Sole Proprietorship LLC (single-member LLC), income and expenses are reported in the Form 1040 of the owner's personal statement, using the Annex C (Schedule C) for LLC income.
   • In the case of non-U.S. residents, if the LLC has no "nexus" or connection to the country (ie, has no employees, property or income generated within the U.S.This makes the LLC very attractive for online businesses or services that do not have a physical presence in the US.
   However, if the LLC generates income within the U.S., you will need to file the Form 1120-F for non-residents, declaring only income generated in the USA.
2. Information form for non-residents: Form 5472
   • If you are the sole owner of the LLC and you are not a U.S. resident, a key obligation is the filing of the Form 5472. This form informs the IRS about certain transactions between the LLC and its foreign owner. It is required to be filed if the LLC engages in "substantial transactions" with its owner or other related party, although this obligation applies even when the LLC does not have to pay taxes.
   Substantial transactions" may include capital contributions or the transfer of money between the owner and the LLC.
   • The Form 5472 must be submitted together with the Form 1120by no later than April 15 of the following year to the tax year reported. Failure to file carries heavy penalties (minimum $25,000).
3. Self-employment tax (self-employment tax)
   • If the LLC generates income in the U.S. and the owner is a U.S. resident, this income may be subject to the employment tax (self-employment tax), which covers Social Security and Medicare contributions. In 2024, the rate of this tax is 15.3% on the first $142,800 of net income.
   • However, if you are non-U.S. resident and you have no employees or physical activity in the U.S., you will not be subject to this tax.

State tax obligations

State tax obligations depend on the state in which the LLC is registered. In the case of an LLC in New Mexicothe main obligations are:

1. Periodic reporting
   • In some states, LLCs are required to file an annual or biennial report, in which they update company information (name, address, registered agent, etc.) and pay a small administrative fee. Annual and biennial reports are not required in New MexicoThis reduces costs and associated bureaucracy.
2. Franchise tax
   • Some states such as California or Delaware impose a "franchise tax" on all businesses registered in the state, regardless of whether they are in business or not. New Mexico does not levy a franchise taxThis makes it an attractive option to register an LLC, as it only requires the payment of the registered agent's fee and the initial incorporation costs.
3. Sales and use tax (sales tax)
   • If the LLC sells tangible products or provides certain services in the U.S., it may be obligated to collect and remit the SALES TAX. In New Mexico, this tax is known as Gross Receipts Tax (GRT) and operates similarly to the sales tax in other states.
   • However, if your LLC only offers services or products outside the U.S., you generally will not be required to collect this tax, especially if you have no U.S. "nexus" (physical presence or employees).

Other important obligations and considerations

1. Bank accounts and financial management
   • Although it is not a tax liability, it is advisable for the LLC to have an separate bank account for business operations. This facilitates financial management and avoids the "commingling" of personal and business assets, something that could put limited liability protection at risk.
2. Registered agent
   • All LLCs in the U.S. are required to have an registered agent in the state where they are incorporated. This agent is the person or company that receives legal documents and official notices on behalf of the LLC. For non-residents, it is common to hire a company to provide this service, which entails a small annual cost.
3. Penalties for noncompliance
   • If you fail to file the required forms, such as the Form 5472 or the Form 1120 For non-residents, the penalties can be high. In the case of Form 5472, the minimum penalty is $25,000 for failure to file or late filing.

Federal tax obligations of an LLC in Spain

Creating an LLC does not exempt you from complying with your tax obligations in Spain. Here is how to ensure that the Tax Agency has no reason to question the legitimacy of your LLC:

1. LLC income statement in Spain:
   • If you are a tax resident in Spain, you will be subject to the Spanish "worldwide income" regulations, which means that you must declare all income earned anywhere in the world. If your LLC generates income, you will have to declare it in your personal income tax return in Spain, since an LLC is a "passthrough" entity (its profits pass directly to the owner).
   • If you use the LLC to channel income, this must be duly justified as part of your economic activity and reflected in your Spanish tax return.
2. Form 720: Declaration of assets and rights abroad:
   • If your LLC has significant assets, bank accounts or investments, you will likely be required to file the Form 720which is the declaration of assets and rights abroad. This includes bank accounts with more than 50,000 euros, financial assets and participations in non-Spanish entities.
3. Avoiding "Residency Simulation".:
   • The IRS may consider the creation of an LLC in the U.S. as an attempt to evade taxes if there is no real economic justification behind the entity and if it is only used to divert income. This is known as "simulation of residence" o "activity simulation".The LLC may be subject to penalties if it is proven that the LLC has no real operation or that it is being used solely as a mechanism to avoid paying taxes in Spain.
4. Specialized tax consulting:
   • Consult a tax advisor in both Spain and the U.S. is essential to ensure that you comply with all regulations. A good advisor will help you structure your LLC in a way that is beneficial and compliant with the tax laws in both jurisdictions, minimizing the risks of possible penalties or inspections by the tax authorities.

Conclusion

Create an LLC in New Mexico can offer you a much more flexible and less costly structure than being self-employed in Spain, especially if you run an online business that requires invoicing other companies or individuals internationally.

With an LLC, you not only avoid the mandatory monthly self-employment fees, but you also have the possibility to reduce your tax burden and maximize your profits by deducting expenses related to your business activity. In addition, it gives you greater flexibility and anonymity compared to the Spanish model.

Creating an LLC in the US while resident in Spain is justified when there is a clear business reason, such as international expansion, the need for a more flexible structure or cost optimization. However, you must always comply with your tax obligations in Spain and declare the income generated by the LLC in a transparent manner.

With good planning and the right advice, you can take advantage of the benefits of an LLC in the U.S. without conflicts with the Spanish Tax Agency.