If you are a digital nomad, this video is a much watch. In it, I will show you the 8 things you need to do on how to run your business legally from overseas.
A couple of weeks ago, I was in Lisbon, Portugal for about a week. And while I was there, I got to thinking about what it would take to actually legally operate my online business from Lisbon while still doing business in the United States?
This is a really important topic because since the pandemic started in March of 2020, more and more people have not only started working remotely but are getting used to the idea of working remotely on a permanent basis. And honestly, it's just a matter of time before more and more people start to realize that they don't have to work in the city or state where they live because they can work remotely from anywhere… they can be a digital nomad.
As long as they have an internet connection and a laptop, they're good to go.
So if you've been working in some place where you feel like, well, “I kind of like living here, but I really would like to move someplace else, but the only thing that's keeping me here is I've got a really great job.”
I think that's going to be changing soon. And if this is something that you haven't actually thought about yet then I think it's time you probably should because honestly, this is a once in a lifetime opportunity that we have where people are now starting to really figure out that they have some freedom to work when and how and where they want regardless of where they live.
That means if you want to live as a digital nomad in Europe or Central America or Southeast Asia or some other state from where you currently live in, then you have the freedom to actually make that happen. That's pretty amazing.
So in today's video, I'm going to share with you the eight things that you need to do to set up and run an online business that you can basically manage from anywhere in the world, as long as you have an internet connection and a laptop.
Are you ready? Let's do this.
How Running a Business as a Digital Nomad is Different
Now, make sure you stay until the very end because I'm going to share with you the number one legal hurdle that I see expats make when they're trying to run an online business as a digital nomad. And I've done another video that talks about the eight things that you need to do to start and run an online business from the United States.
I want to point out right at the beginning that this video is completely different because if you're running a business from the United States versus running a business internationally as a digital nomad, the choices that you have and the things that you need to do to make sure that business is run legally from somewhere else in the world are going to be completely different than the choices and decisions you need to make if you're running your business from the United States.
The First Choice for Digital Nomad's – What State to Use to Set Up Your Business
As we get into the first thing that you need to do, this is going to become abundantly clear – one of the biggest differences and when you're starting a business online and you're going to be running it as a digital nomad from somewhere else in the world other than the United States, is that you can pick the state where you want to set up that business.
If you're running a business in the United States, you basically need to use the state where you live.
There are some exceptions to that, but the general rule and the advice that I give my online business clients, is if you live in Arkansas, you're going to set up your LLC in Arkansas. If you live in New York, you're going to set up your LLC in New York. But if you're living and you're working somewhere other than the United States, you can pretty much pick whatever state you want to be your legal residence for purposes of setting up your LLC.
Related Resource: To start your own LLC, click here (affiliate link).
And if that's what you're going to be doing, I highly recommend that you pick a state that does not have a state income tax. And there are nine states that fall into that category, and those states are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Setting up the Right Address for Your Business
Now, once you have picked a state to set up your LLC, the first thing you're going to do is not go running to the Secretary of State's office in that state and set up your LLC. No.
There's still a couple other things that you need to decide on and deal with before you do that. And the first thing you need to do is you need to pick a business address. And typically, this is going to be a virtual address. You're not going to be able to use the address that you have in whatever foreign country you're going to be living in it.
And there's a variety of reasons for that. Most notably is that it is somewhere else other than the United States. The second reason is you might be moving around quite a bit or traveling and you don't want to have that be your permanent address.
Another main reason why you really want to have that virtual address in the United States, is that because we're going to talk about in a little bit how to set up your bank accounts for your business. And in order to set up your business bank accounts, you're going to need to have a physical address in the state where you're going to be operating, where the LLC is going to be. And so that's another reason why you need to have that physical address.
So you're going to have to pick a service that offers a virtual mailing address. There's lots of services out there. If you Google “virtual mailing address for business”, you're going to find a ton of options. And there's a couple of things that I want you to look for.
A PO box alone is not going to cut it. There's going to be a couple of problems with that. If you pick a PO box alone, number one, you're not going to have a way to get your mail because you're going to be living abroad, so the PO box is just going to become overflowed with mail.
Second, a lot of banks and Secretary of States are going to reject a PO Box out of hand because you can't actually use a mail box number or a PO box as your virtual address. You're going to need to have an actual physical mailing address that you can use. Okay.
Again, here, I don't mean to jump in, but I'm going to jump in and say, and make sure that the service that you pick and that you choose for your virtual address offers the option to have an actual physical address. And that means you're probably going to need to have a lease associated with that address, potentially even the ability to get a utility bill with that address.
There's a number of services that will do this for digital nomads on a virtual basis, and the cost is going to be a little bit more expensive than just having a normal mail forwarding service, but it is vitally important because you're going to need this for when you set up your bank account down the road and you don't want to go through the hassle of having to re-change everything with the Secretary of State's office once you set up your LLC. You might as well get it done the right way from the very beginning.
And then from there, you're going to be looking for a service that in all likelihood will be able to scan your mail for you and put it into some sort of client portal. I think that's really important because it's going to be a lot easier to get your mail that way than it would be to have them mail everything to you at the foreign address.
Now it's possible that some services actually offer that as a service. They'll mail your mail to you as well, but that's going to take a lot longer. To give you a sense of how long the mail takes, when I was in Portugal two or three weeks ago, I mailed some postcards home to my family and they still haven't received them and it's been almost three weeks.
Run Your Business as a Digital Nomad with a Registered Agent
Now, the third thing you need to be thinking about as you're setting up your business overseas as a digital nomad, is you're going to need a registered agent.
Now, this is one thing where if you are physically present in the United States, it's possible, although I don't recommend it, that you could serve as your own registered agent, but if you're going to be doing business from the United States but you're going to be living overseas, then you absolutely positively need to have a registered agent that is going to be able to accept service of some sort of official mail for you. And like I said, this is legally required in all 50 states.
It's something you have to do, and usually the fee is going to be anywhere from $100 to $200. The preferred vendor that I would use is actually not Northwest Registered Agent. It's going to be Incfile. And if you use them as your registered agent and use them to set up your LLC, they will give you a free year of registered agent services, which is why I recommend them as my preferred registered agent service if you're using them to set up your LLC.
Setting up your LLC
The next thing that you're going to need to do is actually go and set up your LLC. So now you've picked a state, you've got a virtual address, you've got your registered agent picked out. Now it's time to actually file the paperwork and set up your LLC in the state where you're going to be doing business.
Now, a lot of people will ask at this point, Jim, why do I need to set up an LLC? Can't I just do this as a sole proprietorship? And yes, you could. Now there's going to be a couple of different reasons.
The first reason I typically give people as to why they need to set up an LLC is because in my opinion, when you're operating a business online, by setting up an LLC, it actually is going to cause a mental shift for you. It's going to click that button that says, you know what? I'm actually a legitimate business. And I think it gives people a lot of confidence when they're moving forward with their business to have a separate entity that they're actually doing business as.
The second reason I think it's really important, especially for people who are operating overseas, is you need to have that business entity in the United States where you're doing business from. This is going to be important so that you can have your bank accounts set up the right way so that you have an actual business entity that you can show the banks when you go to set up your bank accounts.
And it's all legit, and you shouldn't have any issues with your bank accounts. So that's the second reason. I think that's probably the more important reason.
If you are still doing business in the United States, it is possible to get away with not forming an LLC, but I think once you cross borders and now you're operating your business from a foreign country, I think it is very important that you actually have an LLC set up in the United States before you move.
Now, in terms of setting up an LLC, this is something that you absolutely can do on your own. I actually have a course, it's the LOCK it Down legal startup course that's going to teach you everything you need to know to set up your LLC in all 50 states. I've got a chart of all the fees and annual maintenance requirements and everything else that goes into setting up an LLC in the course. And that is a perfectly fine thing to do. So check that out. If you want to do a DIY LLC, use the course.
Alternatively, you can use my preferred vendor, and that is Incfile. And the reason why I like using Incfile is because they'll set up your LLC for you for free. They will give you registered agent services for free, and basically they'll handle all the paperwork for you.
Now there's a chance you might get up-sold certain things as part of that program, but honestly, when I set up my LLC, I probably am going to use Incfile as well, and I'm a lawyer that does this all the time. I could very easily set up my LLC online without a problem, but because they'll do it for me and they'll do it for free and they'll give you one year of registered agent services, I think that's a pretty good deal. So I would strongly encourage you to think about using them to set up your LLC.
Obtaining an EIN
So the next thing you need to do, and I recommend you do this after you set up your LLC, not before, is you need to obtain an EIN number. This is a fairly simple thing to do. I have a video tutorial in my startup course about how exactly to do this.
The reason this is so important is because you're going to need that EIN number as well as your articles of organization and potentially an operating agreement to set up your bank account in the state where you're going to be doing business.
You want to wait to set up your EIN until after you've set up your LLC is because if there are any issues with the name of your LLC or for some reason, the name gets rejected, then you don't want to go through the hassle of having to cancel that EIN number and then setting up a new one with a new LLC that you may have formed. So just wait until you get your articles of organization approved by the state where you're setting up your LLC and then set up your EIN number at that point.
Drafting and Signing an Operating Agreement
So once you've set up your EIN number, then you need to go ahead and set up an operating agreement. And an operating agreement is basically the rules of the LLC, the rules of how your LLC is going to be governed.
It's important that you have this document. You may need it when you're setting up a bank account. And you're definitely going to need it if the legitimacy of your LLC ever gets challenged or someone ever sues you and they try to pierce your corporate veil, you want to have an operating agreement in place. And so it's important that you take care of that.
Here is the link to an operating agreement template that you can use for setting up your LLC.
Run Your Business as a Digital Nomad by Opening your Bank Account
All right. So the next thing is opening a bank account. This one is going to be a bit tricky. And again, if you're working within the confines of the United States, pretty simple. Walk down to your neighborhood bank, open up a bank account, you're good to go.
When you are living abroad, it gets a little bit more complicated because all of a sudden, you have different federal laws like the Patriot Act and FATCA which is a federal law that mandates disclosure of certain bank accounts if you're living abroad. So you've got other things that become implicated now.
It also means additional reporting requirements for the bank. I'm not going to have a specific bank that I would recommend for you if you are starting a business overseas. Hopefully, you're still in the United States. If you're in the United States, it's going to be much easier to set everything up than if you are actually already living overseas.
If you're already living overseas, it's going to be a lot harder to set up your business bank account for a number of reasons. And like I said, a lot of it comes down to the Patriot Act and these other federal rules and laws that are going to mandate the fact that the bank has to figure out who you are, make sure you're not a terrorist, verify your identity and all sorts of things.
You also need to make sure the bank is not going to have problems with you doing business and living overseas with a US bank account because sometimes that can get a bit tricky. I'm going to look more into this and I will do another video that covers everything regarding business banking for expats. I was doing several hours of research on this before I recorded this video. I couldn't find anything. And the things that I could find were mostly for expats that were just opening up personal bank accounts.
But in terms of opening up a business bank account and operating a business bank account from abroad, things are going to get pretty tricky. You need to make sure you do it the right way so that you don't leave the country and now you run into problems where maybe you have to come back and deal with the bank or they try and shut your account down or they have problems accepting payments.
All sorts of things that could become issues for you and your bank. You're probably going to need to reach out to some banks and talk to them and say, “Here's what I'm planning to do. Is this going to be an issue?” And see what comes up.
Decide whether to elect S-Corp tax status
The last thing that you're going to need to deal with as you're setting up your business to run from an overseas location is you need to make a decision as to whether or not you're going to be an S-corp.
Now, this is something that needs to be done within 75 days of actually opening up your LLC. It is possible to do it after 75 days, but I think this is something that you should be thinking about at the very beginning. This is something also that might get a bit complicated because this might have an impact on what foreign taxes you might owe depending on the country where you're going to be living.
So again, an S-corp is something that you're going to need to be thinking about, and you might need to make this decision in conjunction with an international tax advisor who might be able to help you with this because depending on the country where you're going to be living, the tax requirements might vary somewhat. And assuming you do decide to elect S-corp tax status, then the next thing to do would be to set up a payroll processor for you.
Here is a link to my recommended provider for payroll taxes. And again, this is one of those situations where I highly recommend that you establish residency in a state with no income tax, and the reason for that being that you can use a local address there to get paid.
I can't stress it enough that these issues are highly complex, and in all likelihood, you're going to want to talk to a tax advisor or a lawyer or somebody else who can help you navigate these issues. I'm a lawyer. I get confused by these, and so you're going to want to make sure that you've handled all these appropriately.
The #1 mistake overseas entrepreneurs make!
So I said at the very beginning I was going to share with you my number one challenge that people have when setting up a business online if they live in a foreign country, and that is, the number one challenge, is people wait until they already are in the foreign country to start setting this business up. That is a big mistake.
You need to do all this while you're still in the United States. You need to set up your banking relationships while you're still in the United States. And you need to make sure before you move abroad that you're not going to have any issues because it's very possible that whatever bank you're using now, you might need to switch to a new bank to make sure that you're not going to have any problems with this type of scenario. And so that is the biggest issue that I see people make.
Stay tuned. I'm going to be doing another video that talks about the ins and outs of setting up a banking relationship if you are an expat running an online business from abroad, and I'll be sharing that video right here when it is ready.
If you are interested in learning more about how you can set up your online business for legal success, you may want to consider purchasing our LOCK it Down™ (legal) Toolkit. Click here for more information!
