Can I Bank in the US without Paying US Tax?

Yes, you sure can. Just having an account at a US bank isn’t enough to cause you (or your non-US corporation) to pay US tax. Plus, opening a US bank account can be an absolute breeze.

Written by Stewart Patton

This topic provides a rare opportunity to talk to both of the groups I help on a daily basis: US expat entrepreneurs and non-US entrepreneurs.

And really, it’s sort of unfortunate that this topic needs to be addressed at all. As you’ll see, the idea that banking in the US causes you to pay US tax is a common myth born of a misunderstanding of the US tax system.

Let’s get right to the myth-busting.

It’s not where, it’s what

And let’s start with non-US entrepreneurs.

Whether or not you’re subject to US tax depends on what you do in the US. Click here for an article that explains exactly how US tax works for non-US entrepreneurs.

Read that article for all the details, but here’s the bottom line: you’re only subject to US tax if you have your own people on the ground in the US running your business. If you run your business while you and your employees are entirely outside the US, then you won’t owe any US tax on income from your business.

Whether or not you bank in the US doesn’t change that analysis one bit. Receiving payments from clients or customers into a US bank account doesn’t make you subject to US tax when your activities in the US otherwise wouldn’t.

You won’t even pay US tax on interest

Even better, you’re normally subject to US tax on any interest income you receive from US sources. However, there’s a special rule that exempts interest you receive on bank deposits.

After all, if you have money you want to keep in US banks, the US doesn’t want to discourage you from doing that by taxing you on the interest income.

Now, of course, these days ordinary bank accounts don’t pay any interest (or pay only enough to buy a cup of coffee per year). But, this exemption at least shows that banking in the US doesn’t cause any US tax problems all by itself.

It’s not where, it’s who

Let’s turn to US citizens who live outside the US and operate a business through a non-US corporation. Click here for an article that explains exactly why a non-US corporation is typically the best structure in this situation.

First, the discussion above applies here as well. Whether or not your non-US corporation is subject to US tax depends on its activities in the US. So, you also want to avoid having your own people on the ground in the US operating your business.

Then, of course there are other concerns in your situation as well. As a US person, you’re generally subject to US tax on all your income, subject to the special rules for expats (such as the foreign earned income exclusion).

When money moves from your non-US corporation to you, it can only be one of two things:

  1. A dividend paid to you in your role as a shareholder of the company, or
  2. Salary paid to you in exchange for services you provided to your company.

Now, of course there are lots of ins and outs here; discussing everything here is a much longer conversation (and note that this topic is fully covered in Tax-Savvy Expat Entrepreneur).

Here’s the point for present purposes: whether you have income depends on who owns the money (i.e., you or your non-US corporation). It doesn’t depend on where the money is kept (i.e., in the US or outside the US).

So, a movement of money from the non-US corporation to you could be a taxable event. But just keeping money in a US account doesn’t cause you or your non-US company to pay US tax.

Set up your legal structure Wherever you’d like

For both US and non-US entrepreneurs, one benefit of realizing that you can bank in the US is that it frees you up to set up a legal structure wherever you want to.

Many people look to Hong Kong as a stable and safe banking jurisdiction, so they deal with the pain of having a Hong Kong company so they can access Hong Kong banking. Click here for an article that discusses that pain in more detail.

Well, many of those folks are singing a different tune at the moment. Hong Kong banks are some of the most difficult banks in the world to actually do business with.

Then, just like rain on your wedding day, Hong Kong banks also make it difficult to open an account in the first place. Beatings will indeed continue until morale improves.

So, once you realize you can bank in the US, you’re free to make your life easier by incorporating somewhere other than Hong Kong.

There’s no need to deal with the headaches of a Hong Kong company just so you can beg to deal with the headaches of Hong Kong banking. Set up a company somewhere else and bank in the US instead.

How to open a US bank account

The actual process of opening a US bank account is a fairly black and white thing depending on how you choose to do it. You can either:

Like many things in life, a little know-how and the right connections go a long way. There are lots of little details to get right. I’ve helped lots of entrepreneurs set up a US legal structure and open a US bank account . I have the process down to a proverbial science.

Also, unlike some others I’ve heard about from my clients, I do everything in a fully transparent and above-board way. There’s no lying to the bank or taking shortcuts with any step in the process. Everything is done correctly so you don’t have to worry about whether your account will be closed down once the bank finds out the truth.

If you’d like some help opening a US bank account for your business, click here to schedule a call. I’d be glad to put my knowledge and connections to work for you.

Download this FREE REPORT to discover common (and costly) expat tax myths.

Want to know more? The Tax-Savvy Expat courses teach you everything you need to know about expat tax.

Stewart Patton