The American LLC and the Estonian OÜ are among the most popular company forms for digital entrepreneurs, freelancers and online businesses with an international focus. Both models offer advantages in formation, taxation and administration. But they are not equivalent, and they are not interchangeable.
In many cases the US LLC is the clear favourite. In others you need an EU company, whether you like it or not. For example, if you process sensitive data and clients insist on GDPR compliance. Or if your clients are public bodies, banks or large corporations within the EU.
In this article you will find out when you can operate tax free and anonymously with an LLC, and when you are better off with an OÜ, even if it is less attractive for tax purposes.
Thinking ahead: who actually benefits from a foreign company?
Before you decide on a US LLC or an Estonian OÜ, ask yourself one fundamental question:
Does a foreign company actually bring me any advantages, or am I just creating new problems for myself?
If you live permanently in a high-tax country, a foreign company is no miracle cure for avoiding tax. In most cases you will count as tax resident there, and then all your worldwide income is subject to local taxation. That applies regardless of where your company is registered.
A foreign company only really makes sense if you:
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live abroad or want to move abroad,
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work internationally (YouTube, digital products, software, consulting and so on),
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want to shape your tax status actively, for example by moving your residence or using territorial taxation,
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want to combine privacy, flexibility and tax efficiency.
If you recognise yourself in one of these groups, read on. Because in that case a US LLC or an Estonian OÜ can be a powerful tool for your business.
The US LLC: flexible, tax free, anonymous, if you do it right
An American LLC is not a corporation in the classic sense, but a hybrid company form. For tax purposes in the US, you can have it treated as a sole proprietorship (with a single member) or as a partnership (with several members). This so-called "disregarded entity" is not taxed separately by the IRS: all income flows directly through to the member.
And now the decisive point: The United States levies no tax on this income as long as two conditions are met:
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You are not a US person (meaning not a US citizen and not a green card holder),
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Your LLC has no "effectively connected income" (ECI) and is not "engaged in a trade or business in the US" (ETBUS).
It is a widespread misconception that US clients alone would trigger tax liability in the United States. That is not the case. What matters is not where your clients are, but where and how you carry out your work.
Example: You run a YouTube channel, sell online courses or do consulting while sitting in Bali, Dubai or Cyprus, and you use a US LLC to write invoices and pool your income. Even if your clients come from the United States, there is no US tax liability as long as you neither work there physically nor maintain staff or permanent establishments there. There is no ETBUS, no ECI, and therefore no tax liability in the United States.
Anonymity and privacy: the LLC offers what Europe banned long ago
An unbeatable advantage of the American LLC is the complete absence of public transparency obligations. Unlike in the EU, there is:
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No central register of beneficial owners
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No obligation to publish the balance sheet
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No disclosure of income
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No automatic reporting to other countries, provided no US bank account is used
That means you can operate anonymously and privacy-friendly with an LLC, provided you live in a country that accepts this structure or does not care about it. For entrepreneurs who value privacy and want to escape state surveillance, that is an invaluable advantage. Especially in view of CRS, DAC8, CARF and other regimes that are creating the transparent entrepreneur across the EU and the OECD world.
The Estonian OÜ: EU compliant, reputable, but with a tax catch
The Estonian OÜ (osaühing) is a classic limited company under EU law. It is recognised throughout Europe, can apply for an Estonian VAT number and meets all GDPR requirements. Many EU clients, especially in B2B, expect exactly that. Some insist that their contractors run a company registered in the EU with a VAT identification number. Public authorities, banks, insurers and large corporations in particular usually do not deal with non-European entities.
The OÜ also has advantages when it comes to payment processing: PayPal and other providers are often easier to set up with an EU company, while with US LLCs they sometimes require additional checks or even refuse.
Taxation of the OÜ: 0% on retained profits, but watch out on distribution
At first glance the OÜ looks attractive for tax purposes: as long as profits are not distributed, no corporate income tax is due. That gives you the option of letting your company grow and building reserves without an immediate tax burden.
But reality is more complex:
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As soon as you distribute a dividend, you have to pay 22% tax in Estonia (since 2025; the former reduced rate of 14% for regular distributions was abolished).
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Alternatively you could pay yourself a salary, but that is only tax free if you can prove you already pay social security contributions and taxes in another country.
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Without proof of residence or active tax liability in another country, the Estonian tax authority can treat the salary payments as taxable or regard the OÜ as resident in Estonia.
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In addition, the OÜ is always subject to Estonian bookkeeping obligations, which have to be met monthly (in Estonian!).
In short: a tax-free salary only with a well-documented residence, and otherwise 22% on the dividend.
What we do, and what we don't
ZeroTax LLC is a service of Mount Bonnell Advisors, based in Austin, Texas. We specialise in structuring tax-free US LLCs for international entrepreneurs. We help you:
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form an LLC in a low-cost state such as New Mexico or Wyoming,
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structure it as a "disregarded entity",
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obtain an EIN from the IRS,
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file Form 5472 + 1120 correctly,
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run your LLC in a legally sound and anonymous way.
But to be very clear:
We do not help you form an Estonian OÜ. There are specialised providers in Estonia for that. We also do not give recommendations on the bookkeeping or the tax treatment of the OÜ outside Estonia.
When should you choose which structure?
Go for a US LLC if:
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you live outside the EU,
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you do not process sensitive client data,
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you are looking for maximum anonymity and tax freedom,
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you sell digital products, consulting or media,
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you have clients worldwide, including in the US, but do not work in the United States.
Choose an OÜ if:
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your clients insist on an EU company as their contracting party,
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you need a VAT number,
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your clients must be served in a GDPR-compliant way,
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you store sensitive personal data,
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you need lots of EU banking options and easy PayPal integration.
Both structures are strong, if you use them correctly
The US LLC offers you an almost unbeatable combination of tax freedom, privacy and flexibility. But it is no cure-all. In some cases you will not get around forming a full EU company, even if it means more tax and more bureaucracy.
If you are not sure which structure fits your business model, we are happy to advise you in a consultation held in English.