Discussion:- LLC with foreign member
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> - LLC with foreign member
| 26 October 2006 | |
| Hi,
I'm thinking on setting up an LLC for my new online business. It will not sell products, it will rather make profit from advertisement in the website. I expect to engage in agreements with other companies in the US and Latin America. I'm a US resident and my partner a foreign national who is living outside the US and will be working in this project outside the US. These are my questions: 1. If the distribution is 50/50, what are the percentages tax-wise for both members on transactions performed in the US? (I'm looking at some information as to the % tax rate from the federal government + any SSA/medicare % considering the situation above) I would also like to know the truth about the foreign member paying taxes or not. 2. I've been asking around about the advantages of forming in either Delaware or Nevada. I'm currently in a state with state taxes and since this is a home-based business, is it likely the LLC will incur state taxes if I form in DE or NV only? provided the nature of this business? 3. Would it be wise to just form in my home state though I won't be doing business in this state in particular? Maybe I should just form in here and forget about DE or NV. Thank you for your time in advance. N. | |
| 26 October 2006 | |
| You will definitely be doing business in your home state and will have to file a return for the business there whereever you organize. | |
| 26 October 2006 | |
| You may not want the foreign person to own an interest in a US LLC. If the LLC is engaged in a U.S. trade or business (e.g., through your activities in the U.S.), the foreign owner will be deemed to be engaged in a U.S. trade or business. Creating a foreign entity of which you own 50% may be better. There are some complications/filing obligations to creating a foreign entity, but your partner can avoid U.S. tax. | |
| 26 October 2006 | |
| Thank you for your help. I thought about creating a foreign entity but I will need to engage somebody else in that country to do this for me. What you are saying is that the foreign person will be liable for taxes if I don't do that. Furthermore, state taxes are likely to be applied.
Now, do you have an idea what taxes % we will have to pay under the example above? US member = 50% of LLC foreign member (individual) = 50% of LLC I would like to know the federal income tax rate, and the self-employment tax rate applicable in both cases. I imagine the state tax would be around 7% but I'm not sure the foreign member would have to pay state taxes. Thank you. | |
| 26 October 2006 | |
| Your federal income tax rate on the entity earnings will vary depending on first how you are treated, as a partnership (partner's will be taxed on their individual tax rates)for both state and federal taxes. Self employment taxes are 15.3% with an above the line deduction for 1/2 of that, so essentially, the rate for the self employment fica/medicare taxes are 7.65%. If incorporated, then a corporation tax rate is based on a sliding scale depending on the income of the corporation. Either way, both state and federal taxes will be paid on your earnings.
The foreign individual may have reduced tax rates from a treaty with the US, however individual states are NOT bound by treaties and can assess taxes on income generated in those states. IntlTax is correct; if you are considered engaged in a trade or business in the US by a foreign individual then the foreign individual is also considered to be operating that same trade or business and then you will have to address visa issues and tax issues in their country as well as the US. I like the idea of forming a foreign entity that you own 50% of. Our treaty with another country may assist you in the tax implications as foreign tax credits or adjustments and your partner will avoid any US taxation. | |
