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Written by : Kym Kosack |
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welcome back everyone michael here with offshore citizen today i'm going to answer a question that comes up quite frequently from foreigners in fact even lawyers and accountants ask me this question including interestingly u.s accountants so what we're going to be discussing is say you are a foreign owner of a u.s llc are you subject to taxes in the u.s now in addition to that for all of you who are not from or who are americans uh or from somewhere else i'm also going to cover how this the principles that are covered here apply to other types of structures in other parts of the world because we're going to get into some definitions which can be quite important so if you want to save taxes this could be a a good point for you and if you're unclear on this point it will hopefully clear some things up because it is fairly important in a variety of different areas when we're kind of assessing the taxability of a structure so we're going to dive into that if we you haven't already please hit the subscribe button hit the notification bell make sure you don't miss out on any of our future videos if you don't know we try and produce great content for you every single day if you're interested at all in these subjects of how to pay the lowest legal amount of tax possible reduce your global tax burden protect your assets if you're interested in forming offshore companies opening offshore bank accounts if you're interested in getting residencies or citizenships any citizenship by investment programs including unofficial citizenship by investment programs please reach out to me you can book a call clarity.fm for michael rosmer there's a link in the description below or you can check out our website offshorecitizen.net and offshorecapitalist.com and you can send us a message there okay let's dive into this all right so just for a little quick piece of background in the us there are a variety of different companies the most important two that would matter for this conversation i've done a bunch of videos on different corporate forms so you can feel free to go and check out those videos but is c corps and llc's okay now in particular when referring to an llc we're referring to typically a single member llc which is called what's called which is referred to as what's called a disregarded entity okay and i'll get into in a second how that's relevant first let's talk about c corps if you have a c corp a c corp is a separate legal person under the tax code and so it is subject to tax like a resident of the country so a c corp is always taxable in the u.s in fact even tax treaties are not going to get you around that residency provision you're you're screwed there okay so hence as a foreigner you may not want to form a c-corp there's some cases where c-corp is the best solution for you but oftentimes it's not okay now this is similar to if you're from somewhere else which might include the us maybe you want to look at a uk llp you might look at an llc in some other countries there's not that many countries that have them but some do you might look at something like a canadian lp or llp etc etc there's a in another one there's something called the cvb structure that used to be kind of common in big corporations international tax planning so anyway all of these kind of follow some similar principles as we're going to talk about here in addition to that what we're going to discuss plays into territorial tax so if you're looking at say malaysia has a territorial tax system hong kong has a territorial tax system panama has a territorial tax system costa rica sort of paraguay uruguay a variety of different countries this might become relevant okay now let's talk about the llc side so when you have an llc which is a disregarded entity what this means is that for u.s tax purposes it does not exist it's similar to being a sole trader you might be familiar with that in your home country a sole trader or a sole proprietor which basically means that the income of the business and your income are the same okay so there's no it's not like there's a separate tax return for your business and you know it's all the same like whatever you earn that's your income you pay taxes on that income as opposed to having a company which earns income pays tax on there and then pays a dividend to you okay so this separation is really important so an llc is not separate and this is going to play into our questions okay so let's look at the simple scenarios that come up let's say that i am an online drop shipper okay so i have products and i sell them around the world okay let's say that for simple for kind of the sake of simplicity i am based in cyprus okay we'll just use cyprus as an example all right so i'm based in cyprus i'm shipping products all over but i'm operating all through the web and my operations are in cyprus okay now if i set up a c-corp in the u.s it's very clear that that company is taxable okay very clear on the flip side if i am not operating through a u.s company and it's typically pretty clear that i'm not taxable in the u.s right where people enter this point of confusion is okay i have this u.s llc which it doesn't exist for u.s tax purposes but it's still a registered entity in the u.s now am i subject to taxes in the u.s okay and so we're going to go through the way that you figure this out and how it works then i'm going to apply it to some other scenarios that again might be useful to you all right so what a lot of people if you kind of look into it we'll say is they'll say hey listen well you're still taxable for business generated in the u.s right so maybe let's separate this out first of all so if you if you are like because there's no separate person right the in your income and the income of the llc are going to be one in the same right so in theory the tax treatment sure that you have not without the llc should not change with the llc it should be identical right because there's no separate legal person there's some additional filings you have to file 54 72 each year things like this but that's that doesn't change your tax obligations okay so there's a little bit of a thing that happens here which i think is worth noting which is sometimes people actually do have tax liabilities in another country but because they're not in that country it's difficult to enforce it's difficult to pay attention to it's just not on the radar and so hey listen you might be getting away with it it doesn't mean that it's legal and by wrapping a legal entity there even if that legal entity doesn't change your tax status that legal entity could put you under the magnifying glass so that now you're being seen right so a great example of this i think is with uh sales tax right if you look at say eu vat generally speaking whether you have a company in the eu or not does not change the vat obligations okay let's say you have supply of electronic services right this is based on place of supply rules and the place of supply is where the customer belongs not where the business belongs so say a u.s company selling electronic services to a client in the eu is still supposed to charg
Thanks for your comment Laurel Armando, have a nice day.
- Kym Kosack, Staff Member
hello Internet hello everyone I hope I hope you're all doing well I was I get this question all the time that I was going through my notes and I put together this document that I thought I'd like to share and it's basically why foreign owned LLC's don't have to pay income taxes in the United States and it's so glamorous we go over the actual code sections and it's not that complicated I say that from someone who does it professionally but it's the concept is pretty pretty simple and I'll summarize it here if you are if you if you have a u.s. LC and you're not a u.s. resident you have no office no employees and you don't do any sales or any business and no inventory or anything inside the United States then you don't have to pay income taxes in the United States I say inventory if you selling online like Amazon will seller and Amazon has your inventory I that that doesn't count for the purposes of this conversation so I have a little table contents but basically the concept when I talking about and I have a little example if you want this some message me and I'll send you a copy of this so Code section 865 United States resident non-resident so a 65g one a the term United States resident means person who does not have a tax home well uh an individual who is as a tax form in a foreign country or as a non-resident or anything defined in this code session fine so a non-resident is any other person so as long as you don't have a green card you're not a US citizen you're not a resident so that's that part now if you have an LLC how LLC is treats for tax purposes here and LLC's federal tax treatment depends on whether has one member of multiple members and made a tax election by default and LLC will be taxes either a sole proprietorship like in that's disregarded from its owner or multi-hour partnership if there's more one member there both passed through and if you have a multi-member LLC it's still not subject ax ation if it doesn't meet these criteria so you and you can elect your LLC to be taxed as a corporation if you want but then you pay tax in the United States so source of income now this is where we get into the the good stuff here performing services in the United States a sixty to a three say it's a compensation performed outside the United States is a non-us source income there's more details but if you do everything outside the United States it's not us source income having a fixed place of business in the US and we have goes on to Code section eight sixty four so having the source I have the source code section is fine you do not have a fixed place of business in the United States unless you have an office you have agents and you know my clients that use our address we're um we're not an agent we can't enter into contracts or anything so we don't do anything any of that for our clients that we let we let our clients use our mailing address so yeah don't open an office or hire salespeople no employees contractors is different if you have a person in the US who's not an agent can't enter into agreements and you doesn't do sales for you if he's an independent agent that's fine like a contractor you hire someone to do design work to do something whatever that's fine but if they're a salesperson or can enter into contracts then you get you get an opinion about it I think you should look into it a little further if you try not to pay taxes here and then there's other kinds of us source income like rental income obviously you if you're getting rental income then you have a u.s. business there's some exclusions if you have a certain student visas you're not in you're not a resident and then we get into the reporting requirements and some more details and then a conclusion but that's basically it's pretty simple you're not doing business here you don't pay taxes here and if you want this report just message me and I'll send it to you it's the tax free LLC support memo that I wrote because I get that it's too good to be true message' like I don't believe you why do you mean pay no taxes so you know the benefit you you probably you might have to pay tax in your home country that's fine but the benefit of having a u.s. LC isn't always just not paying taxes here as a benefit but the benefit might be that you have access to a US market you can accept payments from here better you have your money in the u.s. account instead of a foreign account there's a lot of different benefits of having a US company so if not paying taxes might not be one but it's a huge if you have to pay taxes it would make it much less attractive right so yeah let me know if you have any questions about this what you think comment below happy to get some comments and let me know if you want the report I'll have an email to you thanks
Thanks wilsonlopezN your participation is very much appreciated
- Kym Kosack
About the author
I've studied community psychology at Olivet Nazarene University in Bourbonnais and I am an expert in structural equation model. I usually feel bored. My previous job was fence installer I held this position for 26 years, I love talking about iceboat racing and ultimate tazer ball. Huge fan of Harry Winston I practice darts and collect disney pin trading.
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