Los taxes of a LLC in the United States They are one of the main doubts of professionals, consultants and international entrepreneurs who use this structure to develop business with clients in different markets.
However, Having a company incorporated in the United States raises an important question for those who do not reside in the country:
Is income received through a US LLC necessarily subject to US income tax??
The answer does not depend solely on the country in which the company was incorporated or the location of the client.. For a non-resident foreigner (Nonresident Alien o NRA), One of the fundamental elements of the analysis is where services are physically provided.
The place where the service is provided can be decisive
According to the analysis prepared by Castellon | Halloun, ICG member firm in the United States, The IRS generally determines the source of income derived from personal services by considering the location where the services are physically provided..
For this reason, when a non-resident develops professional services entirely outside the United States, technological, administrative or consulting, that income can generally be considered foreign source income.
This can occur even if:
- The business operates through an LLC incorporated in the United States;
- the client is located in the United States;
- the contract is concluded with an American company; o
- Payment is received in a US bank account.
It's an important distinction: the location of the LLC, of the client or the bank account does not alone determine the source of income from services.
An example: a US LLC with services provided from another country
Let's think about a non-resident consultant who forms an LLC in the United States and works with clients located in the United States., Europe and Latin America.
If you perform all your services physically from outside the United States and do not provide them while you are in the United States, Operating through a US LLC does not automatically convert that income to US source income.
When the income is from a foreign source and the non-resident does not have other income effectively related to a commercial activity or business in the United States, these generally may not be subject to US federal income tax.
The taxes of an LLC in the United States do not depend solely on its incorporation
This is probably the central message of the article.
Form an LLC in the United States does not automatically mean that all service income earned by its owner is subject to US income tax.
To analyze the situation of a non-resident, different elements must be considered.
1. Where services are physically provided
It is necessary to determine if the work is performed entirely from abroad or if a portion of the services are provided while the professional is physically present in the United States..
2. How the LLC is tax treated
It must be analyzed if, for US tax purposes, The LLC is treated as a ignored entity (disregarded entity), a sociedad (partnership) or one corporation.
3. If there is commercial activity or business in the United States
Another element is to determine if there is a U.S. trade or business or income actually related to that activity (effectively connected income).
4. The physical presence of the professional in the United States
If any part of the services are performed while the person is physically present in the United States, analysis may change.
Structure matters, but also how the business actually operates
An LLC can be a useful structure for developing international business, but LLC taxes in the United States They should not be analyzed only at the time of constitution.
The location from which the services are provided, the tax classification of the LLC, The activity carried out in the United States and the physical presence of the owner are elements that must be evaluated together.
For this reason, a proper structuring and documentation are critical and each situation should be reviewed individually with a qualified U.S. international tax professional..
An international decision requires analyzing more than the place where the company is established.
For a non-resident professional who provides services entirely outside the United States, income derived from those services can generally be considered foreign source, even when operating through a US LLC and receiving payments from customers in the United States.
But Having an LLC is only part of the equation.
Understand where income is generated, How the business is structured and what connection it maintains with the country allows a more precise evaluation of the taxes of an LLC in the United States and its other tax implications.
You may also be interested: FIRPTA: Why Tax Planning Should Start Before Investing in US Real Estate.
This article was prepared based on the analysis shared by Castellon | Halloun, firma miembro de International Consulting Group (ICG) in the United States.
The content is for informational purposes and does not constitute tax or legal advice.. The circumstances of each taxpayer and business structure must be analyzed individually by qualified professionals.
