Tax obligations of foreign operations for a US LLC


2

I live in a country where corruption and bureaucracy are widespread. Opening a business takes months and costs a lot of money, and will require one to hire somebody solely for handling all administrative obligations - which include submitting four tax declarations per month.

Together with another experienced programmer I want to set up a company that develops online applications. Our clients will mostly be from the US and from Europe, and for the aforementioned reasons we are not interested whatsoever in setting up this company in our home country. Rather, we are in the process of setting up a US LLC. Regarding this I have the following questions:

  1. Some of our expenses will be incurred in our home country. Is this a problem, or can we just put receipt on the name of the LLC and should that not be an issue?
  2. I understand that LLC earnings are not taxed on corporate level but rather at individual level. Given that both owners will be foreigners, how should we declare our earnings?
  3. We will not be in immediate need of a US bank account and will not try to obtain an Employer Identification Number for the time being, because we read this can be difficult without a social security number. Or is there a legal obligation to obtain this EID number?

LLC Tax Accounting

asked Feb 15 '12 at 23:55
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User
192 points

1 Answer


2

Be very careful about how you do this. To create the business in the US, you will need a US address, and from the point of view of the US government, you'll be operating in the US. Any country you actually do business in will probably need to have a business registered.

In response to your questions:

  1. Some of our expenses will be incurred in our home country. Is this a problem, or can we just put receipt on the name of the LLC and should that not be an issue?
I would consult a good attorney, but yes, as long as you can show the cost of the expense was incurred during the course of normal business, you should be able to expense the corresponding amount.

  1. I understand that LLC earnings are not taxed on corporate level but rather at individual level. Given that both owners will be foreigners, how should we declare our earnings?
This depends on how your LLC is setup. LLCs can be taxed as "pass-through" entities, meaning that they act like S-Corp taxes, and the business profits and losses are carried to your personal taxes, or they can be taxed like Corporations, where the profits are taxed as a business, and then any monies you pull out will be taxed as your income.

  1. We will not be in immediate need of a US bank account and will not try to obtain an Employer Identification Number for the time being, because we read this can be difficult without a social security number. Or is there a legal obligation to obtain this EID number?
The EIN is the equivalent of the business Social Security Number, and you will need to have one. If you do proceed with this, you will also have to file personal taxes within the US (if it's a US company), as you will be making money from a US company. Your corporation will also need to file US taxes.

Long story short, while I can sympathize with the pain and overhead of the business you're looking at starting in your own country, in the long run it will probably be safer, easier and cheaper to just bite the bullet, rather than try to go somewhere else. International laws get very hairy when it comes to money and businesses operating over borders.

Hope this helps.

answered May 15 '12 at 22:38
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Madd Hacker
493 points
  • Great, thanks for your reply. It does sound like a hassle, but believe, me, all is better than incorporating locally (things like 4 tax declarations per month are just one of the many 'niceties' of the system). So I'll rather try to get to the bottom of this. Do you happen to have any links to read more about the different topics you mentioned? Thanks! – User 8 years ago
  • Sure, https://www.google.com/?q=llc+information is always good, but that leads to: http://www.irs.gov/businesses/small/article/0,,id=98277,00.html and http://www.companiesinc.com/llc/index.asp and http://www.thellcexpert.com/llc_information.htm The IRS link will probably be the most useful. As I mentioned a good attorney and/or accountant would be my first stop. – Madd Hacker 8 years ago
  • Thanks. I've been Googling a lot but can find surprisingly little information about rules that apply with foreign LLC owners and/or operations from other countries as LLC. But I guess I'll try to go through all IRS info and see if they have details on this. And thanks for the attorney/accountant option. This also has my preference but I do not yet have the budget for this... – User 8 years ago
  • The US is great for working with small businesses, if you're living in the US, it seems to be a bit of a mess for foreign business. Best of luck! If you found this answers your needs, please mark correct. If you do have more questions, just post away! – Madd Hacker 8 years ago

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