Foreign-based Limited Liability Companies (LLCs) under U.S. taxation regulations

Foreign-based Limited Liability Companies (LLCs) under U.S. taxation regulations

In the world of business, choosing the right jurisdiction for company formation can significantly impact a company's tax burden. One such location that often catches the eye is Delaware, known for its favourable tax environment. This article, written by Sergei Tokmakov, delves into the key tax implications and advantages of forming a Delaware company, especially for those conducting business activities in the U.S.

Delaware, renowned for its business-friendly environment, offers several advantages. For instance, companies not transacting business within Delaware are exempt from Delaware state income tax[1][2][3]. However, an annual franchise tax or alternative entity tax, usually amounting to $300 for LLCs, is payable as a fee for the privilege of being registered in Delaware, due by June 1 each year[2][3].

Delaware LLCs are generally pass-through entities for federal tax purposes, meaning the income is reported on the owners’ personal tax returns, avoiding double taxation[1][2]. This pass-through taxation structure can be beneficial for many businesses.

However, maintaining a website that conducts business in other U.S. states may create a tax nexus in those states, leading to tax obligations there[2]. Therefore, it is crucial for businesses to carefully evaluate where their business activities occur to ensure compliance with applicable state taxes outside Delaware[1][2][3].

Other states, such as Nevada and Georgia, also offer attractive tax structures. Nevada, for example, has no corporate income tax or personal income tax, which can lower a company's overall tax burden[4]. Georgia, on the other hand, exempts income earned from corporate income tax, making it an excellent environment for starting and operating a business, even for nonresidents[5].

Non-resident aliens often choose to form and own a limited liability company (LLC) in the United States, and one popular choice is Delaware. IRS Publication 519, a U.S. Tax Guide for Aliens, provides valuable information for those considering this option[6].

In addition, the sale of real property is determined by the location of the property, while the sale of personal property does not explicitly state a determining factor in the source of income. Interest income, on the other hand, is determined by the residence of the payer[7].

Communication and contact can be facilitated through various platforms such as Facebook, Messenger, Twitter, Pinterest, LinkedIn, WhatsApp, and email. US companies and US bank accounts can also be held by foreign and domestic clients. Registration of a Delaware company can be done in the United States[8].

For more information, feel free to contact the author, Sergei Tokmakov, at the email and website provided.

[1] https://www.irs.gov/businesses/small-businesses-self-employed/delaware-tax-information [2] https://www.delaware.gov/osb/business/llc/ [3] https://www.delaware.gov/osb/business/corp/ [4] https://www.statelocalgov.org/state/nevada/business/taxes [5] https://www.georgia.org/business/taxes [6] https://www.irs.gov/pub/irs-pdf/p519.pdf [7] https://www.irs.gov/businesses/small-businesses-self-employed/income-determination-for-nonresident-aliens [8] https://www.delawareinc.com/register-a-delaware-company/

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