Hiding US LLC profits by electing for corporation tax treatment

[Eurocash]

Scenario:

• Living as a non-dom in an EU country (UK citizen)
• No company registered in the EU country
• Paying self employed taxes in the EU country based on the amount remitted from the LLC as a "contractor", around 70,000 euros remitted - full self employed taxes paid on this amount at around 32% effective rate.
• US LLC is the main vehicle for business and where profits are generated, say 400,000 dollars per year, I would like the profits to accumulate in the LLC

The problem: As part of the non dom scheme, all foreign income must be declared even if not remitted.

Obviously, if the disregarded entity makes 400,000 dollars, this figure would need to be declared on the EU self employed tax return, even if only 70,000 euros remitted and taxed.

This could raise questions as to why there is no EU company - is this artificial etc.

If the LLC elected to pay tax as a corporation, the profits made by the LLC would no longer automatically flow to the member(s), therefore would not have to be disclosed to the EU country.

If the LLC elected to be taxed as a corporation, would the corporation tax be 0%?

The LLC would not have operations in the US, and the plan would be to let profits accumulate in the LLC, so to my mind it would make sense for it to be taxed as a corporation anyway.

 

[Sols]

If your LLC elects to be taxed as a corporation, it's liable for US corporate income tax, which applies on worldwide income. It does not matter that you do not have any operations in the US. You're still subject to US taxation (federal and state).

 

[Eurocash]

If your LLC elects to be taxed as a corporation, it's liable for US corporate income tax, which applies on worldwide income. It does not matter that you do not have any operations in the US. You're still subject to US taxation (federal and state).

Damn, okay.

I thought I was onto something there.

I wonder if there's actually any real risk with declaring the full amount of LLC profits on my EU tax return.

The remitted amount at 70,000 is not fabricated, no other funds will be remitted, so it would stand up to scrutiny from that perspective.

Where it may fall down is if the revenue in the EU country start wondering why there's no EU company, and are they missing out on corporate tax....very hard to tell how likely this is

 

[Mr Gus]

You are liable to pay tax on the 400K anyway, you are running the company from your country of residence.

 

[Eurocash]

You are liable to pay tax on the 400K anyway, you are running the company from your country of residence.

Who told you where the company was being run from?

 

[Mr Gus]

Who told you where the company was being run from?

Jesus

 

[Eurocash]

Jesus

Please forgive me for my sins

 

[ilke]

C-corp would make it a normal US tax payer.

You have an option to make an opaque (not directly distributing) offshore company the new member of the LLC. But it'll complicate your banking situation.

I would suggest BVI Ltd because this is the 'most bankable' offshore jurisdiction according to my general experiences with US banks and FinTechs.

 

[Eurocash]

C-corp would make it a normal US tax payer.

You have an option to make an opaque (not directly distributing) offshore company the new member of the LLC. But it'll complicate your banking situation.

I would suggest BVI Ltd because this is the 'most bankable' offshore jurisdiction according to my general experiences with US banks and FinTechs.

I’d be happy to look into BVI

It’s funny you mention it being most bankable, my concerns about BVI are exactly that, I seem to have the impression that it’s hard to bank a BVI Ltd?

I’d be happy to fly there physically if required

 

[dany]

Who told you where the company was being run from?

He simply repeated what’s already been said in thousands of posts, that a US LLC is pass-through and you pay tax where you live and have a registered address.
He doesn’t mention anything about which country that actually is.

 

[Eurocash]

He simply repeated what’s already been said in thousands of posts, that a US LLC is pass-through and you pay tax where you live and have a registered address.
He doesn’t mention anything about which country that actually is.

Yes, I got that, my comment was lighthearted. See the further exchange.

Following my post, I had a call with an American tax attorney the other day who basically told me that a C-Corp is the realistically the only way for me to minimise IRS audit risk in the coming years

I really don’t like the sound of 21% tax, but he suggested using other offshore companies to bill the LLC and reduce its profits

Started to sound like a much more complex structure than I was looking for

The annoying thing is that I’m happy with the corporate tax rate where I’m living at 12.5% but I can’t benefit from my non dom status if I run all of the profits through a company in my country of residence

I’d be happy enough to pay the same amount of tax in another country

 

[Clank]

Yes, I got that, my comment was lighthearted. See the further exchange.

Following my post, I had a call with an American tax attorney the other day who basically told me that a C-Corp is the realistically the only way for me to minimise IRS audit risk in the coming years

I really don’t like the sound of 21% tax, but he suggested using other offshore companies to bill the LLC and reduce its profits

Started to sound like a much more complex structure than I was looking for

The annoying thing is that I’m happy with the corporate tax rate where I’m living at 12.5% but I can’t benefit from my non dom status if I run all of the profits through a company in my country of residence

I’d be happy enough to pay the same amount of tax in another country

What you are saying is the worst thing you can do as it’s illegal.

You should find someone else to give you advice or you will end up in prison.

If you have a pass through LLC and don’t have to pay taxes in the U.S. you shouldn’t worry about a possible audit, using offshore companies to evade taxes of a C-Corp is illegal.

 

[Eurocash]

What you are saying is the worst thing you can do as it’s illegal.

You should find someone else to give you advice or you will end up in prison.

If you have a pass through LLC and don’t have to pay taxes in the U.S. you shouldn’t worry about a possible audit, using offshore companies to evade taxes of a C-Corp is illegal.

Aside from the legality it’s also going to be a pain to manage the extra companies, extra bank accounts, extra things to go wrong.

The regular pass through LLC is my preference, I don’t know why the person I spoke to was so against it.

Maybe more money in it for him to simply sell a bigger structure, although I try to not always assume that