US LLC taxes

[Cari]

Hi!

Please help me understand what income is considered a US-sourced.

A US non-resident LLC provides digital services (IT) to the US company. This US company is basically an employer of the LLC.
There is no physical presence of the LLC in the US (no ETBUS). However, on the IRS website it is written, that income earned from the operation of a business in the US, will be taxed in the US and is regarded as Effectively connected income (ECI).

So the questions are:
1. does it matter if LLC provides services to one client or to several?
2. As non-resident LLC is not a taxpayer in the US, does it mean that the client, who is paying, has to withhold 30% of taxes?
3. are the services provided by the LLC considered as ECI? If yes, how much taxes an LLC should pay on it?
4. in case those services are taxable in the US, what is the best structure to provide services to the US company for an EU-resident?

Would be happy to hear your thoughts!

 

[JackAlabama]

Hi!

Please help me understand what income is considered a US-sourced.

A US non-resident LLC provides digital services (IT) to the US company. This US company is basically an employer of the LLC.
There is no physical presence of the LLC in the US (no ETBUS). However, on the IRS website it is written, that income earned from the operation of a business in the US, will be taxed in the US and is regarded as Effectively connected income (ECI).

So the questions are:
1. does it matter if LLC provides services to one client or to several?
2. As non-resident LLC is not a taxpayer in the US, does it mean that the client, who is paying, has to withhold 30% of taxes?
3. are the services provided by the LLC considered as ECI? If yes, how much taxes an LLC should pay on it?
4. in case those services are taxable in the US, what is the best structure to provide services to the US company for an EU-resident?

Would be happy to hear your thoughts!

So is that company a defacto employer of you or are you having them as one big client with the possibility of having a second or third?
There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.

 

[TheCryptoAnt]

There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.

Basically this, if said US company 'employs' your LLC then you are on the fucked side.
However if you 'offer services' to said company and send them bills to pay, etc... then you good.

Just tell them about this and theyll most likely understand, or at least their finance department/person should.

 

[Cari]

So is that company a defacto employer of you or are you having them as one big client with the possibility of having a second or third?
There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.

there is always a possibility but for now it is more of an employer-employee relations as the payment is the same each month. So does it mean that my LLC will pay taxes in the USA? How will it be calculated? Or maybe you know the better structure to use for this work instead of the LLC?

Basically this, if said US company 'employs' your LLC then you are on the fucked side.
However if you 'offer services' to said company and send them bills to pay, etc... then you good.

Just tell them about this and theyll most likely understand, or at least their finance department/person should.

does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?

 

[TheCryptoAnt]

does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?

Correct. You need a 'service agreement' signed by both parties too. The fact that the amount is the same is not really relevant.

 

[JackAlabama]

there is always a possibility but for now it is more of an employer-employee relations as the payment is the same each month.

That does not matter. For example if one is doing some server maintenance update work and check each month, it will result in the same payment given that no unforseen events.
It is still a b2b setup as stated in some service agreement.

So does it mean that my LLC will pay taxes in the USA? How will it be calculated? Or maybe you know the better structure to use for this work instead of the LLC?

Not neceesarily.

does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?

Are they your de facto employer or not? Is the relashionship such that they are your boos?
It is really an easy question to answer for you.

It doesnt matter if they employ you remotely, thru whatever means or claim youre an independent contractor just to doge socials payment (this is commonly used by crypto companies).

 

[Cari]

That does not matter. For example if one is doing some server maintenance update work and check each month, it will result in the same payment given that no unforseen events.
It is still a b2b setup as stated in some service agreement.

Not neceesarily.

Are they your de facto employer or not? Is the relashionship such that they are your boos?
It is really an easy question to answer for you.

It doesnt matter if they employ you remotely, thru whatever means or claim youre an independent contractor just to doge socials payment (this is commonly used by crypto companies).

Technically the client just tells what code they need and the LLC provides it. So de facto it is more of the employee-employer relationship. What taxes would I have to pay in this case?

 

[fshore]

The LLC is disregarded for taxes in the US. Think about it as if you work directly for this client, the LLC don't exist (only for liability). Both if you're an independent contractor or an employee of the company the income is not taxable if you're not a US tax resident and don't provide the services in the US. A US company can have a foreign employee working outside the US and this income is then not taxable in the US.

 

[Cari]

The LLC is disregarded for taxes in the US. Think about it as if you work directly for this client, the LLC don't exist (only for liability). Both if you're an independent contractor or an employee of the company the income is not taxable if you're not a US tax resident and don't provide the services in the US. A US company can have a foreign employee working outside the US and this income is then not taxable in the US.

But as it is disregarded, does it mean that US company (employer) automatically needs to withhold 30% from the payment, as an LLC is not a tax payer in the US or not?

 

[fshore]

But as it is disregarded, does it mean that US company (employer) automatically needs to withhold 30% from the payment, as an LLC is not a tax payer in the US or not?

Not if you give them a w8-ben.