US taxation for foreigners who own an LLC and that LLC owns a German GmbH (German equivalent LLC)

[klasekp]

Hello, I have a question about setting up an LLC and its tax obligations in the United States. I am a citizen of Germany. As a German citizen, I want to establish an LLC in Wyoming. This LLC would then become the 100% owner of the German GmbH (equivalent to LLC). All the income of this GmbH would come from the territory of the EU and pay taxes in Germany. What tax obligations should this LLC have in the US? This established LLC would have no other activity, only the owner of the German GmbH. Thank you in advance for any comments. Regards, Patrik Klasek

 

[Sols]

The LLC has no tax obligations in the US, unless you specifically opt for it to be taxed as corporation. LLCs are normally pass-through entities which are not themselves taxed; instead the members (owners) are taxed on a personal level. If you don't live in the US or do business in the US, this practically always means you have zero tax burden in the US at all.

However, the LLC will have full tax obligations in Germany. It will probably be considered a GmbH or KG for German taxation purposes.

 

[klasekp]

Thank you very much for your answer. I received various answers to this question. But it was strange to me that double taxation would be applied. I have one more question, to which I get different answers. So I won't need an EIN or SSN, as I won't be required to send any IRS tax forms on behalf of the LLC, will I? Thank you very much.

 

[ih8socialism]

You need to file Form 5472.

May I ask whats the purpose of this structure is or what you try to achieve?

 

[klasekp]

Thanks. That it does not include a natural person in the statement of ownership of GmbH and that in case of favorable development (the company will develop software) it would be easier to start a business in the USA.

 

[ih8socialism]

You should def. check this out with a Steuerberater in Germany and US. The issue could be that if the GmbH distributes (even already taxed in germany) profits to US it can be considered as your private income which might end up getting taxed again.

 

[Sols]

Thank you very much for your answer. I received various answers to this question. But it was strange to me that double taxation would be applied.

A company is resident in Germany for tax purposes if it is managed/controlled from Germany. So if you directly or indirectly control the US LLC, it is tax resident in Germany and you need to determine whether it's treated as a corporation or a partnership (LLCs are effectively hybrids and it's not always clear how they are treated in foreign jurisdictions).

I have one more question, to which I get different answers. So I won't need an EIN or SSN, as I won't be required to send any IRS tax forms on behalf of the LLC, will I? Thank you very much.

You will need an EIN to file Form 5472. You can obtain an EIN from the IRS. Many registered agents and corporate service providers can help you get an EIN, if you prefer not to do it yourself.

 

[klasekp]

Thank you for your answers. I'm getting a little orientated. In any case, any LLC must file an IRS report under its own EIN. I was told by Zenbusiness to set up an LLC that an EIN would not be needed. So the information is wrong. I think le that as a foreigner in the US, I would not have to pay taxes as an individual, because the income would not be in the US. But I'll ask the tax advisors here.

 

[Sols]

Thank you for your answers. I'm getting a little orientated. In any case, any LLC must file an IRS report under its own EIN. I was told by Zenbusiness to set up an LLC that an EIN would not be needed. So the information is wrong.

It's technically correct. You do not need an EIN to set up an LLC. But you need an EIN to file the necessary annual paperwork for your LLC.

I think le that as a foreigner in the US, I would not have to pay taxes as an individual, because the income would not be in the US. But I'll ask the tax advisors here.

Chances are that you do not need to pay any taxes at all in the US under the proposed structure. However, you will need to file (and potentially pay) taxes for both the GmbH and the LLC in Germany.

 

[Fulton Abraham Sanchez]

If the LLC earns income in the US and you are the only member in the LLC, you will report taxes personally. For that you need a tax ID personal or ITIN separate from the EIN for the LLC. Income earned outside of the US for LLC with a foreign member is not taxable. You need not file any form to the IRS if income is earned outside of the US, but if you personally receive distributions or loans from the LLC, you need to file form 5472.

 

[sdip]

If the LLC earns income in the US and you are the only member of the LLC, you will report the taxes personally. For that, you need a personal tax ID or ITIN separate from the LLC's EIN. Income earned outside of the US by LLC with a foreign member is not taxable. You don't need to file any forms with the IRS if you earn income outside of the US, but if you personally receive distributions or loans from the LLC, you must file Form 5472.

** You do not need to submit any forms to the IRS if income is earned outside of the US ***

you say there is no need to file form 5472 and 1120 if the income belongs to outside the USA ?

 

[joffreylol]

sdip he said income outside of the US is not taxable. He also said you don't need to file form 5472 if you don't distribute or receive loans from LLC. I think you always have to file 5472 though because you loaned LLC money to get registered agent at least. You have to check what reportable transaction means for form 5472 but it's very broad.