USA LLC for Indian Resident

[sandy56]

I'm a software dev looking into setting up a USA-based LLC, mostly for tax planning, and wanted to see if you guys could poke some holes into my structure because it looks a little too good to be true.

Here's my understanding of such a setup.

1. As of today, Place of Effective Management rules in India are only applicable to companies with an anuual revenue of INR 50 crore (~$650k USD) or greater, so the US entity wouldn't have to pay taxes in India as long as my revenue doesn't cross this threshold.
2. According to the IRS, the LLC is a passthrough entity. But since I won't have any employees in the US and won't be working from the US, I won't have to pay any taxes there either.
3. A US-based LLC would have a relatively low overhead, cost-wise.

The only concern I had was about the "Effectively Connected Income" and the "US-based trade and business" clauses since all my clients are from the US. I have read mixed interpretations of these, so I was hoping to get some clarifications on that too.

I was also looking into UAE as an alternative to USA, but found out that opening a USD account would require a lot of overhead (rent, utility bills, etc.). Is this true as of today?

PS I've learnt a lot from this community. Thanks for all the help!

 

[Marzio]

Well, according to PWC a company with a turnover of less INR 500 million it will not trigger PoEM in India.

So far so good, the problem is that on that income you'll pay personal income taxes depending on your earnings and taxes could be as high as 30%

 

[sandy56]

Thanks for taking a look! Do you mean the tax I'll pay on the dividends/salary? If so, that's not an issue as my expenses are very low (~5% of my income). I'll draw a small salary or dividend and would not mind paying the little tax I have to. I plan on investing the rest of the money in the stock market (in the new company's name).
I plan on moving abroad a few years down the line for studies, so will have a window to cash in the profits without triggering the tax laws of either country.

 

[Marzio]

Do you mean the tax I'll pay on the dividends/salary?

US LLC doesn't distribute dividends but business profits , you can't retain profits inside the company and pay you a salary because US LLC is a transparent entity.

It's like you being self-employed so every cent you earn through your US LLC will be taxed in India.

The tax rate depends on your profits, it could be as low as 5% to 30%

 

[sandy56]

Oh, okay. That makes complete sense. I was unconsciously assuming that the transparent entity stuff is from the IRS's viewpoint only, but of course that's not the case. For some reason I didn’t find any material that explicitly mentioned this when I was going through them. Back to the drawing board, I guess. Hopefully I find some other countries that are better suited to my needs. Again, thank you for pointing it out!

 

[CaptK]

If your clients are in the US then use a UK LTD. Any income sourced in the US into the LLC will attract tax.

 

[startfleetio]

I'm a software dev looking into setting up a USA-based LLC, mostly for tax planning, and wanted to see if you guys could poke some holes into my structure because it looks a little too good to be true.

Here's my understanding of such a setup.

1. As of today, Place of Effective Management rules in India are only applicable to companies with an anuual revenue of INR 50 crore (~$650k USD) or greater, so the US entity wouldn't have to pay taxes in India as long as my revenue doesn't cross this threshold.
2. According to the IRS, the LLC is a passthrough entity. But since I won't have any employees in the US and won't be working from the US, I won't have to pay any taxes there either.
3. A US-based LLC would have a relatively low overhead, cost-wise.

The only concern I had was about the "Effectively Connected Income" and the "US-based trade and business" clauses since all my clients are from the US. I have read mixed interpretations of these, so I was hoping to get some clarifications on that too.

I was also looking into UAE as an alternative to USA, but found out that opening a USD account would require a lot of overhead (rent, utility bills, etc.). Is this true as of today?

PS I've learnt a lot from this community. Thanks for all the help!

Providing services from abroad (outside of the US) is considered foreign source income. Read more about it in my signature. We have indian clients using US LLCs

 

[Basilia]

Any income sourced in the US into the LLC will attract tax.

@startfleetio Providing services from abroad (outside of the US) is considered foreign source income.

Well, even in this thread there are different opinions. One says no taxes, the other says there are taxes.

If your clients are in the US then use a UK LTD

UK LTD pays 19% on all worldwide income imho.

 

[CaptK]

Well, even in this thread there are different opinions. One says no taxes, the other says there are taxes.

Speaking from personal experience.
State tax, Federal tax and Withholding.
I had all non US sourced income for 3 years. I took one payment for services in the US and that opened a can of worms that I led me to shut down my US structure.

 

[startfleetio]

Well, even in this thread there are different opinions. One says no taxes, the other says there are taxes.


UK LTD pays 19% on all worldwide income imho.

I think everyone said no taxes for the US LLC in the US in this thread if the services are provided from abroad (outside of the US)

 

[Basilia]

Speaking from personal experience.
State tax, Federal tax and Withholding.
I had all non US sourced income for 3 years. I took one payment for services in the US and that opened a can of worms that I led me to shut down my US structure.

Did your accountant tell you that, or was there even a claim from the IRS?

Unbelievable of course, how to work, cardinally different opinions...

And if you deduct everything as an expense under the agency agreement in the country of residence? That is, maybe even c-corp, but withdraw everything so that there is practically no net income left...

I think everyone said no taxes for the US LLC in the US in this thread if the services are provided from abroad (outside of the US)

CaptK writes that there are taxes. And such an opinion is quite popular. 50/50.

 

[Marzio]

Well, even in this thread there are different opinions.

If you want certainty schedule a call with Steve Patton.

 

[CaptK]

Any payment you receive from the US for goods or services then makes you liable for tax then your accounting becomes a headache. Form W8/2771 and the rest regardless of being a non resident alien.
DO NOT RECEIVE A PAYMENT FROM THE US, UNDER ANY CIRCUMSTANCE!!!!

 

[oznomad]

A non-dom swiss company maybe?

 

[Fulton Abraham Sanchez]

If the owner of the LLC is foreign and s/he is not living in the US nor stays longer than 183 days, s/he should not pay income tax. LLC does pay sales tax in the state the company is established for sales in that state.