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USA LLC for Indian Resident

sandy56

sandy56

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Oct 11, 2020
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#1
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!
 
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#3
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.
 
#4
sandy56 said:
Do you mean the tax I'll pay on the dividends/salary?
Click to expand...

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%
 
#5
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!
 
#7
sandy56 said:
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!
Click to expand...
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
 
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#8
CaptK said:
Any income sourced in the US into the LLC will attract tax.
Click to expand...
@startfleetio Providing services from abroad (outside of the US) is considered foreign source income.
Click to expand...
Well, even in this thread there are different opinions. One says no taxes, the other says there are taxes. ns2

CaptK said:
If your clients are in the US then use a UK LTD
Click to expand...
UK LTD pays 19% on all worldwide income imho.
 
#9
Basilia said:
Well, even in this thread there are different opinions. One says no taxes, the other says there are taxes. ns2
Click to expand...
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.
 
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#11
CaptK said:
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.
Click to expand...
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... :rolleyes:

startfleetio said:
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)
Click to expand...
CaptK writes that there are taxes. And such an opinion is quite popular. 50/50.
 
#13
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!!!!
 
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