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We are a malaysian company and has granted the right to a USA company, this company is going to pay us a one time license fee. in order to avoid a 30% withholding tax, we intend to register an LLC in USA so to avoid the 30% withholding tax.
we want to know if
1. when we receive the license fee pay to our USA LLC, what is the tax rate?
2. i learn that there is no tax for LLC but the profit shall be borne by the shareholder, so the received license fee as a gross income are taxable ?
3. Is the license fee classified as FDAP and "deductions are not allowed against FDAP income "?
1. The LLC is not a taxed entity all the profits and losses and of the entity flow to the individual members
2. the license fee less business expenses will be considered profit which is distributed to the members who are taxed on this profit
3. The income should be taxed as ECI (Effectively Connected Income) and not FDAP. Though certain ECI income can be categorized as FDAP income, because you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States.
You may ask how are you a partnership, in the eyes of the IRS LLCs are taxed as partnerships and therefore are partnerships. In this case opening a US LLC is going to be beneficial because the US LLC will receive the software license and distribute it to the members (you) which would qualify you to file ECI.
The actual tax rate would vary for each member of the LLC based on the amount that each person receives since varying amounts would trigger a different tax rate. The final amount will only be known once all the deduction and expenses are known.
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hi i have a question today.
in the case that i incorporate an llc company in usa and open an offshore bank account in hong kong. I need to know this apply to 30% withholding tax when our usa client going to send us royalty to our hong kong banking account. please advise.
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