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.
For any future questions please ask me as your exclusive expert to avoid other expert mistakenly answering the question
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.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).