Have a Tax Question? Ask a Tax Expert
Hello, how are you? I know you're offline but I will attempt to answer the question based on the facts you stated.
I am a NYS CPA, I don't know a CPA in California but I am sure there are plenty of qualified individuals to help you. I am also not an Indian CA - so I don't know Indian tax law.
However, from the point of view of the US, yes, your LLC must file taxes here.
The taxes you pay in India will serve as credits on your US 1065 form for LLC.
However, before I go any further, I need to know:
1. What kind of business is this? Where do the employees live? Where are the customers? Where are the products/services produced and sold?
2. Are you going to create an LLC in the US and in India?
In terms of the foreign partner living in India, this fact will be disclosed on the 1065 form - they ask about foreign partners and controlling influences. Otherwise, you can give him a salary and/or distribute net profit in the same way you would a US citizen.
Please contact me later and we can discuss this transaction in detail.
1. An internet business(Web Development/Design), Customers are globally, we have an office in India so employees are at our Indian office. We are soon expanding in the US with an office.
2. We already created an LLC here in the US, and the CPA in India told us to create a PVT LTD which we are doing that as well. Both will be using the same bank since there is a Citibank in India.
So what would be best to due, have our CPA give a salary to foreign partners or?
Hello and thanks for getting back to me with the details.
So currently the employees are in India, but where are the customers?
If the customers and profits are from the US, then yes, you'll need to disclose that on your 1065 form for an LLC.
If you pay any taxes on profits in India, those foreign taxes can be used to credit your US taxes.
In terms of salaries to foreign partners, should those be made in Indian currency?
Basically, in the current state, all business activity happens in India.
The US return should mirror the Indian return in terms of declaring income and expenses.
In the US, a partner can receive a salary, distribution, or some combination thereof.
The specific combination depends on your arrangement with the partner, his level of participation, etc.
Once you have a US office, you'll have US income and expenses, those should be reported on the 1065 form as well. The US taxes on worldwide income, so you'll need to declare income made everywhere. However, if this income is taxed in the country it is made (India or otherwise) - you can use the taxes paid as a credit against US taxes owed on this income.
What does PVT stand for? Private?
Let me know if you have any more specific questions.
Customers are globally, since we own a web company we have clients from the US, INDIA, MEXICO, etc.
Taxes will be paid in India as well since we have employees in the office. What do you mean those foreign taxes can be used to credit the US taxes? How would that work?
Yes, they're made in Rupees.
PVT is an international company like we have LLC here in the states. http://en.wikipedia.org/wiki/Pvt_Ltd to learn more.
I need to basically find a good CPA in California, i am going to do that. Do you recommend how i can find a good firm or individual CPA who specializes in what i need?
Thanks, XXXXX XXXXX be giving you a bonus for your help as well.
You're a CPA in New York?
Hello, sorry for not responding sooner, it must be the time zones.
Yes, I am a NYS CPA. Unfortunately, I don't know any California CPAs. I suppose you can Google a California CPA or find one in a directory. However, I doubt the CPA with the most online advertising is the best one. You need to find one with a background in international tax. In your situation, due to the complexity of the tax matters, you may want to hire a tax lawyer/CPA. However, these are more expensive professionals.
In terms of foreign tax credits, these work as follows:
Let's say you make $100,000 in net income from clients worldwide. You declare this income in India, and your taxed $20,000. (We'll use $ for the sake of simplicity). In the US, you declare this income as well, and you're taxed $25,000 (I am assuming the US has a higher tax rate than India, but this is not a fact). You get to use the $20,000 paid to the Indian government $5,000.as a credit to offset the $25,000 owed to the US government. As a result, you owe the US government only $5000. This example is for the sake of simplicity.
You can also avoid this issue by declaring income only once, in India or the US. This depends on the structure of the companies. You have a PVT in India and an LLC here. Is the structure the same? Do the same people who own the PVT also own the LLC? In the same proportions? Do they channel the same worldwide income?
The income is especially important to determine. What operations will you be handling exclusively in the US? If there are sources of income made exclusively in the US, that's the only income I would declare.
Let me know if you have any other questions at this time. Thanks!
What time are you usually here? I am in Pacific Time so we can chat on here.
In India it works different, since i am not a indian resident i cannot be put on the paper work, but we have a contract and the Indian partner is on the LLC
Hi, it is 12:03am, I am going to sleep soon. But I can answer a few more questions.
oh wow late there
What country are you the resident of?
How many partners are there? And are they US or Indian citizens?
If you were in CA i would hire you
yeah midnight :)
USA, 2 USA partners and 1 Indian partner
Thanks I appreciate it - unfortunately, I am not.
Do the three of you own the company evenly - 33% each?
Are you the Indian partner I assume?
No, i am the USA partner
What's the point of opening the US branch?
Well, i went to India a few months ago and we opened a office there. AS we expand we will have offices in USA and Mexico, etc.
Are you going to hire US web developers?
Because we are a global company, marketing nationwide
In the future
i would say in a year or so
Ah I see, so the workers will be mostly from India but the marketing arm is in the US because the customers are Americans?
All operations are done in India now.
Well, we have customers all over. I will give you an example we are a site like www.elance.com our concept is similar to that
Ah I see, and you have the US LLC as of when? Did you file any tax returns yet?
2 months ago
ok, let me check out the site
and PVT LTD just opened few weeks ago
our site is www.webvizards.com still in launch phase, people come to us to get their projects built Websites, Applications, Marketing, etc
Ah, and how were you operating before?
We just started
So elance is a site to match people who need web developers with web developers who need work?
Ah I see, cool website.
that is what we do, but we also have our own in-house staff to take on clients projects as well
so we do it all
in-house staff in india *
I think the key, from the tax perspective, is to figure out what income you'll declare where. It's important to determine which country has the lower tax bracket where most income should be guidd.
i know california tax rate is high, i will find out what the tax rate is in India
You must also disclose all foreign partners and payments made to them, as well as affiliates, like this PVT company in India.
yeah california as a state has high tax, but also look at it from the federal tax perspective
I would take a guess that US tax is higher at the moment
i will find that out today
you should also consider payment options - the percent of profits to accept as salary vs. earnings
salaries are 13.3% more expensive since you need to pay self-employment tax (social security and medicare)
good, any other questions I can answer before heading to bed?
I am not on the PVT since i am not an Indian Resident
i just need to find a good CPA/Lawyer
i appreciate your time, i will be giving you a bonus.
thanks I appreciate it
if I think of anyone I will let you know
I am very loyal to my school - cornell - so I always choose professionals from there :)
:) well, as we grow i will keep you in touch if we ever get to new york :)
however, you need to do your own research, I don't want to promote someone without really knowing if they are good
yes, please do, New York is a big market in itself :)
Good Night, God Bless!
Hello, please remember to give me a positive rating - thanks :)