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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Please have a CPA familiar with tax related to foreigners respond

Resolved Question:

Please have a CPA familiar with tax related to foreigners respond to this request. I am a NON US resident and wish to form an LLC through a BVI company (have my BVI own it). The LLC will engage in e-commerce activities and will be selling goods online through it's website to US and international clients.

1- I have a CA mailing address but I do not reside in the US. Which state would make more sense to form the LLC in my case? Delaware, CA or Nevada?
2- If I chose Nevada for example. Can I use my CA address for the business address or should I use the register agent's address in NV? if ok for CA, will this add CA state tax?
3- Who needs to file for tax in the case? my self or the BVI company and which form do I use? any tax exempt / deduction or return?
4- Do I have to obtain a business license if i'm only selling online? if yes, in which state?
5- Do I have to charge sales tax in the state of formation or the business address?
6- If the warehouse of the 3rd party fulfillment center that is shipping goods to customers is located out of state, will I need to obtain a business license and charge tax in that state?

Please note that my country of residence does not currently have a tax treaty with the US. No employees as everything is handled by third party services company.
Thanks.
-R
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to Just Answer!
Please allow me to assist...
There are some issues to consider.
1.
The LLC is a business structure allowed by state statute. For federal tax purposes - depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”).
In your case if the LLC is owned solely by the BVI company - as a single member LLC - it is disregarded entity - means ignored for income tax purposes - with income and expenses are reported on the owner's income tax return.
2.
Because the owner is a foreign entity (nonresident alien) - it is taxed ONLY on income from US sources. There are complex rules for determining the source of income - you may take a look into IRS publication 519 - www.irs.gov/pub/irs-pdf/p519.pdf
See page 12 - Table 2-1. Summary of Source Rules for Income of Nonresident Aliens.
Specifically for your situation - Business income realized from the Sale of inventory which was purchased is sourced Where sold.
Thus income from selling goods to US customers is classified as income from US sources and if goods are sold to customers outside the US - it is NOT from US sources.
3.
Because the LLC is a disregarded entity - income is reported by the BVI company - assuming it is a corporation - it must be registered with the IRS (EIN should be obtained) and as a foreign corporation should file from 1120F - www.irs.gov/pub/irs-pdf/f1120f.pdf
Again - only income from US sources must be reported.
There is no special business license unless goods that you are selling are require one - for instance if you are selling medical equipment, drugs, firearms or other regulated goods.
4.
You may register the LLC in any state. Most popular states for such purposes are Wyoming, Nevada and Delaware.
You may use any mailing address - including the address in California. You may use any US or foreign address, PO box or address forwarding service. However it is possible that California taxing authorities would assume that you run business out of California - and will try to assess state tax liability. Because California taxes are relatively high and dealing with taxing authorities might be a complex matter - I would avoid that.
5.
Sales taxes are regulated by states - not by the federal government. There are two aspects fro online sales - sale transactions are subject of sales tax based on the customer address. However the seller is only required to collect sales tax if the seller has a nexus in this specific state. Thus - for instance - if your business is not physically presented in California - you are not required to collect California sales tax, but the buyer would be required to pay corresponding use tax.
6.
If the LLC will regularly use the 3rd party fulfillment center located in any specific state - that will be classified as having a nexus in this state - and the LLC will be required to register in this state and collect sales taxes from customers located within that state.
Please be aware that while the LLC is disregarded entity for income tax purposes - it is a separate entity for other purposes - in particular - for sales tax purposes the registration would be in the name of the LLC.
For instance - if the LLC is originally registered in Nevada, but will regularly use the fulfillment center in California - that LLC should be registered as a foreign (out of state) LLC in California. It will be required to pay California franchise tax (minimum $800), will be required to collect sales tax from sales to California customers and remit that amount to FTB. In additional - the solo owner of the LLS - which is your BVI company will be taxable on income from California sources.
In other words - business activities would be under California jurisdiction.

Please let me know if you need any clarification of help with other tax related issues.
Customer: replied 1 year ago.

Lev, I appreciate your answers. Just to clarify:


 


1- So I will need to file an individual tax return even if I am a foreigner. Is that 1040NR? do I also need forms K-1/K-2 (from previous research).


 


2- ok.


 


3- So the BVI will file the form 1120F and I don't have to file any forms? (same as question 1 I assume). So EIN needed for the BVI and ITIN required for me?


 


4- ok


 


5- ok


 


6- is Franchise same as seller's permit?


 


one last question, can I have a title and manage the company without getting a salary? will i still be able to expense i.e. airfare related to the business?


 


Thank you.


- R

Expert:  Lev replied 1 year ago.
1- So I will need to file an individual tax return even if I am a foreigner. Is that 1040NR? do I also need forms K-1/K-2 (from previous research).
You would need to file an individual tax return as a nonresident alien (form 1040NR) ONLY if you personally have income from US sources. If you as a physical person will not have income from US sources - there is No need to file the tax return.

3- So the BVI will file the form 1120F and I don't have to file any forms? (same as question 1 I assume). So EIN needed for the BVI and ITIN required for me?
If the BVI corporation will be a single owner of the LLC (“disregarded entity”) and if the LLC will have income from US sources - the BVI corporation will need to file the US tax return.
Your personal filing requirements will be based on whether you have income from US sources or not.

6- is Franchise same as seller's permit?
In California If the Limited Liability Company is classified as a disregarded entity it files California Form 568 and is responsible for an annual tax of $800, and may be subject to an LLC fee based on total income from all sources derived from or attributable to the state of California.
The seller's permit is a separate issue - in California the LLC must obtain a seller's permit if it is engaged in business in California
You can register for a seller's permit or use tax account online using electronic registration (eReg) or in person at one of FTB field offices.

one last question, can I have a title and manage the company without getting a salary? will i still be able to expense i.e. airfare related to the business?
Yes - you may manage the company without receiving any compensation.
Yes - you may deduct all qualified business expenses. Specifically for deductible business expenses - you may review IRS publication 535 - www.irs.gov/pub/irs-pdf/p535.pdf‎
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22693
Experience: Taxes, Immigration, Labor Relations
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