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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience:  Taxes, Immigration, Labor Relations
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Hello again Lev, the info you gave me yesterday was very helpful,

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Hello again Lev, the info you gave me yesterday was very helpful, yet I am unable to make a decision. Being a foreigner wanting to engage in online business in the US. Which of the following is better in my case, having my BVI company form a Delaware LLC or form it under my name as an individual? I need to know the advantages and disadvantages of each option please i.e. tax, liabilities and bank relationships. I assume they will require me to sign on behalf of the company anyhow.

Once the LLC is formed under any of the above, will I be legally able to wire the profits from a US bank to my bank that is located outside of the US? wouldn't that require me to file for taxes anyway since it is made from onshore business?

Also, I am not sure if having a SSN in the US will make a difference in the decision. I do have one but not valid for employment. Please let me know if I would still need to apply for ITIN in that case.

I would greatly appreciate it if you could guide me to the best practice so I can be confident in making my decision.
Thank you.
-R
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Which of the following is better in my case, having my BVI company form a Delaware LLC or form it under my name as an individual?
These are two different ways to structure the business - none is better.
If you want to compare your possible tax liability - it will depend on your expected business income - so you may estimate your net business income and possible tax liability with each scheme.
If you want to compare complications for tax filing - please be aware that corporate tax return would generally be more complex.
In additional - you may choose your LLC to be treated as a corporation - in this case the LLC itself will file a corporate income tax return.
Having a Delaware LLC would be advantageous if it will NOT sell to Delaware customers - in this case there will not be Delaware income tax liability.

LEV :

Once the LLC is formed under any of the above, will I be legally able to wire the profits from a US bank to my bank that is located outside of the US?
The issue with opening a bank account is a separate issue. I assume that most banks would not take you as a customer for internal security reasons. So be prepared to spend some time contacting different banks. Most banks require your personal tax ID - either SSN or ITIN if you are not eligible for SSN. If you have SSN - you may use it - but may not apply for ITIN in additional to your SSN.
After the bank account is open - you may transfer funds without any limitations.
In additional - you may have an account in alternative (not banking system) - for instance PayPal account which is very popular in online commerce.

Customer:

can you give me some examples on advantages and disadvantages? the above statement doesn't help me make up my mind on who will form the LLC having a little knowledge about the laws.

Customer:

when you said that most banks will not take me as a customer for internal security reasons, is this in the case of the BVI owning the LLC or in both cases? I do have a personal bank account in the US if that has anything to do with it.

LEV :

can you give me some examples on advantages and disadvantages?
Assuming you will have income from US sources - which will be taxable in the US - and income will not be distributed to you as a shareholder - instead will be used for business purposes - corporate income tax rates are generally lower.
If income will be distributed to you - it will be taxed twice - on corporate level and for you when you will receive dividends.
When you are filing as individual - income will be taxed based on individual tax rates. However - most likely you will be able to claim a credit for foreign taxes in your country of residence - thus will eliminate double taxation.
You may want to estimate your expected tax liability - but that will be based on estimate income amounts. From tax liability prospective either way may be more advantageous.
However - as I mentioned above - filing corporate income tax returns is more complex - so if your will just start and your income will be relatively low - you might want to avoid overhead and keep paperwork as simple as possible.
I might suggest to avoid BVI company in this scheme - open a single member LLC (disregarded entity) owned by you as an individual - let the business to take off - and if your business profit will grow - you may select the LLC to be treated as C-corporation for tax purposes.

LEV :

when you said that most banks will not take me as a customer for internal security reasons, is this in the case of the BVI owning the LLC or in both cases?
Most banks do not want to serve foreign. That include as non resident alien individuals as well foreign corporations. There is additional compliance overhead and banks (especially small banks) are trying to avoid. If you already have a bank account - you may continue to use it.

Customer:

thanks for clarifying

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

hi Lev, I am forming single member LLC (disregarded entity) owned by me as an individual per your advice. Filling the SS-4 form to obtain an EIN for the LLC has a request for SSN except in the case for foreigners. I am a foreigner and non-resident but do have a SSN. Should I skip? below is their instructions that I don't understand:


 





You must enter an SSN, ITIN, or EIN on line 7b unless the only reason you are applying for an EIN is to make an entity classification election (see Regulations sections(NNN) NNN-NNNN1 through(NNN) NNN-NNNN3) and you are a nonresident alien or other foreign entity with no effectively connected income from sources within the United States.


 


and if you don't mind, could you tell me which tax forms I will need to file in the future and if that would be for me or the LLC?


 


Thank you




Expert:  Lev replied 1 year ago.
If you choose a single member LLC as a disregarded entity - and the LLC will have NO employees - there is no need for EIN.
Instead - you need to apply for ITIN for yourself - and will use it for all purposes related to LLC's business transactions.
You may verify the chart on this page Do You Need an EIN?
- http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Do-You-Need-an-EIN%3F

In the future - you would need to file ONLY personal tax return as a nonresident alien - form 1040nr - www.irs.gov/pub/irs-pdf/f1040nr.pdf
and you will report only income from US sources (and corresponding deductible expenses) on schedule C which should be attached to form 1040NR - www.irs.gov/pub/irs-pdf/f1040sc.pdf‎
Net taxable income will be calculated on schedule C - and will be transferred to form 1040NR line 13.
Please be aware these are forms for 2012 - and will be updated for 2013.

Appreciate you asked for clarification.
Customer: replied 1 year ago.

Please let me know your answer to the above questions in the case where EIN has been applied for (and did not enter my SSN).

 

yesterday you said: If you have SSN - you may use it - but may not apply for ITIN in additional to your SSN.

 

so how are you saying that i should apply for a ITIN? I am completely lost

Expert:  Lev replied 1 year ago.
You may apply for EIN only if the LLC is treated as a corporation - for disregarded entity - you do need to provide either SSN or ITIN.
When you apply for EIN for the disregarded entity - that is NOT for making classification election. That would be a classification election if you choose the LLC to be treated as a corporation.
The line 7b is related to a responsible party. If you as a physical person are responsible party - your tax ID is required.
Customer: replied 1 year ago.

forgive my amateur questions but this really complicated. I guess I better do what's right and forget about learning the system for now.


 


1- l call the registered agent and have them stop the EIN request since I want the LLC to be a "disregarded entity"


 


2- I have a SSN that is of course NOT valid for employment. I just use that when I file the 1040NR


to be sure, I don't file for ITIN?


 


thanks again.

Expert:  Lev replied 1 year ago.
I agree with you that you do not need EIN - at least at this point.
You may apply for EIN any time in future - if you would need to have it.

Your SSN is not valid for employment - but because you are physically outside the US - you are not working in the US - and there is no violation.
Still - because you have SSN - it is a valid SSN - and it should be used as your tax ID.
Because you already have SSN - you may not apply for ITIN.
See here - http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies

An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship.

For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or EIN for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.

 

Specifically for your question about ITIN - see here - http://www.irs.gov/Individuals/Additional-ITIN-Information

Once you receive a SSN, you must use that number for tax purposes and discontinue using your ITIN. It is improper to use both the ITIN and the SSN assigned to the same person to file tax returns.

 

Customer: replied 1 year ago.

thank you, XXXXX XXXXX what the bank had requested. I assumed that the "US Person" in the W9 form apply to my case although I am a foreigner. Should I also request to submit a W8 form or not necessary?

Expert:  Lev replied 1 year ago.
Sorry - I overlooked your last question.
You should not use W9 form for nonresident aliens, but should use W9 form.
There are several forms W8 that are used for different occasions - mainly W8BEN and W8ECI.

Abbreviation in the form name Form W-8ECI – stands for effectively connected income (ECI) – thus this form is used if the person or entity is a recipient of U.S. source income which that is (or is deemed to be) effectively connected with the conduct of a trade or business within the United States.

The form Form W-8BEN is used for income that is not effectively connected.

Please see for reference instructions for these forms:

http://www.irs.gov/pub/irs-pdf/iw8eci.pdf

http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

Also in instructions there is a definition of effectively connected income.

A foreign person may be engaged in a trade or business in the United States regardless of his/her residency, but depending on how the business is organized.

Please feel free to ask for clarification. I might not be immediately available, but will surely respond.

Customer: replied 1 year ago.

hi Lev, is this a typo?


"You should not use W9 form for nonresident aliens, but should use W9 form."


Just to simplify things, as I am a foreigner and formed a one member LLC "disregarded entity" and wanted to open a bank account. Which form should i sign? i am confused.

Expert:  Lev replied 1 year ago.
Sorry for type. Following should read - "You should not use W9 form for nonresident aliens, but should use W8 form."
For your bank account - use W8BEN.
Customer: replied 1 year ago.

Lev, the bank is asking that I sign the authorization for information and certificate of authority. On the second page, it reads






"I am a U.S. citizen or other U.S. person (as defined in instructions)." so I am afraid to sign since I am not a US resident. Shouldn't the W8BEN be a substitute in my case? and if it is ok to sign, should I check the individual/sole proprietor or LLC or other and write disregarded entity? using my SSN. should i strike any language on the form? kindly help me fill it out. Even on the signature it reads: " signature of a US person".





Expert:  Lev replied 1 year ago.
You are a nonresident alien - according to your information - that authorization is for US citizens and for resident aliens - and signing that statement would be incorrect representation of facts.
You are NOT an US person.
I do not see the forms and do not see all possible option - thus may not advise.

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