Hello and thank you for using Just Answer,The state of Delaware has been interesting for many nonresident aliens of the US and forming an LLC. As such the state offers this exact advise:
Citizens of countries other than the United States are often concerned with the tax consequences of owning an entity such as a limited liability company. A Delaware LLC that (1) carries on no business in the U.S., (2) derives no income from any sources within the U.S. and (3) has not elected to be treated for tax purposes as a corporation does not need to file a U.S. tax return or a Delaware tax return.
Under the current IRS "check-the-box" rules, a Delaware LLC that does not affirmatively elect to be treated for tax purposes as a corporation will be treated for federal tax purposes as a partnership. It will be treated as a partnership for Delaware tax purposes as well.
Under current Treasury Regulations, a partnership that carries on no business in the U.S. and derives no income from any source within the U.S. does not need to file a tax return. Delaware law currently provides that a partnership need file a return only if it has income from sources within the State of Delaware.
If the LLC has only one member, then for federal tax purposes the LLC is disregarded, and the sole member is taxed as a sole proprietor. Current Treasury Regulations provide that a nonresident alien who is not engaged in a U.S. business and who does not derive any income from any source within the U.S. does not have to file a tax return. Similarly, Delaware law currently provides that a nonresident alien having no income from sources within the State of Delaware does not have to file a Delaware return.
You do not have to form a US LLC in Delaware or any other state.
If payments come from a source in the US to a paypal account then paypal may issue you a 1099K, the iRS will expect you to report that income on a US tax return.
If you can forego a US LLC I would advise you do that.
If you have a business account and move money to a personal that will be an indication of payment.
You will need to file a US 1040NR return. You will be taxed on any and all US sourced income.
I don't understand. You state that since I do not live in the US and I conduct my business elsewhere, I wouldn't have to pay taxes. Then why do you advise me not to open the LLC? If payments come within the US, that does qulify that I'm conducting business in the US? What is the percentage of tax that I would have to pay for either 1099K or 1040NR? And what would you recommend me if LLC is not a good option?
I advise not to because you do not want any liability to the US. Why open an LLC here and have to pay the franchise tax? Also Paypal is going to issue the 1099K (providing you reach the limit that requires it).
As stated in my questions, I'm from Argentina. Here you are not allowed to open an account in us dollars or deal in us dollars. Our currency is not stable, so we save money in dollars. To me it is not a bad idea to open and LLC in Delaware, even if I have to pay taxes, depending on how much are they. How much is the estimate percentage to pay of 1099K and 1040 NR? and if you still think this is a bad idea, is because you actually know about something better. What would you recommend instead of the LLC?
PayPal will issue the LLC a 1099K if you receive more than $20,000 and 200 transactions through your business account in a year.
That will happen then, because my income is way over that. But is Paypal the issue> In that case I could operate with another online payment company
Your reason makes since and the IRS will expect a 1040NR for US sourced income. The profits pass to you so if you are not physically in the US and have no set place of busine you would have no tax to pay
Well then, what should I do?
Go ahead with your plans if you wish. Any document from paypal would be passed to you as a sole proprietor and you would file as not in the US.
That is not a satisfying answer. First you say I shouldn't open the LLC and then for the same reasons you say I should? What is your reasoning? When you answered the first time you didn't notice I was not in the US?
I do not want a magic answer, I'm asking for guidence.
You asked for my opinion on that. I normally do not give my personal opinion and I probably should not have in this case butyou asked.
The guidance I am giving you is to advise on possibilities
Not your personal opinion, I asked your opinion as an accountant
If you wish to open the LLC (although you are not required to unless Paypal is pressing) then you can do that
My projected income in a year is over 100 thousand dollars
My opinion professionally is stay as simple as possible. A US single member LLC is still just a sole proprietorship
Is all that going to be coming through Paypal
At this time, Paypal is the sole online payment I use, but opening an LLC in the Us would allow me to have more options on that
But yes, i would need to set one or two online payment systems at maximum
Ok one sec while I check on any IRS issues that could relate. All your business is actually in Argentina right, you have no office in teh US and do not come here?
Ok one sec then I was accessing some thing else on your situation, thanks
Ok, i'll wait. Thanks
You are best to stay as an LLC (especially if you need liability protection) because this keeps you as the true taxable entity. As you are not in the US and conduct no business in the US, you would not be taxed on your income. Moving the money between accounts would only require that you track your income. This is in case the IRS did request information from you.If Paypal requires any info from you then showing that you are a Nonresident alien would protect you from reporting.(Here is the part I was trying to find and so far have not completed that search) Will Paypal accept a W8 form from you so no reporting is needed by them.
Ok, did not understand the last comment, you are still looking for more info?
Sorry, you see the W8 BEN is a form that is given to a US payer when the US payer sends US sourced money to a nonresident alien.
I was checking to see if PayPal would need that W8 BEN from you or not.
That is my only problem with this, the amounts going through PayPal
Paypal is actually irrelevant, if the amounts that i handle are too big for it, I could use another online payment company
From what you said I have certain doubts that I would like to clarify:
1-If payment comes from somebody in the us to my account in the us, but i provide the service to them elsewhere (in Argentina), do I pay taxes on that sale?
2-Wiring money from the LLC bank account to my personal account in the US, would that make pay any taxes? (I live in Argentina) And if it would make pay taxes, if for instance I would use an account elsewhere like Uruguay, would I pay taxes in the US?
Where does the sale originate? If the sale is through a conduit in the US (such as a website assigned to that LLC) then yes, the IRS is constantly redefining US sourced incoem.
Wiring money , no
3-To make sure I'm a non resident, providing services outside the US, what documents may the IRS, bank or even paypal will ask for?
1-How much would that tax be, percentage-wise?
Your physical location, any location of any office or place of business in the US (all these are US tax purposes). If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States.You would have to show no physical presence in the US.
1-What do you mean exactly by website assigned to the LLC?
The IRS is constantly looking to the internet and how it has changed the rules on where a service or product is offerd. They have even gone so far as to assign US presence to individuals that are in other countries but are working r"remotely" on the computer for US companies.
If I have an LLC in Delaware US, and I sell a service online, but collect the money on a Paypal or US bank account linked to my LLC is that taxabale? doesn't even matter if the payment comes originally from turkey or any other country?
No not exactly. I would still lean toward the income not being US sourced (that is important).
Income, gain, or loss from the sale outside the United States, through the U.S. office or other fixed place of business, of:
Stock in trade,
Property that would be included in inventory if on hand at the end of the tax year, or
Property held primarily for sale to customers in the ordinary course of business.
The US office section is what the IRS would have to show was your US source and if they can show that the website is under that then they could tax you. Of course the rates are lower because it would be effectively connected income. Effectively connected Income is at the same rates as US citizens, after allowable deductions.
The thing is that as said before, if the tx is not that much, it doesn't sound that bad to me
I know it seems like I took your subject and really muudied it for you but there is a lot to consider
It may not be but you should know everything
before you decide
I know that, and that i the same reason why I'm very confused
Or I was
Now, 50% of my customers are from the US
So, how much would the taxable percentage of the sale woudl i have to pay?
And I would have to pay tax only on payments that are originated on the us, right? if someone would pay me from another country to my us bank account, i wouldn't pay taxes, right?
The rates are based on the income and we have no tax treaty with Argentina. .Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents.
Of course no Self Employment tax (that is important because that would have been in addition to the regular)
What do you mean no self employment tax?
Self Employment tax is paid in the US by sole proprietors (single member LLC owners) but nonresident aliens do not pay that additional tax even on effectively connected income.
Okay. And to make it very clear, effectively connected income is just for payments made from somebody in the us, right?
Because you would be doing business in the US.
To sum up:
Opening the LLC would make me pay the franchise fee and I will have to pay taxes only on sells made to someone over the US. Regarding transferring money from my LLC bank account to a personal bank account in the US, there will be no tax to pay.
is that correct?
those would be all the things that i would have to pay
Perfect. Now, is there any other kind of structure you would recommend for me to have in the US that offers more benefits than the LLC in Delaware?
No, because you cannot be in an S corp (nonresident alien not allowed) and C corps are taxed tax (once on the corp level and again to the shareholders)
and tax wise, is the same if my LLC in Delaware is owned by another company in Argentina or if the LLC owns the company in Argentina?
The only other option would be no LLC at all and just sole proprietor. Yes the same because it all basically passes through to you. So if you own the Argentina company and it owns the LLC it is still you in the end.
Last but not least, would you recommend any other stable and respectable country to have the offshore company and bank account, that would my business same or even better benefits?
I would not have any other option to offer. I am not a tax expert on another country and the intricacies that could be involved.
Okay. If I were to choose on billing all my US customers in an account outside the US and all my non US customers in my account on the US, would that be fraud or valid?
Again, it is not where the customer is but where your company is "doing business" even if you billed only the non US customers then your company could still be seen as having effectively connected income if the income can be sourced to the US. Does the LLC constitute US nexus for the selling if the internet is based in the US?Anothe rof my colleagues here brought up this same issue last year with someone.
Okay. What about if my company have an account on the US, and I bill everyone on the bank account in the US and all my income would come through that account that is owned by a company in Argentina. That would be considered doing business in the US and I would have to pay taxes there?
It is not the billing it is where are they purchasing. How will the website be served in teh US or outside the US.
What do you mean by served? I control my website and all the service in provided in Argentina
Then it would not be US sourced. Gain on sale of inventory is sourced to the place where title to the property changes hands. IRC 862(a)(6)
If this is a foreign web server it is not US .
I have a huge thunderstorm rolling in.
Not trying to hurry but................
Okay, this will be the last question, but please be very clear. If I change my hosting of my website and all the services I provide are in Argentina. Then if I charge a person from the US for a service that they will consume in Argentina, would that make me pay taxes on that sale or not?
To make it even clearer, in this scenaerio I have an LLC in Delaware owned by my Argentina company, and the money that I charge is going to the LLC ban account in Delaware? Still I wouldn't pay taxes, right?
Okay, that is it then. Thank you for your help.
You are most welcome
It would be the same for me to open an LLC in Delaware or Miami?