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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2879
Experience:  Over 20 Years experience
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Company background: We are a new setup company (LLC) in Delaware

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Company background:
We are a new setup company (LLC) in Delaware since April 2013. We engage a registered agent for tax purpose and we have a virtual office in New York city since Sept. 2013. We do not hire any employee but engage a local freelancer as an agent to handle bank and present us in USA. We also engage some freelancers who are located outside of USA to do marketing / shipping handling / product control etc.
Our core businesses are two types:
Type one - Marketing/branding/shipping handling for crowd funding project in USA- we use our company name to apply crowd funding website to do the crowd funding for our clients who are not based in USA. After the crowd funding is successfully achieved, we get certain percentage of the revenue and the rest of money, we pay back to our client (out of USA). Our client will issue invoices to all those end-user (buyers) from their country (for example: from China or Hong Kong). My questions are:
1). Do we need to receive any document from clients in order to pay back the money? We do sign an agreement about the job contents and percentage of our fee. If we fail, we do not charge anything, kind of “no cure no pay”.
2). We also sign agreement with all our freelancer agents and request them to send invoices in order to pay for their work. As we checked, there are no withholding tax if the agents are working outside of USA. Is this correct? How about the freelancer in USA?
3). Refer to question 1), do we need to reserve any tax in USA for our client outside of USA?
Type two – We have our own products and plan to do crowd funding as well in USA. The products will be produced in China and ship to our USA agent and he will ship to the individual who buys the goods. My questions are:
1). The invoice will be issued by our LLC company (established in Delaware). Do we need to issue invoice to end-users (buyers) with gross receipts tax? How about to those buyers outside of Delaware and USA? What is the percentage of the gross receipts tax (I see the range 0.1037% to 2.0736% from the government website)?
2). The sole shareholder is a Singaporean (he doesn’t live in USA), we are applying the ITIN for him to file the tax return. As I check the corporate income tax is 8.7% flat rate in Delaware. Is it better to opt for his private tax return or opt for corporate tax? The reason?
3). Is it fine that we use agent (3rd party) to work for us instead of hiring staff?
4). Is there any administration requirement to avoid any penalty? For example, all the original invoice need to be kept for 5 years? Or need to keep the transportation documents to prove where the goods are shipped to?
Submitted: 5 months ago.
Category: Tax
Expert:  R. Klein, EA replied 5 months ago.
Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

Your questions are not clear as to which country you are asking about the tax rules, but I will answer them as though the questions relate to US taxes. It sounds as though there are many misconceptions and tax concepts that are unclear.

If your business has nexus (a legal term referring to the state and/or nation the business is most closely associated with) in the US and/or the company has US source income, the entity and/or its owner will be subject to us federal tax. Similar rules apply to state tax depending on where the business is located in and has nexus. Sometimes this may be more than one US state.

1. Unlike Europe, the US has no gross receipts tax or VAT on sales of anything. Each state is free to impose and collect sales tax, which most often is paid by the retail purchaser of goods and services. Sales taxes are based on the location of the purchaser in the US. Foreign purchases of goods and services are generally exempt from sales taxes.

2. Depending on the legal organization of the entity, different rules apply. For example, a US corporation taxed as a C-Corporation (not eligible for S-Corp status) pays tax at the corporate level. DIVIDENDS are paid to the shareholders after taxes are paid by the corporation. The shareholder only pays personal income tax on dividends paid out. If the entity is an LLC taxed as a sole proprietorship, the tax is paid only at the individual level. There are no flat taxes. Delaware's flat franchise tax only applies to corporations, not LLCs.

3. Having a third-party as your agent does not have any tax effects other than you are paying a contractor versus having employees and dealing with payroll taxes, etc. It does not cause nor relieve you of any income tax liabilities. If you have an outside firm handling your contractors or workers, they are responsible for all employment taxes on their employees.

4. As a general rule of thumb, you should keep all business records a minimum of 7 years. The IRS can go back 3 years for an examination and states can sometimes go back even further.
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2879
Experience: Over 20 Years experience
R. Klein, EA and 5 other Tax Specialists are ready to help you
Customer: replied 5 months ago.

Dear Sir,


 


Thanks for your reply.


 


We are a LLC company established in Delaware, so the tax law we are asking should be according to the tax law of Delaware.


 


1. As I checked in the governmental tax website of Delaware, I see they mention "gross receipt tax" applied to the goods sale but the percentage is different depends on goods. Our goods is electronic product, so could you please confirm that we do not need to issue any gross receipts tax no matter we sell to local buyer (B to C) in Delaware or other states in USA outside of Delaware (B to C) or out of USA (B to C)?


 


2. Our client is an independent entity from Hong Kong, we provide marketing service to them using our LLC company to run the project in Kickstarter (crowd funding website). After collecting the fund, we pay back the money to our client after deducting the agreed percentage as our income. Do we need any proof for accounting/tax purpose to avoid any misunderstanding? We do have agreement to prove but no any invoice. Do we need to reserve any withholding tax for our client to pay to USA? Or that's our client's obligation to report to USA that they have income from USA?


 


3. So for LLC, the sole shareholder need to file a individual income tax, no other tax filing obligation, right?


 


4. Is there any administration regulation to avoid penalty? For example, in Europe, we need to keep various documents (PO, bank statement, transportation document, invoice etc) in order to prove to tax office to avoid any penalty.


 


5. Is there any invoice requirement from tax point of view when we issue to business (B to B) and end-user (B to C)?


 


6. Is there any invoice requirement from tax point of view when we receive an expenses invoices to be used for office cost deduction? For example, in Europe, the expense invoice must be issued with company's VAT nr./company name/address, then it is qualified as an office cost.


 


7. Does USA charge customs duty when we import goods to USA from China? If yes, where can I check the customs duty percentage?


 


8. As you mentioned, there is no VAT or gross receipt tax in USA but we do receive an invoice from New York city company, they charge us with sales tax.


 


9. When we import goods from China to USA, do we need to pay any tax in advance? In Europe, we need to pay VAT and customs duty (if any) in advance.


 


10. Is there any special tax issue we need to pay attention to when we are doing business in USA? If this question is too broad, maybe you can send me some useful links for me to read. I just want to avoid any mistake in USA.


 


Thank you!


 


 


Kind regards,


Victoria


 


 


 

Expert:  R. Klein, EA replied 5 months ago.
Victoria:

If there is only ONE member/owner of the LLC, then it is taxed as a sole proprietor, requiring an annual 1040NR if the owner is a non resident alien. This is for individual income tax. In this situation, there is no Delaware franchise tax. If there is more than one owner of the LLC, then completely different rules apply. Depending on nexus, the owner may be liable for Delaware personal state tax on income earned within the state.

"Gross receipts tax" is unique to Delaware. Most states don't have this. It is applicable ONLY to items sold or consumed in Delaware and it is paid by the business. The rate is variable depending on what is sold.

I do not understand your business arrangement with the Hong Kong firm, I apologize.

You should keep all business records at least 7 years.

Your questions are too many and broad to be answered in this forum. Taxes cover the following main areas and we will be happy to answer specific questions individually:
1. Federal Personal Income Tax
2. State Personal Income Tax
3. State Franchise Tax (Corporations)
4. Gross Receipts Tax on items sold in Delaware
5. Sales Tax
6. Employment Taxes (levied on employers AND employees)
a. Social Security and Medicare taxes
b. Federal Unemployment Tax
c. State Unemployment Tax
7. Property Tax (ad valorem)
8. Federal Customs / Import and Export tariffs

Customs questions are out of scope based on the initial topic of this question. Please start a new question to address issues about this topic.

Thank you.


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