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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience:  Taxes, Immigration, Labor Relations
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Im setting up an LLC and I have three foreign investors who

Resolved Question:

I'm setting up an LLC and I have three foreign investors who will contribute $70,000 each. What is the best way to get these funds into a company account?
Submitted: 10 months ago.
Category: Tax
Expert:  Lev replied 10 months ago.

Lev :

Hi and welcome to our site!

Customer:

Hello.

Lev :

First of all - we need to be clear about relations between the LLC and foreign investors.
Following are options - (1)foreign investors are members of the LLC; (2) foreign investors are not members of the LLC - but are partners; (3) foreign investors are neither members nor partners - but creditors who provide loans;

Customer:

(1) or (2) What's the difference?

Lev :

(1) - we have a LLC with several members which is treated as a partnership unless you specifically select it to be treated as a corporation.
(2) we have a single member LLC that you are setting - and it will be treated as disregarded entity unless you select differently. A separate partnership is forms between the LLC and foreign partners.

Customer:

So then, option 2

Lev :

So - you will have a partnership - and as such it will be treated as a separate legal entity. You will need a tax ID for that partnership - and will open a tax account. Thus - partners will be able to transfer their contributions.

Customer:

A tax account?

Lev :

Sorry - I meant bank account.

Customer:

So....their contributions will be taxed?

Lev :

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.


Some additional information about partnerships may be found in IRS Publication 541 - http://www.irs.gov/publications/p541/index.html


All business income and expenses are reported on the partnership tax return form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf


Partnership should issue schedules K-1 to each partner reporting pro-rata share of net taxable income (or loss) - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf


How income is divided between partners is based on the agreement between partners.
Lev :

Contributions are NOT taxable. Taxable income is calculated on the partnership tax return - and passed to partners.

Customer:

The fact that they're foreigners makes no difference?

Customer:

They all have social security numbers in the US, so they would just pay taxes on that income?

Lev :

Because there are foreign partners - the partnership would be required to withhold income taxes from these partners and remit to the IRS. As these partners have SSNs - these SSNs will be used for their tax identification.
Yes - all partners will be taxed on their pro-rata share of income.

Customer:

Okay. I think that answers my question. Thank your help.

Lev :

Some additional information related to Partnerships With Foreign Partners - see here - http://www.irs.gov/Individuals/International-Taxpayers/Helpful-Hints-for-Partnerships-With-Foreign-Partners
As we see - there is no difference in taxation - but there is a mandatory withholding.

Customer:

Okay. I'll read through this. Again, thank you. Have a nice night.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you

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