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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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We want to start a new US company. The main share holders

Customer Question

We want to start a new US company.
The main share holders will be foreign individuals or corporations.
We want to know what should we expect in terms of the overall taxes?
What would be the range for US Income taxes?
Are there additional taxes or withholding on dividends? What are the taxes on dividend?
What is the total tax liability to expect when we open a US company with majority share holders being foreign entities?
Submitted: 9 months ago.
Category: Tax
Expert:  Mark Taylor replied 9 months ago.

Hi, my name is Mark. I will be happy to help you with your questions.

Expert:  Mark Taylor replied 9 months ago.

What kind of entity are you looking to set up? A Corporation? A LLC?

Customer: replied 9 months ago.
It depends - we will have majority of non-US share holders.
We will need to pay dividends to these share holders.
If we used an LLC, what should we expect as US income and/or Dividend Taxes?
If we used a corporation, what should we expect the total US income and/or Dividend Taxes to be?
Is it double taxation? Is there a way to avoid double taxation?
Expert:  Mark Taylor replied 9 months ago.

With a C-Corporation there would be double taxation. The rates for corporations go up fairly quickly. The first $50,000 of income is taxed at 15%. The next $25,000 is taxed at 25%. The next $25,000 would be taxed at 34%.

Expert:  Mark Taylor replied 9 months ago.

When the income is distributed to the shareholders is would be taxed as dividends. The dividends from foreign shareholder is subject to a withholding of 30%.

Expert:  Mark Taylor replied 9 months ago.

With an LLC there is only one level of tax. An LLC is known as a flow through entity. This means that all of the income, deductions, and credits flow from the LLC to the individual members. The members would receive a k-1at the end of the year with their share of the income, deductions, and credits.

Expert:  Mark Taylor replied 9 months ago.

The LLC would be required to withhold 39.6% percent of the income allocated to foreign partners. This withholding would need to be submitted to the IRS on a quarterly basis. The foreign partners would need to file a 1040NR to potentially obtain a refund. If the foreign partner is a resident alien they would be required to file a form 1040.

Customer: replied 9 months ago.
that means we should expect 34% So if the company has an income of $100,000
We should expect 34% to be paid as income taxes?
So earning after tax would be like $65,000And then when we distribute the income as dividends (say we distribute $50,000 as dividends to foreign entities) - that would be another ~30%So out of the dividend we will need to withhold additional $15,000? Meaning the recipient will receive only $35,000 our of the $50,000?So overall the tax payments on our $100,000 income in this scenario would be
-$35,000 for income tax
-$15,000 for dividend distribution
=
-$50,000 (i.e. ~50% overall tax on our $100,000 income)?Is that the same with LLC? or would LLC allow us to pay less on dividends or federal income?
Expert:  Mark Taylor replied 9 months ago.

No it would be a graduated system. So for $100,000 the first $50,000 is taxed at 15% ($7,500) The next $25,000 is taxed at 25% ($6,250) and the next $25,000 is taxed at 34% ($8,500) or $22,250.

Expert:  Mark Taylor replied 9 months ago.

Assuming that you submitted $50,000 of dividends to foreign shareholders, you are correct that the withholding would be $15,000. The actual tax could be different. The shareholders would need to file a return. Potentially the shareholder could receive a refund.

Customer: replied 9 months ago.
Is it the same with LLC?
Or would foreign dividend distribution will always be subject to the 30% withholding?
Expert:  Mark Taylor replied 9 months ago.

In an LLC, assuming that all of the income is allocated to foreign members, then the company would withhold $39,600. The members would need to file individual returns to report their share of the income and to report the amount of withholding allocated to them. It is possible that a member would receive a refund when they filed his or her individual taxes.