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I am considering forming LLC in Wyoming. There will be 2 members,

both residents of another country...
I am considering forming LLC in Wyoming. There will be 2 members, both residents of another country and we will opt for pass-through taxation.

I understand that if LLC does not want to be taxed in Wyoming (and any other US state), it may not conduct business in Wyoming (and other US states respectively).

My question is how to maintain this status in a 100% safe and predictable way? Which documents I may need to obtain during registration process.

Would any of the following violate our non-trading status:
1. purchase of Internet domain from US-based registrar
2. maintaining US bank account
3. using PayPal merchant services (in the US)
4. buying / leasing a company car in the US
5. buying any services from US vendors

provided that we do not earn any income within the US.
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Answered in 9 minutes by:
10/23/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,205
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
Your LLC would be taxed in teh US as a partnership. This is because there would be more than one member. Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI). This applies whether or not there is any connection between the income, and the trade or business being carried on in the United States, during the tax year.
The partnership will need to file it's own return, although it will not pay tax on it's own and pass the income and losses to the partners.

Robin D. :

If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. The registered partnership in the US with #s 1, 2, and 4 in your post would be doing business in the US.

Customer:

Thank you.

Robin D. :

You are most welcome

Robin D. :

Your positive rating is always thanks enough.

Customer:

From what I hear from most of registration agents, it is possible for a Wyoming LLC NOT to be taxed at all in the US - just to pass through the income for taxation on individual members level. Is this at all possible?

Customer:

Should we, in this case, arrange all items 1, 2, 3, 4 outside of the US? I.e. to purchase for example , US internet domain, through a UK intermediary?

Robin D. :

It is possible but the partnership would need to make sure that no income is from a US source

Robin D. :

The US internet if by a US server could be the only item the treasury would need to see the connection

Robin D. :

If the partnership has any US source then the withholding to the partners would be required on those prior to distribution

Customer:

So, absolutely no connection is the rule? Alternatively, if we have these connections, what kind of taxes and tax returns we would need to file / pay?

Robin D. :

The partnership will have to file anyway. It is a US entity if registered in the US. If doing business in the US then withholding for partners, and partners then file a US 1040NR to show the income but do receive deductions against the income.

Robin D. :

I would strongly suggest that a US CPA or enrolled agent be retained when you register this LLC

Customer:

Yes, that's what I am thinking. Just for the clarity, we are declaring the business within the US only, not elsewhere in the world?

Customer:

(this LLC will be really active internationally, with minimum presense in the US)

Robin D. :

Where ever you are will most likely have tax issues for your income

Customer:

Income is quite straightforward. I will declare it with my own taxt return in my coutry (pass through taxation)

Robin D. :

Dose the US have a tax treaty with your home country?

Customer:

Yes, whatever is paid in the US is deductible in my country (Poland). I am just asking all these questions to make my business model as simple as possible. Of course tax advantages are important, but I am absolutely prepared to be taxed, just want to have some certainty HOW.

Robin D. :

Then the main thing is to make sure that your partnership does not do business in the US.


If the LLC is owned entirely by non- resident aliens, no LLC business is conducted in the US and all its income is foreign source income, then no tax need be paid to the IRS. The US, in this case, becomes a tax haven for non-resident aliens.


In other words, the if an LLC is fully owned by non us residents and the LLC’s income is not derived from the United States and it is not effectively connected with trade or business within the United States nor do they employ US residents or rely on a dedicated place of business within the United States, the income is not subject to US tax.

Robin D. :

You are really in a tight place because you are asking about rental cars and buying services from US vendors. The ues of a US service provider for the internet could be enough to cause the income to be all US sourced. I need to check the treaty too. One sec.........

Customer:

Yes, I deliberately gave these examples. Not because they are too typical, but in reality:

Customer:

1. We will be trading in several currencies, including the US dollar. So, US bank account is convenient.

Customer:

2. Same with PayPal.

Robin D. :

ARTICLE 8
Business Profits
(1) The profits of an enterprise of a Contracting State shall be taxable only by that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed by the other Contracting State but only so much of them as is
attributable to that permanent establishment.
(2) Where an enterprise of a Contracting State carries on business in the other Contracting
State through a permanent establishment situated therein, there shall in each Contracting State be
attributed to that permanent establishment the profits which it might be expected to make if it
were a distinct and separate enterprise engaged in the same or similar activities under the same or
similar conditions and dealing wholly independently with the enterprise of which it is a
permanent establishment.
(3) In the determination of the profits of a permanent establishment there shall be allowed as
deductions expenses which are incurred for the purposes of the permanent establishment,
including executive and general administrative expenses so incurred, whether in the State in
which the permanent establishment is situated or elsewhere.
(4) No profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment, or by the enterprise of which it is a permanent
establishment, of goods or merchandise for the enterprise.

Robin D. :

As you can see from the bold prints above it is going to be very important that you just use the LLC as a structure but have no direct business actitvity in the US. If you do that income will be taxable to the US

Customer:

yes, I see. But item (4) mentions "mere purchase" and this SEEMS to cover all my categories.

Customer:

if I read it correctly

Robin D. :

In this day the internet is not so safe as one would like to continue to believe (to shield from taxation I mean). The presence in the US could be seen. The mere purchase is the idea of the business LLC started in the US.

Robin D. :

If you merely start the LLC in the US that in and of itself would not constitute doing business in the US but the other items could push you over. 1,2,and 4

Robin D. :

of your post.

Customer:

Again, it is not about hiding, but about certainty. I am checking this in advance, so I will not engage in anything that I did not predict.

Robin D. :

I understand

Robin D. :

As more and more of the business practices are internet driven the treasury looks to conform too.

Customer:

Thank you. I think I have a clear initial picture. I will now evaluate whether it makes sense to maintain non-trading status or just the opposite.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,205
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
Robin D. and 87 other Tax Specialists are ready to help you
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Robin D.
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,205
16,205 Satisfied Customers
Experience: 15years with H & R Block. Divisional leader, Instructor

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