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Category: Tax
Satisfied Customers: 12690
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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A friend of mine I prepare taxes for (am a tax professional)

Customer Question

Hi, a friend of mine I prepare taxes for (am a tax professional) needs advice on an issue that I am not familiar with. He has a mobile app business with a partner that is a foreign citizen of another country (in Europe Czech Republic). He wants advice on how to proceed setting his business up (he wants to set up an LLC) What are some key issues I need to know about foreign partners in a business and issues with a partnership to be aware of. Is this something an attorney would need to do? Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
First and foremost, when there is a foreign partner in an LLC, the person has to get a Taxpayer Identification Number (“ITIN”).
This must be obtained if the LLC is engaged in a US trade or business (i.e., if it will make money).
The foreign partner of the LLC will be deemed to be engaged in a US trade or business and the LLC must withhold 35% of its profits for taxes, paid and filed on a quarterly basis to the IRS. (this is PROFITS of course, not gross income)
United States Tax laws require that foreigners pay taxes on any earnings made in the United States. Regardless of immigration status, the United States will allow foreigners to form a company as long as they have registered for a Taxpayer Identification Number.
THe the partner can report using the 1040NR (NR standing for non-resident status) and because the tax is graduated and there will be an exemption his ACTUAL tax rate may not be that high and would get a refund.
Let me know what other questions you have...