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I'm currently based in Germany (but originally from another EU country) and will be working remotely as a software developer for a US company on and off for a few months in a year. They suggested that it might be easier (for various purposes) to open an LLC in Delaware or Nevada. Its convenient for them and it lets me retain the freedom to move around as much as I like + it might even to some extent be cheaper tax-wise paying taxes over there (if I pay taxes in the US - double taxation agreement means that I would not have to pay them again in Germany right?).

The problem is I'm not really sure what the overhead is in having it go through an LLC. Not worried about smaller expenses here (like opening the LLC, franchise/tax/agent fees) - but am not really sure how to tax my personal earnings and at what rate? The confusing thing is that when I'm reading about Nevada LLCs online - it says no personal income tax? Does that mean that I'd pay 0 in taxes (to the IRS) when getting the money out from the LLC to me? That can't be right.

Let say the LLC makes 75k USD - how much out of that could I really get after tax? (bare in mind that I'm sitting in EU so there will probably be 0 deductibles)

  • What is your US visa status? (H1B? O1? Greencard?) The formulate the question differently: Are you actually allowed to earn money in the US? – dmeister Jun 2 '14 at 12:23
  • Does the US apply restrictions to foreign citizens owning a business inside the USA? If so, the previous comment makes sense. If not, I don't see why you'd need a US visa. After all, you're not going to work in the USA. – Freek Wiekmeijer Jun 2 '14 at 13:17
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    @dmeister There is no reason to have a US visa to have an LLC. Related: money.stackexchange.com/questions/6771/… – Karlson Jun 2 '14 at 14:20
  • as noted by others, an LLC can have a member who is a foreigner + I don't see why I'd need a visa anyway since I'm not physically working in the US. I'm just confused about filing taxes in the US and how much would that cost in the end. – user1003 Jun 2 '14 at 14:51
  • @user1003 You might have to visit the US to open a Bank Account. – Karlson Jun 2 '14 at 14:55
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LLC will not make things easier for you in any way whatsoever. LLC can be treated as one of those in the US:

  1. Disregarded entity - I.e.: from the IRS perspective the LLC doesn't even exist. You're liable for all the taxes regardless of the legal entity you're operating through. You have the benefit of the limited liability (but not very limited, since you're the sole member and do all the work), but no tax benefits at all.

  2. Corporation. In your case it is C-Corporation (in the US there's also S-Corporations, foreigners cannot hold shares in those). C-Corporations are taxed on their income at the corporate level, and moneys distributed to owners are called "dividends" and are taxed again on the individual level for the owners. This means double taxation, so unless you're planning on selling shares in your business - C-Corp is not for you. If you are planning on selling shares - LLC is not for you, since it doesn't have shares. Bottom line - in your situation this option is not suitable at all.

That aside, consider your local (German?) laws. LLC in the US can very well be considered a Corporation (for tax purposes) according to the German law. I know that disregarded entities in Europe can be considered as corporations according to the US law. You may end up having double taxation issues in your home country even if in the US you chose option #1 just for the limited liability. Talk to a tax adviser.

If you do decide to create an LLC in the US - the State of the incorporation matters not only for the State income taxes, but also for the State fees (for example, California charges minimum $800 a year for a LLC), and of course the limitations on the liability. Talk to a US-licensed tax adviser and attorney about these things. You will have to register the LLC in the state where you'll be working (if you ever set foot in the US), so registering in Delaware won't save you from the CA LLC fee (the $800) if you stay at least a day in CA.

If you're not working in the US, and don't set foot in the US at all - I'm not sure whether you should even be worried about the US taxes. Talk to a tax adviser licensed in the US and familiar with the tax treaty (if any) that your country has with the US.

By the way, I'm not sure who did you speak to at the US company, but to the best of my knowledge, unless you chose to treat your LLC as a C-Corp, you having LLC or working directly has no difference whatsoever to them.

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I would suggest finding an accountant (CPA) that is familiar with cross border tax issues as there are double taxation treaties between Germany and US in play as well.

Nevada's no personal income tax only means that you as an individual (and in case of Nevada same applies to corporations) don't pay any tax on income (profits) earned in the state of Nevada to the state of Nevada. IRS which is a federal agency is completely different. There may be other taxes or fees that may be applicable to your situation, which an accountant should be able to tell you.

There was a question here that may be also relevant in some respect to your situation.

What is the purpose of a W9 form and how do you get one as a non-resident/non-citizen of the US?

  • Thanks Karlson - I probably will involve an accountant at some point - right now I'm still trying to estimate if the whole thing is worth it - so general numbers only at the moment. Do you know - how much about would a federal tax/IRS part be? I.e. I'm currently just trying to estimate what about would the entire thing amount after taxes... – user1003 Jun 2 '14 at 15:01
  • I don't want to guesstimate that number but usually taking 30-35% is a safe bet. – Karlson Jun 2 '14 at 15:08
  • Hmm, thats still quite a bit - even without Nevada having a personal income tax? So its then not so different than in the EU where I 'guesstimate' that almost half it going to the the state... – user1003 Jun 2 '14 at 15:31
  • @user1003 That's a guesstimate and more then likely on the high side. Your effective rate may not even come close to that number. – Karlson Jun 2 '14 at 15:46
  • @user1003 You need to talk to a US licensed tax adviser about estimates and guesses. People on this site are mostly clueless on the matter. Karlson's answer to your question is completely off, unless you move to the US. From your question it doesn't sound like you're planning on moving. This forum is for people who do move. You should probably have this question migrated to money@SE. money.stackexchange.com – littleadv Jun 3 '14 at 8:20
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A US LLC isn't really that useful in your situation. It's (usually) a "flow-through" entity, which means it's not (normally) taxed itself, the income flows through to the owner(s) (partners) and is taxed where they are resident. In your case, that means your income is still taxed in Germany, not the US.

In other words, an LLC (in the most common form) is not a company or corporation, it's a partnership (sometimes with just one partner), that adds a limited liability layer but doesn't pay tax itself because the profits (if any) are taxed as income for the owners, in their own country.

It is possible to choose to have the LLC taxed as a "C" corporation (instead of a partnership). Lots more tax paperwork and the only real saving is if you can leave money in the LLC to be taxed at federal corporate tax rates (but, what will you do with that money, owned by the LLC?). If you're paying out almost all the income to yourself an LLC taxed as a corporation ends up being just a much more complex (and expensive to run) version of the same thing: a limited liability layer in front of income which is taxed only in your home country.

You still need to do US tax returns for the LLC (even if nothing owing), annual returns, EIN numbers, go there to open a bank account, etc but you don't get to save any tax (unless you have significant expenses you could charge to the LLC before being paid, although you could equally deduct that from a German self-employment tax return).

Note if you're going to get an LLC, Wyoming is mostly cheaper and less paperwork than Nevada or Delaware. Consider what effect owning a US LLC would have on your visa status when you visit the US (are you "working" for it while there - not a good idea on a tourist visa).

Especially for a short-term gig, forming something like this and getting involved in the US tax system (for years) seems overkill, for very little benefit.

  • There are no US tax returns for single-member LLC treated as disregarded entity. You don't need or have to have a US bank account, you don't need to have EIN and you don't need to file annual reports (especially considering the period OP mentioned was less than a year). In many states you don't need to file annual reports at all. – littleadv Jun 3 '14 at 8:15
  • @littleadv - the LLC needs a bank account somewhere, and it's near impossible to get one oytside the US, and the purpose is to make payments easier for a US company so yes it does need a US bank account in practice, even if not legally. An EIN is needed for a bank account. There are annual obligations (even if just a fee, report might be too strong a word) to keep the LLC active, the OP made clear they intended to keep the LLC as they travel from place to place, not throw it away after a few months. BTW, downvoting this so you can add your own very similar answer later is exremely rude. – Rob Hoare Jun 3 '14 at 16:51
  • LLC doesn't need an account, it needs to endorse the checks to the member and be done with it. In many states there are no annual fees for maintaining the entity. I downvoted your answer because it is incorrect. Having a US LLC does nothing to involve the OP in the US tax system. Not a single thing. – littleadv Jun 4 '14 at 2:27

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