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Limited
Liability Company
All 50 states and the District of Columbia have authorized
the formation of LLCs. US tax law treats an LLC on
a 'pass-through' basis - a single member LLC is simply
disregarded for tax purposes, while an LLC with two
or more members is treated as a partnership unless
it opts to be treated as a corporation. In both cases
taxation is applied to the members and not to the
LLC.
If
the members of an LLC are foreign persons, then they
will be taxed on all income which is effectively connected
with their conduct of a trade or business in the US.
However, the receipt of 'passive' income on its own
does not normally amount to the conduct of a US business
- passive income includes most interest income, gains
from investment in any stock market, and gains from
investment in commodities.
Foreign
owners of a domestic LLC do not pay income tax on
the LLC’s foreign source export income except
under certain circumstances.
If the foreign person’s LLC does not have a US
office or an agent in the US, it is unlikely that
foreign source income will be taxed as US income.
If there is a US office, then by and large the activities
of the US office will not be considered to be a material
factor in the realization of income, gain, or loss,
unless the US office provides a significant contribution
to, by being an essential economic element in, the
realization of the income, gain, or loss. An administrative
office in the US can pay expenses, deposit income
and perform accounting activities. These activities
will not cause export income to be taxed by the US
taxing authorities.
An office is not considered to have materially participated
in a sale merely because one or more of the following
activities takes place: (a) the sale is made subject
to the final approval of such office, (b) the property
sold is held in, and distributed from such office,
(c) samples of the property sold are displayed (but
not otherwise promoted or sold) in such office, (d)
such office is used for purposes of having title to
the property pass outside the United States, or (e)
such office merely performs clerical functions incident
to the sale.
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