Do foreign partners in an LLC pay taxes in the US

Would a foreign partner in a US LLC pay tax where he lives or in the US?

Answer by Wray Rives CPA CGMA

It is impossible to answer without knowing more about the specifics of your operation. The US has a tax treaty with a number of other countries. If the foreign partners are in a treaty country, their tax will be governed by the terms of the treaty.  Generally a tax treaty includes the concept of “permanent business establishment”.  If the business has a permanent establishment in the US, then the income is taxable in the US and not in the home country of the owner.

Permanent Business Establishment

The term “permanent establishment” includes:

  • a place of management;
  • a branch
  • an office
  • a factory
  • a workshop
    a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources
  • a store or any premises used as a sales outlet

In many cases having a location just to store or display goods is not considered a “permanent establishment”.  Also using the services of a third party fulfillment services is not considered a US permanent business establishment, unless the third party is authorized to act as an agent of the LLC.

In my experience with non-resident owners, clients who are selling tangible goods online, frequently owe US tax. Foreign owners who are selling services, in many cases do not owe US income tax. There is no one correct answer for every non-US owner. I recommend you have a discussion with a US tax professional to consider your unique situation.