What are my tax duties as a non-resident-alien and LLC owner?

My answer to What are my tax duties as a non-resident alien and LLC owner?

Answer by Wray Rives CPA CGMA:

First off I need to give you a disclaimer that taxation of non-residents by the US is a complex topic.  I am going to give you general answers, but you really should contact a US tax professional and discuss all the details and specifics of your unique situation.  I am also required to say that nothing I tell you can be used to avoid paying income tax to the US that you are legally obligated to pay.

Now:  Generally having a checking account in the US does not subject you to US income tax.  You have to look to the nature of the income producing activities.  If you are not selling tangible goods and only performing a service and you perform all of that service outside the US, meaning you have no physical presence in the US, you should not have what is known as Effectively Connected Income (ECI) and should not owe US income tax.  NOTE:  a very small change, such as making a business trip to the US can easily change that.

Owning an LLC in the US is likely going to put you one step closer to having ECI but does not in itself mean you now owe US income tax.  If you are the sole owner of the LLC and choose the default tax designation for an LLC which is disregarded entity, then the IRS ignores the existence of the LLC and you continue to look at your income producing activity the same way you did as an individual discussed above.

Again it takes very little to change these circumstances.  Adding an additional owner, even another non-resident alien, makes your LLC a partnership and thus subjects all partners to US income tax on profits from carrying on your business in the US.

Finally you are absolutely correct that many people are not aware that in the internet age the US can actually be a great tax haven for US non-resident aliens because of how the US taxes non-resident non-citizens.  As long as the non US resident can avoid ECI, and choose carefully where they reside, they can greatly minimize their income tax while still providing services to the US market.

UPDATE as of 2017.  For tax years on Dec 31,2017 or after, foreign owned LLC’s are now required to file a report with the IRS that discloses transfers of money or other assets between the US LLC and its foreign owner or foreign related parties. So even if you do not have any US tax obligation, you might still have a US tax reporting obligation.

What are my tax duties as a non-resident-alien and LLC owner?

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