As a non-U.S. resident alien (citizen and resident of India), if I form a single member LLC in Delaware with no U.S. presence or U.S. sou…

Answer by Wray Rives:

First I would have some questions about your situation and some of the assumptions you present.

  1. You say owners.  An LLC with multiple owners could not be a disregarded entity.  An LLC with multiple owners where one or more of the owners is not a US resident or citizen would only be able to be a partnership or a corporation for US federal tax purposes.
  2. You say you have no US source income, but you say you are selling digital products.  Under the US/India tax treaty selling digital goods to US based customers would typically be considered US source income.

If you truly have no US source income and only have one owner, a disregarded entity would probably be your best choice for taxation as all of the income would be taxable in India.  Having a US bank account does not cause you to have US sourced income.  If you do qualify as a federal disregarded entity then the state level tax return would be your only filing requirement and the owner would not need an ITIN.

 Having multiple owners of the LLC however does prevent you being a disregarded entity and creates US sourced income for the owners. With multiple owners you would file a partnership return and the individual owners would file US non-resident tax returns assuming all the owners are non-residents.  The owners in this case would have to obtain ITIN's.

If your assumption is not correct about the US source income, then you would probably be better to elect to have the LLC taxed as a corporation.  A corporation is a separate tax entity for US federal tax purposes and thus files its own tax return.  The individual owners would likely not need to file a US tax return individually and since there is no return filing required there is no need to obtain an ITIN.

One final thought is that you say you intend to incorporate in Delaware and I would advise you that rarely is Delaware the best state for incorporating a small business owned by non-US residents.  Given the facts presented, I would expect Wyoming to be a much better state in which to incorporate your business.

All of the above is based on a less than complete knowledge of your specific situation and I would suggest that you might be well served to consult a US tax professional who can consider all the specific facts and advise you about the most appropriate tax structure for your business.

As a non-U.S. resident alien (citizen and resident of India), if I form a single member LLC in Delaware with no U.S. presence or U.S. sou…