Treatment of an US LLC if there's no tax treaty

[gnud]

How's an US LLC treated if its non-US owner resides in a country that doesn't have any tax treaty with the US, and definitely no tax treaty specifying how an US LLC is treated by the local jurisdiction?

Since it's not taxed in the US, and the local jurisdiction doesn't recognize it as a pass-through entity, does it mean it will not be liable for tax anywhere if no draws are made by the owner?

 

[Sols]

It depends on the applicable local law, and whether there is precedence or guidance for how a US LLC should be treated. If there is no specific law, precedence, or guidance from relevant authorities, you're stumbling in the dark.

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This is the probably the answer to your question.

 

[gnud]

Sols said:
It depends on the applicable local law, and whether there is precedence or guidance for how a US LLC should be treated. If there is no specific law, precedence, or guidance from relevant authorities, you're stumbling in the dark.
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The relevant authorities don't know, I asked them directly.

They know how to handle dividends (exempt from taxation), but a pass-through entity seems to be alien concept for them.

 

[Sols]

Then you are in the dark, with a couple of options.

You can try to file your income from the US LLC as whatever works best for you personally, and hope for the best. But there's no way to know for sure until it's been tested.

Another option is to seek some form of predetermination or pre-assessment by the tax authority. Depends on where you live. Might be something you can do yourself or need a lawyer to help out with.

To support either option, you can also seek a written legal opinion from a reputable law firm. This can help you in the future if the tax authority doesn't like what you've done and tries to challenge you.

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This is the probably the answer to your question.

 

[fshore]

There might be court cases that determine how a US llc should be treated even thought the local staff at the tax office doesn't know the details on this.
Some countries focus on that the llc is a legal body with limited liability and concludes it's a company, which might be tax resident locally. While some countries considers it like a partnership with pass through income.

 

[Eldorado]

gnud said:
How's an US LLC treated if its non-US owner resides in a country that doesn't have any tax treaty with the US, and definitely no tax treaty specifying how an US LLC is treated by the local jurisdiction?

Since it's not taxed in the US, and the local jurisdiction doesn't recognize it as a pass-through entity, does it mean it will not be liable for tax anywhere if no draws are made by the owner?
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If I were you, I could ask them for any written statement, even with sentence "we don't know", just to cover yourself in case of any pleasant interview with local tax office.

 

[gnud]

Eldorado said:
If I were you, I could ask them for any written statement, even with sentence "we don't know", just to cover yourself in case of any pleasant interview with local tax office.
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Thanks. Luckily I got the reply by e-mail.

 

[startfleetio]

gnud said:
How's an US LLC treated if its non-US owner resides in a country that doesn't have any tax treaty with the US, and definitely no tax treaty specifying how an US LLC is treated by the local jurisdiction?

Since it's not taxed in the US, and the local jurisdiction doesn't recognize it as a pass-through entity, does it mean it will not be liable for tax anywhere if no draws are made by the owner?
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tax treaty doesn't normally how the LLC will be treated in the other country. From the US taxation point of view, it is regarded as pass-through. Of course this is assuming you are not engaging and US Trade or Business and has effectively connected income to this USTB. For the home country, it depends, some countries like UK or Canada see them as dividends.

 

[gnud]

startfleetio said:
tax treaty doesn't normally how the LLC will be treated in the other country. From the US taxation point of view, it is regarded as pass-through. Of course this is assuming you are not engaging and US Trade or Business and has effectively connected income to this USTB. For the home country, it depends, some countries like UK or Canada see them as dividends.
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Since the authority in charge of taxation in the home country didn't try to appropriate the profit for taxation, I'd say it's safe to assume it's not being seen as a pass-through entity here.
If it was they'd eagerly claim it, because for sure this is not the first time someone has an LLC in the US.

So either they never deal with this because they're not supposed to at all - because it's a known thing among accountants / tax advisors so they never submit it for taxation.
Or they know full well it doesn't belong to them, but they just didn't want to reveal it to the public (me), as it's essentially a tax loophole depriving them of tax income.

 

[startfleetio]

gnud said:
Since the authority in charge of taxation in the home country didn't try to appropriate the profit for taxation, I'd say it's safe to assume it's not being seen as a pass-through entity here.
If it was they'd eagerly claim it, because for sure this is not the first time someone has an LLC in the US.

So either they never deal with this because they're not supposed to at all - because it's a known thing among accountants / tax advisors so they never submit it for taxation.
Or they know full well it doesn't belong to them, but they just didn't want to reveal it to the public (me), as it's essentially a tax loophole depriving them of tax income.
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Legally speaking, since you are operating the US LLC from your home country, this will trigger the place of effective management rule in most of the countries; you will need to treat this US LLC as a "local" company. Bjt you can argue your managers are outside of the country so the management are not in the country and you are just a shareholder or partner, thus the profits will be either dividends or partnership profits. This is of course if you start drawing the money from the US LLC.

 

[gnud]

startfleetio said:
Legally speaking, since you are operating the US LLC from your home country, this will trigger the place of effective management rule in most of the countries; you will need to treat this US LLC as a "local" company. Bjt you can argue your managers are outside of the country so the management are not in the country and you are just a shareholder or partner, thus the profits will be either dividends or partnership profits. This is of course if you start drawing the money from the US LLC.
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no CFC rules in this country

 

[startfleetio]

CFC and POEM are different. CFC is mostly for passive shareholding and POEM is for active management of the company.

 

[gnud]

startfleetio said:
CFC and POEM are different. CFC is mostly for passive shareholding and POEM is for active management of the company.
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there's no tax treaty specifying POEM rules between the country and the US

 

[startfleetio]

gnud said:
there's no tax treaty specifying POEM rules between the country and the US
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of course the treaty does not cover POEM nor CFC. CFC and POEM are defined at the tax code of each country

 

[gnud]

startfleetio said:
of course the treaty does not cover POEM nor CFC. CFC and POEM are defined at the tax code of each country
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it has no CFC rules, and I found no POEM rules either in the tax code

tax treaties should typically specify tiebreakers but there's none which is just another evidence that there really are no POEM rules apparently

 

[startfleetio]

that's good news for you. may i know which country?

 

[fshore]

gnud said:
it has no CFC rules, and I found no POEM rules either in the tax code

tax treaties should typically specify tiebreakers but there's none which is just another evidence that there really are no POEM rules apparently
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It's normally called tax residency rules. If you Google corporate tax residency and your country then you'll find pwc etc guides that shows when a company is considered tax resident in the country. Almost all countries considers a foreign company tax resident if managed and controlled from their country.

 

[startfleetio]

fshore said:
It's normally called tax residency rules. If you Google corporate tax residency and your country then you'll find pwc etc guides that shows when a company is considered tax resident in the country. Almost all countries considers a foreign company tax resident if managed and controlled from their country.
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Yes, exactly