US LLC taxes

[Cari]

Hi!

Please help me understand what income is considered a US-sourced.

A US non-resident LLC provides digital services (IT) to the US company. This US company is basically an employer of the LLC.
There is no physical presence of the LLC in the US (no ETBUS). However, on the IRS website it is written, that income earned from the operation of a business in the US, will be taxed in the US and is regarded as Effectively connected income (ECI).

So the questions are:
1. does it matter if LLC provides services to one client or to several?
2. As non-resident LLC is not a taxpayer in the US, does it mean that the client, who is paying, has to withhold 30% of taxes?
3. are the services provided by the LLC considered as ECI? If yes, how much taxes an LLC should pay on it?
4. in case those services are taxable in the US, what is the best structure to provide services to the US company for an EU-resident?

Would be happy to hear your thoughts!

 

[JackAlabama]

Evi said:
Hi!

Please help me understand what income is considered a US-sourced.

A US non-resident LLC provides digital services (IT) to the US company. This US company is basically an employer of the LLC.
There is no physical presence of the LLC in the US (no ETBUS). However, on the IRS website it is written, that income earned from the operation of a business in the US, will be taxed in the US and is regarded as Effectively connected income (ECI).

So the questions are:
1. does it matter if LLC provides services to one client or to several?
2. As non-resident LLC is not a taxpayer in the US, does it mean that the client, who is paying, has to withhold 30% of taxes?
3. are the services provided by the LLC considered as ECI? If yes, how much taxes an LLC should pay on it?
4. in case those services are taxable in the US, what is the best structure to provide services to the US company for an EU-resident?

Would be happy to hear your thoughts!
Click to expand...

So is that company a defacto employer of you or are you having them as one big client with the possibility of having a second or third?
There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.

 

[TheCryptoAnt]

JackAlabama said:
There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.
Click to expand...

Basically this, if said US company 'employs' your LLC then you are on the fucked side.
However if you 'offer services' to said company and send them bills to pay, etc... then you good.

Just tell them about this and theyll most likely understand, or at least their finance department/person should.

 

[Cari]

JackAlabama said:
So is that company a defacto employer of you or are you having them as one big client with the possibility of having a second or third?
There is a distinct difference in working in like a b2b relationship vs them telling you what and how to do it in a employer/employee setup masked as "independent" work.
Click to expand...

there is always a possibility but for now it is more of an employer-employee relations as the payment is the same each month. So does it mean that my LLC will pay taxes in the USA? How will it be calculated? Or maybe you know the better structure to use for this work instead of the LLC?

TheCryptoAnt said:
Basically this, if said US company 'employs' your LLC then you are on the fucked side.
However if you 'offer services' to said company and send them bills to pay, etc... then you good.

Just tell them about this and theyll most likely understand, or at least their finance department/person should.
Click to expand...

does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?

 

[TheCryptoAnt]

Evi said:
does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?
Click to expand...

Correct. You need a 'service agreement' signed by both parties too. The fact that the amount is the same is not really relevant.

 

[JackAlabama]

Evi said:
there is always a possibility but for now it is more of an employer-employee relations as the payment is the same each month.
Click to expand...

That does not matter. For example if one is doing some server maintenance update work and check each month, it will result in the same payment given that no unforseen events.
It is still a b2b setup as stated in some service agreement.

Evi said:
So does it mean that my LLC will pay taxes in the USA? How will it be calculated? Or maybe you know the better structure to use for this work instead of the LLC?
Click to expand...

Not neceesarily.

Evi said:
does it mean that if I will send them invoices every month, even if the amount will be the same every month, it will not be considered as the employment and will not be taxed in the USA?
Click to expand...

Are they your de facto employer or not? Is the relashionship such that they are your boos?
It is really an easy question to answer for you.

It doesnt matter if they employ you remotely, thru whatever means or claim youre an independent contractor just to doge socials payment (this is commonly used by crypto companies).

 

[Cari]

JackAlabama said:
That does not matter. For example if one is doing some server maintenance update work and check each month, it will result in the same payment given that no unforseen events.
It is still a b2b setup as stated in some service agreement.

Not neceesarily.

Are they your de facto employer or not? Is the relashionship such that they are your boos?
It is really an easy question to answer for you.

It doesnt matter if they employ you remotely, thru whatever means or claim youre an independent contractor just to doge socials payment (this is commonly used by crypto companies).
Click to expand...

Technically the client just tells what code they need and the LLC provides it. So de facto it is more of the employee-employer relationship. What taxes would I have to pay in this case?

 

[fshore]

The LLC is disregarded for taxes in the US. Think about it as if you work directly for this client, the LLC don't exist (only for liability). Both if you're an independent contractor or an employee of the company the income is not taxable if you're not a US tax resident and don't provide the services in the US. A US company can have a foreign employee working outside the US and this income is then not taxable in the US.

 

[Cari]

fshore said:
The LLC is disregarded for taxes in the US. Think about it as if you work directly for this client, the LLC don't exist (only for liability). Both if you're an independent contractor or an employee of the company the income is not taxable if you're not a US tax resident and don't provide the services in the US. A US company can have a foreign employee working outside the US and this income is then not taxable in the US.
Click to expand...

But as it is disregarded, does it mean that US company (employer) automatically needs to withhold 30% from the payment, as an LLC is not a tax payer in the US or not?

 

[fshore]

Evi said:
But as it is disregarded, does it mean that US company (employer) automatically needs to withhold 30% from the payment, as an LLC is not a tax payer in the US or not?
Click to expand...

Not if you give them a w8-ben.