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I have the opportunity to get a small share of an acquaintance's LLC in the U.S. in exchange for some services. However, I am not a U.S. citizen or a resident of the U.S. - in fact, I have never been. So, I am just wondering what sort of taxation laws apply to me? Is the money I would make (if any) taxable in the just the same way as if I was a U.S. citizen? If so, do I need a U.S. bank account?

Any advice is helpful!

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  • Check this IRS publication irs.gov/pub/irs-pdf/p515.pdf
    – Putvi
    Commented Apr 8, 2019 at 22:50
  • It would be helpful to know what type of business it is ( a corporation or LLC).
    – Putvi
    Commented Apr 8, 2019 at 22:54
  • @Putvi the question says LLC. Commented Apr 9, 2019 at 1:10
  • Of importance is if the LLC is an S-corp, non-resident aliens cannot have ownership.
    – A. K.
    Commented Apr 9, 2019 at 2:10

3 Answers 3

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One of the gotchas with non-managers or minority members of LLCs is that the LLC can post a profit without making any distributions to members, leaving you bereft of the cash needed to pay the tax.

You could be in a weird situation where the LLC posts a profit in 2019 and 2020 so you had to send a check to the IRS, then do a distribution in 2021 so 35% is now withheld to cover taxes you already paid, and now you need to wait until April 15 2022 (well, January) to file your taxes to recover it.

This method can even be used in a predatory way, if the dominant members (or manager) take a disliking to a member. They could refuse to do any distributions to "starve him out", creating tax liability for him but never distributing any money, and using that to browbeat him into selling his interest cheap. This is also used against creditors of members who have obtained a charging order against the LLC.

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You don't necessarily need a US bank account, but there are plenty of banks that operate in the US and other countries so that should be easy if you want that.

The foreign partner of the LLC will be deemed to be engaged in a US trade or business and the LLC must withhold 35% of its profits for taxes, paid and filed on a quarterly basis to the IRS. https://www.epgdlaw.com/llc-foreign-owners/

That site gives a very detailed overview of the tax structure for foreign members of an LLC.

If you are investing in a corporation, there are tons of rules based on the type of investments and how long you stay in the US, but this guide should get you started. https://www.northerntrust.com/insights-research/detail?c=950dd52e2de4a97f4573672a2f736150

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That's actually a pretty complicated question, but in general:

First, receiving the LLC membership interest in exchange for services should not be a tax issue in the US (assuming your services weren't performed in the US), but they may be taxable in your country of residence - so check there first.

Second, it matters whether the LLC is "engaged in a trade or business" in the US; that's a loaded term in itself, but assuming the answer is yes, you personally will be considered to be engaged in that trade or business through the LLC, and have to file annual US nonresident tax returns - the LLC will be required to provide you with something called Form K-1 every year to help you do that, but it's not a trivial matter.

Third, as mentioned in other answers, for various reason you may be subject to US tax on your share of LLC income even if you don't get cash distributions from the LLC - and vice versa, not be subject to US tax on cash distribution you did receive.

Finally, check again in your own country how LLCs are treated and taxed. In some places they're treated as corporations (companies) and in other as partnerships; the local tax consequences may be significantly different.

In short, don't jump head first into this opportunity before you check (with knowledgeable professionals) where this will leave you...

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