Question:
I am considering forming a LLC in New Mexico or Wyoming with three partners, including myself.
None of the partners are a resident of the US. No work will be done in the US. No US employees. No US Office. As things currently stand, there will no be customers in the US. It is a consulting business. There should be no NEXUS to the US, nor any income sourced from the US.
What kind of tax compliance should I expect (filings)? What kind of taxation is to be expected at the federal level?
Answer:
We typically refer such questions to an accountant simply because what is being asked is advice that’s very specific to a unique financial situation, but the question is missing a lot of information needed to provide a sound opinion. For example, what are the actual revenue sources of the partners? Are they U.S. sourced income? It’s easy to misunderstand or misinterpret U.S. source income rules. If there are any, there is federal tax owed and automatic withholding obligations that need to be met, which entails filing a number of different forms depending on (i) the nature of the income, (ii) where the partners live, and (iii) whether there are any tax treaties between the United States and the tax domicile of each individual partner.
As another example, this question doesn’t indicate whether any of the nonresident owners of the LLC are U.S. citizens. I would assume not, but the answer to that question greatly impacts our opinion.
In short, this is not a question we can (as a law firm) easily provide a quick answer. We would strongly advise you to consult with an accountant to handle the actual tax prep and to advise on the specific forms that need to be filed, which can and frequently do change year-to-year.
With all that said, we do have a few general observations that might help:
- Each partner/owner of a partnership-type LLC formed in the United States must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (TIN). This is true of all partners, but especially true of whoever is set to be the Responsible Party. The reason for this, is the LLC must issue a K-1 to each partner.
- As of 2017, all foreign owners of US LLCs with 25% or greater foreign ownership must file a Form 5472 US tax return – even if they owe no tax in the US.
- The LLC may still be obligated to file a Form 1065 information return for the LLC itself and issue K-1s if appropriate.
- U.S. source income, if any, would be subject to mandatory withholding and remittance to the IRS, with the amount of withholding depending on the nationality/tax domicile of the income recipient and any tax treaties in effect.
You should reach IRS Publication 515 and IRS Publication 519, which go into some length about these issues and are a good resource.
International taxation is a huge specialty within tax law, and not something that can be easily answered.
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