Common Tax FAQs for Non-US LLC founders - Part 1

Q1. Does operating through a US limited liability company (an “LLC”) as compared to a sole proprietorship change anything?

A1. If you’re the sole member (i.e. owner) of the US LLC, then the LLC is disregarded as a separate entity from you for US tax purposes. It means that it does not exist for US tax purposes—it is a “tax nothing.” So, operating through an LLC doesn't change anything as compared to operating as a sole proprietorship (informal way of doing business).

Q2. I get paid in US dollars, held through a US bank account. Does that change anything?
A2. Nothing changes. The analysis remains the same. The currency you’re paid in and the location of the bank where you hold that currency does not make any difference. It only matters whether or not you fulfill the conditions of ETBUS or not.

Q3. I sell my products online and my server is located in the US. Am I liable for any taxes in the US?
A3. Again, nothing changes. If the server on which your web page is hosted is in the US, then you’re just using the services of an independent agent (i.e., the hosting service provider). That doesn’t qualify you for ETBUS.

Q4. I sell physical products in the US to US customers, won’t I have US source income?
A4. Yes, you will have US source income, but that does not automatically make you liable to pay taxes in the US. To be subject to US tax under the active regime, you have to be ETBUS. If you qualify for ETBUS, then only you are subject to taxes on your US-sourced income.

Q5. My LLC sells software and apps on the Google play store and through other websites including PayPal. Do I qualify as ETBUS (Engaged in a trade or business in the United States)? Do I owe any US taxes?**

A5. Sale of software from marketplaces like the Apple App Store and Google Play Store are considered royalties and are subject to Chapter 3 withholding. Chapter 3 withholding under sections 1441-1443 generally applies a 30% withholding tax (WHT) rate to payments of FDAP (Fixed or determinable, annual or periodical) income or gains from U.S. sources only if they are not effectively connected with a U.S. trade or business made to a foreign person (You cannot have ETBUS + WHT on the same transaction as it leads to double taxation). Since you are not ETBUS (the 2 conditions required to be fulfilled are not met), the income is not effectively connected with a U.S. trade or business, you are not subject to US Tax on your US-sourced income. The 30% withholding tax takes care of your tax liability.