Does a US LLC owned by a non-resident alien have to pay US taxes if it operates exclusively online?
"As you said, in the US LLC is (usually, unless you elect otherwise) not a separate tax entity. As such, the question ""Does a US LLC owned by a non-resident alien have to pay US taxes"" has no meaning. A US LLC, regardless of who owns it, doesn't pay US income taxes. States are different. Some States do tax LLCs (for example, California), so if you intend to operate in such a State - you need to verify that the extra tax the LLC would pay on top of your personal tax is worth it for you. As I mentioned in the comment, you need to check your decision making very carefully. LLC you create in the US may or may not be recognized as a separate legal/tax entity in your home country. So while you neither gain nor lose anything in the US (since the LLC is transparent tax wise), you may get hit by extra taxes at home if they see the LLC as a non-transparent corporate entity. Also, keep in mind that the liability protection by the LLC usually doesn't cover your own misdeeds. So if you sell products of your own work, the LLC may end up being completely worthless and will only add complexity to your business. I suggest you check all these with a reputable attorney. Not one whose business is to set up LLCs, these are going to tell you anything you want to hear as long as you hire them to do their thing. Talk to one who will not benefit from your decision either way and can provide an unbiased advice." "Since as you say, an LLC is a pass-through entity, you will be making income in the U.S. when you sell to U.S. customers.  And so you will need to file the appropriate personal tax forms in the US.  As well as potentially in one or more States.  The US government does not register LLCs.  The various States do.  So you'll be dealing with Oregon, Wisconsin, Wyoming, one of those for the LLC registration.  You will also need to have a registered agent in the State.  That is a big deal since the entire point of forming an LLC is to add a liability shield.  You would lose the liability shield by not maintaining the business formalities.   Generally nations aim to tax income made in their nation, and many decline to tax income that you've already paid taxes on in another nation.  A key exception: If money is taxed by the U.S. it may also be taxed by one of the States.  Two States won't tax the same dollar. Registering an LLC in one State does not mean you'll pay state taxes there.  Generally States tax income made in their State.  It's common to have a Wyoming LLC that never pays a penny of tax in Wyoming.  Officially, an LLC doing business in a State it did not form in, must register in that State as a ""foreign LLC"" even though it's still in the USA.  The fee is usually the same as for a domestic LLC.  ""Doing business"" means something more than incidental sales, it means having a presence specifically in the State somehow.  It gets complicated quick.  If you are thinking of working in someone's app ecosystem like the Apple Store, Google Play, Steam etc. Obviously they want their developers coding, not wrestling with legalities, so some of them make a priority out of clearing and simplifying legal nuisances for you.  Find out what they do for you."
You will have to pay your taxes in the UK not USA. For tax purposes it is the company's tax residency not where the server is located. You are just hiring a server in USA. Take for example a CDN being used for your same service then would you pay taxes in 300 different countries if you use Akamai? Does not work that way. "There are very few circumstances where forming an out of state entity is beneficial, but a website is within these circumstances in certain instances. Businesses with no physical operations do not need to care what jurisdiction they are registered in: your home state, a better united state or non-united state. The ""limited liability"" does it's job. If you are storing inventory or purchasing offices to compliment your online business, you need to register in the state those are located in. An online business is an example of a business with no physical presence. All states want you to register your LLC in the state that you live in, but this is where you need to read that state's laws. What are the consequences of not registering? There might be none, there might be many.  In New York, for example, there are no consequences for not registering (and registering in new york - especially the city - is likely the most expensive in the USA). If your LLC needs to represent itself in court, New York provides retroactive foreign registrations and business licenses. So basically, despite saying that you need to pay over $1000 to form your LLC ""or else"", the reality is that you get the local limited liability protection in courts whenever you actually need it. Check your local state laws, but more times than not it is analogous to asking a barber if you need a haircut, the representative is always going to say ""yes, you do"" while the law, and associated case law, reveals that you don't. The federal government doesn't care what state your form an LLC or partnership in. Banks don't care what state you form an LLC or partnership in. The United States post office doesn't care. Making an app? The Apple iTunes store doesn't care. So that covers all the applicable authorities you need to consider. Now just go with the cheapest. In the US alone there are 50 states and several territories, all with their own fee structures, so you just have to do your research. Despite conflicting with another answer, Wyoming is still relevant, because it is cheap and has a mature system and laws around business entity formation. http://www.incorp.com has agents in every state, but there are registered agents everywhere, you can even call the Secretary of State in each state for a list of registered agents. Get an employer ID number yourself after the business entity is formed, it takes less than 5 minutes. All of this is also contingent on how your LLC or partnership distributes funds. If your LLC is not acting like a pass through entity to you and your partner,but instead holding its own profits like a corporation, then again none of this matters. You need to form it within the state you live and do foreign registrations in states where it has any physical presence, as it has becomes its own tax person in those states. This is relevant because you said you were trying to do something with a friend." "The IRS W-8BEN form (PDF link), titled ""Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding"", certifies that you are not an American for tax purposes, so they won't withhold tax on your U.S. income. You're also to use W-8BEN to identify your country of residence and corresponding tax identification number for tax treaty purposes.  For instance, if you live in the U.K., which has a tax treaty with the U.S., your W-8BEN would indicate to the U.S. that you are not an American, and that your U.S. income is to be taxed by the U.K. instead of tax withheld in the U.S. I've filled in that form a couple of times when opening stock trading accounts here in Canada.  It was requested by the broker because in all likelihood I'd end up purchasing U.S.-listed stocks that would pay dividends.  The W-8BEN is needed in order to reduce the U.S. withholding taxes on those dividends. So I would say that the ad revenue provider is requesting you file one so they don't need to withhold full U.S. taxes on your ad revenue. Detailed instructions on the W-8BEN form are also available from the IRS: Instruction W-8BEN (PDF link). On the subject of ad revenue, Google also has some information about W8-BEN: Why can't I submit a W8-BEN form as an individual?" "Yes, it will be taxable in the US. You will report your worldwide income, and will be able to take credit for any Indian tax paid. However, the portions that are tax-free in India will be fully taxable for you in the US. Keep in mind, in addition to the taxes, the FBAR requirements and the FATCA forms you may need to be filing as well. Failure to file (regardless of if any tax is actually owed) will trigger a $10K penalty. I suggest you have a US-licensed EA/CPA (tax adviser) to help you with your US tax return. Keep in mind that a ""regular"" American tax preparer knows very little of the specific requirements for foreigners and may land you in trouble. Similarly, the ""off-the-shelf"" tax software or tax preparation outlets (like H&R Block) are ill-suited for foreigners in the US. It would be best to talk to a EA/CPA who is also familiar with Indian financial terms and Indo-US tax treaty." First, the SSN isn't an issue. She will need to apply for an ITIN together with tax filing, in order to file taxes as Married Filing Jointly anyway. I think you (or both of you in the joint case) probably qualify for the Foreign Earned Income Exclusion, if you've been outside the US for almost the whole year, in which cases both of you should have all of your income excluded anyway, so I'm not sure why you're getting that one is better. As for Self-Employment Tax, I suspect that she doesn't have to pay it in either case, because there is a sentence in your linked page for Nonresident Spouse Treated as a Resident that says However, you may still be treated as a nonresident alien for the   purpose of withholding Social Security and Medicare tax. and since Self-Employment Tax is just Social Security and Medicare tax in another form, she shouldn't have to pay it if treated as resident, if she didn't have to pay it as nonresident. From the law, I believe Nonresident Spouse Treated as a Resident is described in IRC 6013(g), which says the person is treated as a resident for the purposes of chapters 1 and 24, but self-employment tax is from chapter 2, so I don't think self-employment tax is affected by this election. To answer my own question, at least to the extent of my understanding. Here the IRS says that all income for a foreign person from a US-based company is taxable with 30%. Here the IRS says that this tax should be withhold at source by whomever pays you. In case there is a tax treaty with the country, the tax can even be waived in the US. Of course, if you don't declare it in your home country, the US bank could probably give information requested by the home country authorities. For the other two cases (when there's no US party involved) I can't find anything on the IRS website, which kind of make sense. If I am using an account in the US just to receive and send money shouldn't imply any tax. Thanks to @litteadv for pointing me into the right direction. "TL;DR: Get a tax adviser (EA/CPA licensed in your State) for tax issues, and a lawyer for the Operating Agreement, labor law and contract related issues. Some things are not suitable for DIY unless you know exactly what you're doing. We both do freelance work currently just through our personal names.   What kind of taxes are we looking into paying into the business   (besides setup of everything) compared to being a self proprietor?   (I'm seeing that the general answer is no, as long as income is <200k,   but not certain). Unless you decide to have your LLC taxed as a corporation, there's no change in taxes. LLC, by default, is a pass-through entity and all income will flow to your respective tax returns. From tax perspective, the LLC will be treated as a partnership. It will file form 1065 to report its income, and allocate the income to the members/partners on schedules K-1 which will be given to you. You'll use the numbers on the K-1 to transfer income allocated to you to your tax returns and pay taxes on that. Being out of state, will she incur more taxes from the money being now   filtered through the business? Your employee couldn't care less about your tax problems. She will continue receiving the same salary whether you are a sole proprietor or a LLC, or Corporatoin. What kind of forms are we looking into needing/providing when   switching to a LLC from freelance work? Normally we just get 1099's,   what would that be now? Your contract counterparts couldn't care less about your tax problems. Unless you are a corporation, people who pay you more than $600 a year must file a 1099. Since you'll be a partnership, you'll need to provide the partnership EIN instead of your own SSN, but that's the only difference. Are LLC's required to pay taxes 4 times per year? We would definitely   get an accountant for things, but being as this is side work, there   will be times where we choose to not take on clients, which could   cause multiple months of no income. Obviously we would save for when   we need to pay taxes, but is there a magic number that says ""you must   now pay four times per year"". Unless you choose to tax your LLC as a corporation, LLC will pay no taxes. You will need to make sure you have enough withholding to cover for the additional income, or pay the quarterly estimates. The magic number is $1000. If your withholding+estimates is $1000 less than what your tax liability is, you'll be penalized, unless the total withholding+estimates is more than 100% of your prior year tax liability (or 110%, depending on the amounts). The LLC would be 50% 50%, but that work would not always be that. We   will be taking on smaller project through the company, so there will   be times where one of us could potentially be making more money. Are   we setting ourselves up for disaster if one is payed more than the   other while still having equal ownership? Partnerships can be very flexible, and equity split doesn't have to be the same as income, loss or assets split. But, you'll need to have a lawyer draft your operational agreement which will define all these splits and who gets how much in what case. Make sure to cover as much as possible in that agreement in order to avoid problems later." "Tax US corporate ""persons (citizens)"" under the same regime as US human persons/citizens, i.e., file/pay taxes on all income earned annually with deductions for foreign taxes paid.  Problem solved for both shareholders and governments.  [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements)  &gt;If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.**  Thing is, we know solving this isn't the point.  It is to misdirect and talk about everything, but the actual issues, i.e., the discrepancy between tax regimes applied to persons and the massive inequality it creates in tax responsibility.  Because that would lead to the simple solutions that the populace need/crave.  My guess is most US human persons would LOVE to pay taxes only on what was left AFTER they covered their expenses." Supposedly this also means that I am free from having to pay   California corporate taxes? Not in the slightest. Since you (the corporate employee) reside in CA - the corporation is doing business in CA and is liable for CA taxes. Or, does this mean I am required to pay both CA taxes and Delaware   fees? (In this case, minimal, just a paid agent from incorporate.com) I believe DE actually does have corporate taxes, check it out. But the bottom line is yes, you're liable for both CA and DE costs of doing corporate business (income taxes, registered agents, CA corp fee, etc). Is there any benefit at all for me to be a Delaware C-Corp or should I   dissolve and start over. Or just re-incorporate as California LLC Unless you intend to go public anytime soon or raise money from VCs/investors - there's no benefit whatsoever in incorporating in DE. You should seek a legal advice with an attorney, of course, since benefits are legal issues (usually related to choosing jurisdiction for litigation etc). If you're a one-person freelancer, doing C-Corp was not the best decision as well. Tax-wise you'd be much better off with a S-Corp, or a LLC - both pass-through and have no (Federal) entity-level taxes. Corporate rates are generally higher than individual rates, and less deductions can be taken. In California, check with a CPA/EA licensed in the State, since both S-Corp and LLC would be taxed, and taxed differently. An LLC does not pay taxes on profits. As regards tax a LLC is treated as a Partnership, but instead of partners they are called members. The LLC is a passthrough entity. As in Partnerships members can have a different percentage ownership to the share of profits. The LLC reports the share of the profits of the members. Then the members pay the tax as an individual. The profit of the LLC is deemed to have been transferred to the members regardless of any funds transferred. This is often the case as the LLC may need to retain the profits for use in the business. Late paying customers may mean there is less cash in the LLC than is available to distribute.  The first answer is wrong, only a C corporation files a tax return. All other corporate structures are passthrough entities. The C corporation pays corporation tax and is not required to pass any funds to the shareholders. If the C corporation passes funds to the shareholders this is a dividend, and taxable to the shareholder, hence double taxation. "The founders almost certainly owe tax on the ""income"" represented by the rent they aren't being charged. It isn't clear whether the corporation also owes income tax on the rent it is not receiving back from them. You definitely want advice from a paid tax accountant, not least because that helps protect everyone should this arrangement be challenged." "For Non-Resident filers, New York taxes New York-sourced income. That includes: real or tangible personal property located in New York State   (including certain gains or losses from the sale or exchange of an   interest in an entity that owns real property in New York State); services performed in New York State; a business, trade, profession, or occupation carried on in New York State; and a New York S corporation in which you are a shareholder (including   installment income from an IRC 453 transaction). There are some exclusions as well. It is all covered in the instructions to form IT-203. However, keep in mind that ""filing"" as non-resident doesn't make you non-resident. If you spend 184 days or more in New York State, and you have a place to stay there - you are resident. See definitions here. Even if you don't actually live there and consider yourself a CT resident." "Earned income is what your software is doing, so it is taxable.  So you can't really make it tax exempt. You can form a business and claim the revenues from that business as income and deduct expenses it costs you to earn that revenue.  If you buy a server to run your software, then that is an acceptable expense to deduct from your revenues.  Others can be more questionable and the best thing to do is to consult a CPA.   If you are still in the testing stage and the revenues will be small then it should not matter.  Worry about the important things, not if you paid the IRS a few hundred to much. Are you in a state/country that allows online gambling?  In most states here in the US you are operating on shaky legal ground.  Before ""Black Friday"" I used to earn a nice part-time income playing online poker." The LLC will not be liable for anything, it is disregarded for tax purposes. If you're doing any work while in the US, or you (or your spouse) are a green card holder or a US citizen - then you (not the LLC) may be liable, may be required to file, pay, etc. Unless you're employing someone, or have more than one member in your LLC, you do not need an EIN. Re the bank - whatever you want. If you want you can open an account in an American bank. If you don't - don't. Who cares? Do I report it as income? Is it subject to just the same amount of   taxes (~30%) as regular income? Are there any restrictions on how it   can be used? It is income. You can deduct the costs of maintaining the web page and producing the software from it (have an accountant do that for you, there are strict rules on how to do that, and you can only deduct up to the income if its a hobby and not a for-profit business), but otherwise it's earned income like any other self employment income. It is reported on your schedule C or on line 21 of your 1040 (miscellaneous income), and you're also liable for self-employment taxes on this income. There are no restrictions, it's your money. Technically, who is the donation even being made to? Me, just because   I own the webpage? Yes. This is for the United States, but is there any difference if the   donations come from overseas? No, unless you paid foreign taxes on the money (in which case you should fill form 1116 and ask for credit). If you create an official 501(c) organization to which the donations are given, instead of you getting it directly, the tax treatment will be different. But of course, you have to have a real charitable organization for that. To avoid confusion - I'm not a licensed tax professional and this is not a tax advice. If in doubt - talk to a EA/CPA licensed in your State.