{"id":6564,"date":"2024-07-19T02:33:55","date_gmt":"2024-07-19T00:33:55","guid":{"rendered":"https:\/\/digitalizeglobal.com\/?p=6564"},"modified":"2024-09-12T22:26:08","modified_gmt":"2024-09-12T20:26:08","slug":"legal-llc-gruenden-nach-eu-steuerrecht-uebersichtliche-anleitung","status":"publish","type":"post","link":"https:\/\/digitalizeglobal.com\/en\/legal-llc-foundation-according-to-eu-tax-law-clear-instructions\/","title":{"rendered":"Forming a legal LLC under EU tax law - clear instructions"},"content":{"rendered":"

Forming a legal LLC, is it possible?<\/h2>\n
We are wondering whether it is possible to legally establish an LLC without a physical presence in the USA if the founder is taxable in the EU. We would also like to achieve tax advantages for the founder. Surprisingly, there is actually a way to do this in compliance with EU tax law. In this article we will learn how to do it.<\/div>\n
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The problem of the single-member LLC in Europe<\/h2>\n

One non-domestic<\/a> A single-member LLC can certainly pose tax challenges for the EU founder in his home country (tax trap):<\/p>\n

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  1. Tax transparency<\/strong>: In the USA becomes a single-member LLC<\/a> treated as a \"disregarded entity\" by default. This means that it is transparent for US tax purposes and is not taxed in the USA (exempt LLC). Explanation \"Disregarded Entity\":<\/em> A \"disregarded entity\" is a company that is not considered a separate entity for US tax purposes. For a single-member LLC, this means that all income and expenses are attributed directly to the owner as if the company did not exist. The owner reports all business activities of the LLC on his or her personal tax return.<\/li>\n
  2. Different treatment<\/strong>: The problem arises when the EU home country has the LLC classified differently than the USA<\/a>. For example, it could be classified as a corporation, which means that all taxes that would otherwise apply to normal domestic corporations are payable in the home country.<\/li>\n
  3. Possible double taxation<\/strong>If the home country classifies the LLC as a corporation,<\/a> this could lead to double taxation, with both the LLC and the owner having to pay tax.<\/li>\n
  4. Complex tax returns<\/strong>The EU founder may have to submit complex tax returns in both countries.<\/li>\n
  5. CFC rules<\/strong>Many EU countries have Controlled Foreign Corporation (CFC) rules that can result in LLC profits being taxed in the home country even if they have not been distributed.<\/li>\n
  6. Withholding tax<\/strong>Depending on Double taxation agreement<\/a> withholding tax may apply to payments from the USA.<\/li>\n
  7. Verre<\/strong>invoice price<\/strong>e<\/strong>Transactions between the LLC and affiliated companies in the EU home country may be subject to transfer pricing rules.<\/li>\n<\/ol>\n

    Our goal<\/h3>\n

    We want to know how it is possible to legally form an LLC and enjoy all the benefits of the LLC, including limited liability and EU tax advantages. A company similar to a corporation, but without corporate and trade tax in the US and EU.<\/p>\n

    Is Corporation a solution?<\/h2>\n

    Many law firms suggest setting up a corporation, which makes sense if the entire income of the company is to be converted into tax. Double taxation, no thanks! . Some \"experts\" claim that a corporation is a better and dispute-free solution, since a single-member LLC without substance in the USA<\/a> is regarded as a corporation in the EU and can lead to disputes. But is this really a solution?<\/p>\n

    Don't believe the law firms that offer a corporation!<\/h2>\n

    When an EU citizen establishes a US corporation, the following important points arise:<\/p>\n

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    1. The US corporation is generally regarded as an independent corporation in the EU.<\/li>\n
    2. Profits are initially subject to US corporate income tax (currently 21% at federal level).<\/li>\n
    3. Dividends paid out are taxed as income from capital assets in the founder's EU home country.<\/li>\n
    4. CFC rules could be applied.<\/li>\n
    5. Transfer pricing rules<\/a> must be observed.<\/li>\n
    6. There is a permanent establishment risk in the EU.<\/li>\n
    7. The EU founder must disclose his shareholding in the US corporation.<\/li>\n<\/ol>\n

      So what is the right solution?<\/h2>\n

      To be recognized as a partnership in the EU (partnership)<\/strong> In order to be considered an LLC (Limited Liability Company) in the USA, it should be treated as a partnership for tax purposes. Specifically, this means:<\/p>\n

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      1. Form a multi-member LLC in the USA.<\/li>\n
      2. Do not make the election to be taxed as a corporation.<\/li>\n
      3. Choose a member-managed LLC structure.<\/li>\n
      4. Please note that the transferability of units is restricted.<\/li>\n
      5. Filing articles of association in the USA and in the tax domicile<\/li>\n<\/ol>\n

        The articles of association for correct LLC classification<\/h2>\n

        The company's operating agreement defines important aspects such as<\/p>\n