Tax paid by nonresident single member LLC

If your U.S. LLC derives 100% of its income from sources outside of the U.S., you, as a non-resident alien, will have no Federal tax liability. This is because LLC members who are non-resident aliens are taxable only in respect of business income that's "effectively connected" with the conduct of a U.S. business. In the case of consulting income, only income earned from consulting services actually performed within U.S. borders is "effectively connected".

Be aware that merely executing a contract within the U.S., or with a U.S. business or individual as counter-party, does not generate effectively connected income: the consulting work must actually be performed within the U.S. (One caveat: if the LLC has a U.S. bank account which generates interest, or if it holds U.S. investments, or has other, similar, U.S. source income, that particular income will be subject to U.S. tax).

If a single-member LLC has any effectively connected income, that income is both taxable by the U.S. and subject to the quarterly estimated payment requirement. You, as a non-resident alien, would file your quarterlies on an IRS Form 1040-ES (NR) and your annual return on a Form 1040 (NR).

Also be aware that, should an additional member join the LLC, distributions from the LLC to you will become subject to U.S. withholding under Section 1446 of the Internal Revenue Code. This is the Section dealing with withholding on payments to foreign partners or members of U.S. partnerships and LLCs. Under Section 1446, you, as a non-resident alien, would not pay quarterly estimated taxes. Rather, the LLC would be required to withhold 35% of your share of the LLC's effectively connected income and pay this over to the U.S. Treasury. (Note, however, that if you are a resident of a country that has a tax treaty with the U.S., the tax treaty may reduce your withholding rate to less than 35%).

Lindsay Rubel, J.D., LL.M. (Taxation)
www.lebur.com