I am forming an LLC with 2 members who are not citizens or residents of the USA and one other member who is a citizen and resident and will also be the manager for the LLC registered in New York. We want the LLC to be taxed as a partnership. Both non citizens will not be active in the running of the company.
Is this allowed and how will the non citizens pay income tax when they are not residents or citizens.
If the LLC is engaged in a U.S. trade or business, then the nonresident alien members (each, an “NA Member”) will be deemed for tax purposes to be similarly engaged, and will be required to file to annual individual income tax returns using Federal Forms 1040NR or 1040NR-EZ.
Each NA Member must pay tax on his or her distributive share of the LLC’s income that is effectively connected with a U.S. trade or business (“ECI”). For each taxable year in which an NA Member is a member of the LLC, the LLC must furnish him or her with a Schedule K-1 reflecting his or her share of ECI.
The LLC is required to withhold and deposit tax, on a quarterly basis, in an amount equal to each NA Member’s distributive share of ECI (whether or not the same is actually distributed) multiplied by the highest income tax rate applicable to individuals in Section 1 of the Internal Revenue Code. These prepayments are then claimed by the NA Members as a credits against their actual tax liability as determined on Forms 1040NR[-EZ].
Each NA Member must have a tax identification number that must be disclosed on Schedules K-1 and Forms 1040NR. Depending on the individual circumstances of each NA Member, this can be a social security number or an “individual tax identification number (an “ITIN”).
Depending upon each NA Member’s nation of origin/citizenship, there may be income tax treaty benefits or exclusions available to him or her.
The U.S. taxation of non-resident aliens is a complicated area of law. The LLC and its members should seek profession legal and accounting assistance to better understand and comply with the applicable laws.