Partnership of US and non-US persons

[r***@sustik.com]

A friend of mine and I would like to start a business together. (More
precisely: to turn a hobby into a business.)

I am resident of the US while she is not. The product would be
produced abroad and marketed in the US and Europe. She would take care
of supplies, contracting out work and in general run the business. My
role would be to oversee finances and possibly some of the marketing.

As you see I would be a minor partner. The main benefit of
incorporating in the US would be due to the fact that her country has
1. a very mediocre and expensive banking system (especially for
businesses), making it costly and cumbersome to transfer money in/out
2. higher income tax rates
3. in general a lot of burocracy and idiots in office creating an
unstable and hassle-full business environment (like quarterly and even
monthly sales tax paying even for very small companies)

Surprisingly, it is quite painless (and relatively cheap) to withdraw
funds from US accounts over there.

So we would like to have some form of business incorporated in the US.
My questions:
1. What business form would suit us best?
2. Could she pay US taxes on her income/distribution/profit share? (*)
3. Can I do this as a quite silent partner who has a full time job
already?
4. What benefits would she enjoy and not enjoy due to being a non-US
person? (pension, social sec.?)

(*) US resident aliens from her country are allowed to pay taxes in the
US (without the need for paying in the country of nationality) if the
income is from the US only, due to a tax treaty. Of course she would
not live and work on US soil. We will check the tax treaties.

We need no loans. Think of this as an already running hobby business
which turns professional, taking advantage of increased customer trust
due to being incorporated and staying legitimate before growing too big
(and profitable) to be a hobby only.

Any insights will be greatly appreciated.
Matyas

[Mark T.B. Carroll]

Post by r***@sustik.com
As you see I would be a minor partner. The main benefit of
incorporating in the US would be due to the fact that her country has
1. a very mediocre and expensive banking system (especially for
businesses), making it costly and cumbersome to transfer money in/out
2. higher income tax rates
3. in general a lot of burocracy and idiots in office creating an
unstable and hassle-full business environment (like quarterly and even
monthly sales tax paying even for very small companies)

Do foreign companies with local retail premises still have to pay the
sales tax stuff? Or are you doing this more by mail order than local
purchasing?

Post by r***@sustik.com
Surprisingly, it is quite painless (and relatively cheap) to withdraw
funds from US accounts over there.
So we would like to have some form of business incorporated in the US.
1. What business form would suit us best?

Not an S Corp, given the foreign involvement. I'd probably go for an LLC
over a C Corp, but others here will think otherwise so let's see why.

Post by r***@sustik.com
2. Could she pay US taxes on her income/distribution/profit share? (*)

That's a fascinating question. Try asking the IRS. You don't need a
social security number - you can get an ITIN and file taxes. (She's not
a US citizen, I assume.) There's the question both of the business
income (LLCs are pass-through unless you opt to be taxed like a C Corp,
which plausibly you would) and whatever she draws from the business. I'm
not aware of any basis for US tax liability for non-US-citizens who
aren't resident or domiciled in the US, but the IRS or that tax treaty
may say otherwise.

Post by r***@sustik.com
3. Can I do this as a quite silent partner who has a full time job
already?

I don't see why not. I would add that some tax benefits that can come
from involvement in a business only accrue to partners who are taking an
active role in the business.

Post by r***@sustik.com
4. What benefits would she enjoy and not enjoy due to being a non-US
person? (pension, social sec.?)

Social security stuff is another thing that tends to be covered in tax
treaties, as are things like if, for example, deferred taxing of things
like retirement accounts are respected by her local authorities. I doubt
she'll get any particularly sweet deals out of it though.

Post by r***@sustik.com
(*) US resident aliens from her country are allowed to pay taxes in the
US (without the need for paying in the country of nationality) if the
income is from the US only, due to a tax treaty. Of course she would

Wow, that's quite a deal.

Post by r***@sustik.com
not live and work on US soil. We will check the tax treaties.

-- Mark

[m***@jach.hawaii.edu]

Post by Mark T.B. Carroll

Post by r***@sustik.com
2. Could she pay US taxes on her income/distribution/profit share? (*)

That's a fascinating question. Try asking the IRS. You don't need a
social security number - you can get an ITIN and file taxes. (She's not
a US citizen, I assume.) There's the question both of the business
income (LLCs are pass-through unless you opt to be taxed like a C Corp,
which plausibly you would) and whatever she draws from the business. I'm
not aware of any basis for US tax liability for non-US-citizens who
aren't resident or domiciled in the US, but the IRS or that tax treaty
may say otherwise.

As long as you mention 'domiciled' as well, because I know for a
fact that as a non-resident alien who lives in the US you pay US taxes
(and at least in Hawaii state taxes as well), been there, done that.

Post by Mark T.B. Carroll

Post by r***@sustik.com
(*) US resident aliens from her country are allowed to pay taxes in the
US (without the need for paying in the country of nationality) if the
income is from the US only, due to a tax treaty. Of course she would

Wow, that's quite a deal.

actually, do you really expect she should pay taxes in both countries?
That could easily add up to more than 100% of income.

- For all I know the US is the odd country out to _always_ tax its
citizens, no matter where they live and derive their income. The place
I work for has British Civil Servants who live and work in Hawaii but
are non-resident aliens and pay taxes only in the UK. They have never
figured out how to make that work for US citizens, so they don't hire
any as British civil servants but employ them locally. I'm employed
'locally', and as a resident alien (German) only pay US taxes. -

Maren
Palms, Etc.: Tropical Plant Seeds - Hand-made Jewelry - Plants &
Lilikoi
http://www.jach.hawaii.edu/~maren/palms_etc/

[Mark T.B. Carroll]

***@jach.hawaii.edu writes:
(snip)

Post by m***@jach.hawaii.edu
As long as you mention 'domiciled' as well, because I know for a
fact that as a non-resident alien who lives in the US you pay US taxes
(and at least in Hawaii state taxes as well), been there, done that.

Me too. (-: I've also been in the position of living in Europe but
getting income from the US.

(snip)

Post by m***@jach.hawaii.edu
actually, do you really expect she should pay taxes in both countries?
That could easily add up to more than 100% of income.

More common, IMLE, are situations where you are taxed on US income by
the country in which you live, but you can deduct US taxes paid, or at
least a fraction of such, from your local tax bill - so you don't end up
benefiting if your local authorities have higher tax rates than US ones,
because you end up paying at least the difference anyway. (Of course, it
gets awkward if you live in a country where personal tax years don't
follow the calendar year, as it does in the US.) This sort of thing can
go on in the US too where you have, say, city income taxes and you pay
tax for the city you work in then get some credit for that in filing
taxes for the city you live in.

Post by m***@jach.hawaii.edu
- For all I know the US is the odd country out to _always_ tax its
citizens, no matter where they live and derive their income. The place

Yes, it's certainly the only developed, significant country to do so.
You can be liable for US taxes even if you have never in your life had
anything to do with the US.

Post by m***@jach.hawaii.edu
I work for has British Civil Servants who live and work in Hawaii but
are non-resident aliens and pay taxes only in the UK. They have never

Oh, that's interesting - I'd not thought about diplomatic stuff.

Post by m***@jach.hawaii.edu
figured out how to make that work for US citizens, so they don't hire
any as British civil servants but employ them locally. I'm employed
'locally', and as a resident alien (German) only pay US taxes. -

Aha, right.

(I fear we're drifting off-topic here, so I'll probably not say too much
more on this part.)

-- Mark

[r***@sustik.com]

Post by Mark T.B. Carroll
Do foreign companies with local retail premises still have to pay the
sales tax stuff? Or are you doing this more by mail order than local
purchasing?

Yes the sale will be by mail order.

Post by Mark T.B. Carroll
not aware of any basis for US tax liability for non-US-citizens who
aren't resident or domiciled in the US, but the IRS or that tax treaty
may say otherwise.

She is not a US citizen, but it would be advantagous for her to pay the
lower US taxes if possible.

[m***@jach.hawaii.edu]

Post by r***@sustik.com

Post by Mark T.B. Carroll
Do foreign companies with local retail premises still have to pay the
sales tax stuff? Or are you doing this more by mail order than local
purchasing?

Yes the sale will be by mail order.

It depends?

I'm sure that a business in Hawaii, whether foreign owned or not,
and without a retail location, would still have to pay excise tax on
in-state sales.

I don't know how that works elsewhere in the US ...

Post by r***@sustik.com

Post by Mark T.B. Carroll
not aware of any basis for US tax liability for non-US-citizens who
aren't resident or domiciled in the US, but the IRS or that tax treaty
may say otherwise.

She is not a US citizen, but it would be advantagous for her to pay the
lower US taxes if possible.

I don't think it works that way, but I'd ask a tax attorney if you want
to be absolutely sure. And try to find a tac attorney who has
experience
with foreign tax issues, preferably in the country she's in.

Maren
Palms, Etc.: Tropical Plant Seeds - Hand-made Jewelry - Plants &
Lilikoi
http://www.jach.hawaii.edu/~maren/palms_etc/