USA LLC owned by European resident = VAT or no ?

[JustAnotherNomad]

OP said the company is taxed as a corporation - then it will be taxed as a Spanish corporation.

If it's treated as transparent in the US, then the other country can still tax it like a corporation. @TheCryptoAnt wrote Spain accepts US LLCs as transparent, so then that wouldn't be a problem in Spain.
But many other countries still see "disregarded entities" as corporations. That's because they have to find the "equivalent" local entity type and in many countries, only corporations award limited liability.

 

[Onassis]

Guys, don't mess around with US LLCs if you're living in Spain. You're just asking for trouble. Stick with a simple SL and when you have enough profits, set up a company in a whitelisted low tax jurisdiction like Bulgaria, Romania or Cyprus with proper substance.

If you absolutely need to be in Spain then use Schengen to your advantage.

 

[tomboy]

I just met with a CPA firm in Madrid, and it seems that your previous information was accurate. According to the CPA, because I am the sole member of a USA LLC and there is no substantial presence in the United States (no office, no employees, etc.), the Spanish tax authorities would treat the USA LLC as a Spanish company. This would result in a significant amount of paperwork.

The CPA recommended that I establish a Spanish company and continue my business operations through that entity. Additionally, she mentioned the possibility of benefiting from the "Beckham law" if I were to hire a local Spanish employee. This law offers a flat 24% tax rate on Spanish income.

However, I am uncertain about starting a Spanish company as I am happy with my existing U.S.-based company. I have already established it, everything is running smoothly, I have multiple bank account and other related infrastructure in place. Beginning from scratch in Spain does not appeal to me at this time. Perhaps I should take the risk and proceed with my initial plan, registering as an "autonomo" in Spain and invoicing my USA LLC. Ultimately, I would fulfill all my tax obligations in Spain, as I am not attempting to evade taxes; I simply wish to operate under the umbrella of my established USA LLC.

What are your thoughts on this matter? Thank you!

 

[Marzio]

What are your thoughts on this matter?

Seek a different CPA because what she said doesn't make sense.

If LLC is seen as a transparent entity then the fact there's no substantial presence in US shouldn't change the company from being treated as transparent to opaque.

 

[22kay]

Did the CPA elaborate on choosing either to be taxed as C-corp or pass-through for the LLC?

 

[tomboy]

Depends on a factors.

1. Where your company in USA are registered?
2. Do you have Clients in USA?
3. In which countries you have clients and what is annual revenue you are receiving from each country?

1. Delaware
2. a very few, 1 or 2 per year, not more
3. for example - so far this year I got money from UK few times, Portugal, HK, Turkey, Canada, Senegal, Spain and Mexico. revenue is very flexible

Seek a different CPA because what she said doesn't make sense.

If LLC is seen as a transparent entity then the fact there's no substantial presence in US shouldn't change the company from being treated as transparent to opaque.

I think I should meet a lawyer. CPA don't seem to be very familiar with this kind of setup.

 

[JustAnotherNomad]

the Spanish tax authorities would treat the USA LLC as a Spanish company. This would result in a significant amount of paperwork.

Told you so.

Perhaps I should take the risk and proceed with my initial plan, registering as an "autonomo" in Spain and invoicing my USA LLC.

As mentioned before, this comes with multiple risk:

1. Your company would have to register in Spain (as you confirmed with the CPA) and follow the regulations for Spanish companies (CIT, VAT, accounting, ...)
2. You probably can't just invoice 100% of the profits of a Spanish company
3. With only one client, you could probably be considered an employee of the company, so the company would have to pay social security contributions for you
4. The US won't allow you to just invoice 100% of the profits

There's a good chance you'll fly under the radar, but you are breaking multiple rules in two countries.
If you are caught, you may just get a slap on the wrist because you didn't actually try to evade taxes, or you may find yourself in serious trouble. I'm not sure, but I'd expect the legal expenses to get high fast, especially when you have to hire a lawyer to represent you in the US.

Ultimately, I would fulfill all my tax obligations in Spain, as I am not attempting to evade taxes; I simply wish to operate under the umbrella of my established USA LLC.

Have you looked into changing the taxation of your LLC from corporation to disregarded entity, as several people in this thread suggested?
If @TheCryptoAnt 's information is correct (that Hacienda would treat you as autonomo in that case), then that could be a good solution.

What are your thoughts on this matter? Thank you!

I think you should find a good lawyer that can come up with a suggestion. You should especially check your original question about VAT.
Maybe you can set up a Spanish branch of your US LLC or simply a Spanish company. Then use the Spanish company to invoice both European clients and the US company.
Then you would at least reduce the risk for 1.-3. above.

But in general, I would keep trying to find a Spanish CPA who has experience with the US tax code as well.

 

[tomboy]

Did the CPA elaborate on choosing either to be taxed as C-corp or pass-through for the LLC?

No - she did not really mention the U.S side. as if it the way it is taxed does not really matter. My feeling is that for her, the main point was that the single member LLC was owned and administrated by me. therefore, the spanish tax authorities would come to me and tell me "it's a non sense to have a US company"
But I have this feeling that they don't really understand much into all of this... maybe better to find a good lawyer

Told you so.

Yes seems you were right, and thank you for that.

There's a good chance you'll fly under the radar, but you are breaking multiple rules in two countries.
If you are caught, you may just get a slap on the wrist because you didn't actually try to evade taxes, or you may find yourself in serious trouble. I'm not sure, but I'd expect the legal expenses to get high fast, especially when you have to hire a lawyer to represent you in the US.

It's not worth it. I prefer to sleep good at night.

Have you looked into changing the taxation of your LLC from corporation to disregarded entity, as several people in this thread suggested?
If @TheCryptoAnt 's information is correct (that Hacienda would treat you as autonomo in that case), then that could be a good solution.

No, I will explore this solution.

Maybe you can set up a Spanish branch of your US LLC or simply a Spanish company. Then use the Spanish company to invoice both European clients and the US company.
Then you would at least reduce the risk for 1.-3. above.

Interestingly, the advice I received from a CPA during a phone call aligns with the idea you mentioned. However, I didn't have a positive impression of her as she seemed overly intrusive, delving into personal details such as my monthly expenses and the type of car I intended to drive. the kind of apartment I would rent etc... I was uncomfortable with her approach. Nevertheless, I do recall her suggesting a setup involving a company in the U.S. and one in Spain. The Spanish entity would handle invoicing for European clients, while the U.S. company would manage clients from the rest of the world. Eventually, the Spanish company would invoice the profits of the U.S. company as well. This alternative needs further exploration.

 

[JustAnotherNomad]

If LLC is seen as a transparent entity then the fact there's no substantial presence in US shouldn't change the company from being treated as transparent to opaque.

I'm not sure what you mean here. Say the LLC is a restaurant in the US, with a local restaurant manager managing the restaurant.
It would clearly be taxed in the US. If taxed as a corporation, the restaurant would be paying corporate income tax, if transparent, then OP would be paying personal income tax.
Since it's a restaurant with local management, clearly no activities take place in Spain, so no tax if opaque (unless the restaurant pays him dividends/salary).
If transparent, then it would probably depend on the tax treaty. I would expect that the money would be taxed in Spain as well, with a credit for tax paid in the US.
I'm not a lawyer, just guessing here. My point was: Substance in one country can absolutely have an effect on taxation in another, whether the entity is transparent or not.

 

[Marzio]

But I have this feeling that they don't really understand much into all of this... maybe better to find a good lawyer

You'll never find anybody that will admit openly "look i don't have a clue WTF you are talking about but i'll take your money anyway"

I'm not sure what you mean here

source

I'll rephrase what i said.

Based on the above article his US LLC is a foreign single member entity not liable to US tax so it will be treated as a transparent enitity in Spain.

The fact that the CPA said "Since you are a sole trader with no substantial presence in US then Spain will tax US LLC as company" means that she doesn't have a clue.

If US LLC is transparent for both US and Spain he will pay income tax and social contributions in Spain.

Basically it is like the LLC doesn't exist and all income is generated by him as an autonomo.

 

[tomboy]

If LLC is taxed as a C-Corp in USA, LLC is paying CIT on the profits.
If LLC is taxed as a disregarded entity then the profits and losses are pass through to the members (yours) tax return (eg. no CIT). If you are US tax resident there is additional self employment tax to be paid.
If you are not a tax resident in USA, you will still need to make your tax return to IRS and then add some additional information (don't remember the exact document ID's, but I believe there are 1 or 2 that need to be supplied) that you are not to be taxed in USA on your pass through income. Same goes for salary from a C-Corp.

If you have already chosen for the LLC to be taxed as a C-Corp it will be regarded as a US tax payer and LLC will pay CIT on the profit and then you can pay out any taxed profit to yourself and again tax on that personally.
What is the benefit of electing to be taxed as a C-Corp in your case/setup?
When you say "flushing" profit to yourself, what do you mean exactly?

1. The country in which I currently reside does not recognize the disregarded entity status, which prompted me to change the taxation structure to a C-corporation.
2. When I mention "flushing the profit," it essentially means that I was directing all the profits generated by my U.S. company to the country where I reside, subjecting them to taxation here. Instead of paying taxes in the U.S. I filed forms 8879-Corp, 1120, and 5472 annually, declaring no profit and thus not owing any taxes in the U.S.. Instead, I fulfilled my tax obligations in the country where I reside, outside of the U.S.

You'll never find anybody that will admit openly "look i don't have a clue WTF you are talking about but i'll take your money anyway"

source

I'll rephrase what i said.

Based on the above article his US LLC is a foreign single member entity not liable to US tax so it will be treated as a transparent enitity in Spain.

The fact that the CPA said "Since you are a sole trader with no substantial presence in US then Spain will tax US LLC as company" means that she doesn't have a clue.

If US LLC is transparent for both US and Spain he will pay income tax and social contributions in Spain.

Basically it is like the LLC doesn't exist and all income is generated by him as an autonomo.

Based on what you said, If I can change the taxation of my US LLC from c-corp to disregarded entity, my U.S. LLC will be considered a transparent entity in both the U.S. and Spain, I can continue operating as I have been and simply declare the profits in Spain? As an autonomo in Spain, I would report the income generated by the LLC on my personal tax return and fulfill my tax obligations accordingly?

Re : Tax classification

Apparently, yes, it is possible to change the tax classification of an LLC back to a disregarded entity (single-member LLC). However, the IRS has specific rules about how often you can change your tax classification.
According to the IRS, once you change your tax classification, you cannot change it again for 60 months (5 years). This is referred to as the "60-month rule."
Since I've done the change from disregarded to c-corp in August 2019, I will have to wait till August 2024 to change it again.

 

[Marzio]

Based on what you said, If I can change the taxation of my US LLC from c-corp to disregarded entity, my U.S. LLC will be considered a transparent entity in both the U.S. and Spain, I can continue operating as I have been and simply declare the profits in Spain? As an autonomo in Spain, I would report the income generated by the LLC on my personal tax return and fulfill my tax obligations accordingly?

This is also my understanding.

Be aware that depending on how high is your income level you could be paying A LOT of taxes (if you don't interpose a third party company).

Since I've done the change from disregarded to c-corp in August 2019, I will have to wait till August 2024 to change it again.

Just delete the entity and form a new one, easy peasy.

 

[JustAnotherNomad]

Based on the above article his US LLC is a foreign single member entity not liable to US tax so it will be treated as a transparent enitity in Spain.

That would confirm what @TheCryptoAnt wrote, but you wrote that substance in the US would not influence taxation in Spain, which is not correct.
Also, OP wrote multiple times that the LLC is taxed as a corporation in the US.

Since I've done the change from disregarded to c-corp in August 2019, I will have to wait till August 2024 to change it again.

Talk to a US CPA if there is a trick to have it changed sooner. Otherwise the best solution would probably be to use your original plan until August 2024 and to switch to a disregarded entity at that point. But please double check this with professionals in both countries.

 

[Marzio]

you wrote that substance in the US

I was referring to the fact that the CPA said "since there's no substance in US then Spain will tax you as a company" which is BS.

What makes Spain tax LLC as a company is if you select LLC to be taxed as C-corp.

OP wrote multiple times that the LLC is taxed as a corporation in the US.

I'm not paid enough to remember all the setups of people who post in the forum.

 

[JustAnotherNomad]

What makes Spain tax LLC as a company is if you select LLC to be taxed as C-corp.

OP has elected for the company to be taxed as a corporation. If he had substance in the US, there might not be tax in Spain. So what the CPA said would make sense.
What I meant was that based on what OP wrote alone, I wouldn't be able to say if the CPA knows what they are talking about or not.

 

[TheCryptoAnt]

If @TheCryptoAnt 's information is correct (that Hacienda would treat you as autonomo in that case), then that could be a good solution.

I had this confirmed by Hacienda employees multiple times.

I ended up not paying anything but I did the homework.

Basically it is like the LLC doesn't exist and all income is generated by him as an autonomo.

seems like you also did the homework

 

[JustAnotherNomad]

I ended up not paying anything

How?

 

[tomboy]

Guys

I just wanted to take a moment to thank you all. The information and guidance I'm receiving from this forum is amazing, and I've learned a lot through our interactions.

Over the past few weeks, I've had consultations with multiple CPAs, seeking advice on various aspects of my business. Surprisingly, I found that the insights and knowledge I gained from this forum often surpassed the information provided by these « « professionals » and I feel like I’ve a lot more information and tools to meet and discuss with other CPA/Lawyer

Your assistance is deeply appreciated, and I look forward to continuing to learn from and contribute to this incredible community.

Cheers

 

[Marzio]

the insights and knowledge I gained from this forum often surpassed the information provided by these « « professionals »

That's because we are deeply motivated by eluding how much taxes as humanly possible.

We hate to see our money robbed by state parasites so we (at least I do it) stay up long nights reading about possibile loopholes that we can use to preserve our wealth.

We are blessed because there are some really sharp minds in this forum and each one can bring his experience on the table from which others can learn.

How?

He disappeared like El Profesor

 

[fshore]

To OP, you've received a lot of information and good advice already, especially from @JustAnotherNomad. I'd just want to emphasis what I think is the most important things to keep in mind.
1. Your US company is taxed as a corporation, not a pass through LLC. You need to emphasis this when talking to CPA's etc.
I think this was a mistake to begin with, and I would personally not continue using this company, I'd start a new LLC if I must trade through a US LLC. You now have to deal with IRS, you risk audits in the US, you should hire a good US CPA if you haven't already.

2. VAT. You need to charge VAT. It could lead to a lot of trouble, penalties and financial ruin if you don't charge VAT. If your clients are only VAT registered companies outside Spain then you could reverse charge the invoices, but you'd need to be VAT registered to do that. And you must check that their VAT numbers are valid.