Wyoming LLC clarification

[mmichi]

Hi all,
I was considering a Wyoming offshore LLC. I am a non-US citizen.

However, I came across this article where the author claims that one needs to form 2 different LLCs in case one is not really in Wyoming. The example he gave was that of a person named "Steven" who lived in California and formed a Wyoming LLC.
https://www.llcuniversity.com/wyoming-llc/why-you-shouldnt-form-an-llc-in-wyoming/
He states that "Since Steven is running his business from his home in California, his Wyoming LLC is illegally doing business in California."

Is the author accurate?

If the above article is accurate, wouldn't this also apply to a Delaware or New Mexico LLC? Why would anyone even open a Delaware or New Mexico LLC in that case?

Thanks in advance for your thoughts

 

[exprtadvisrdev]

Yes the article is correct, the WY business will be illegal if it does business in California since it needs to incorporate as a foreign business in the state. It's similar to what I mentioned here What is effectively considered "us source income"

BUT, that's only if your business is present in that state... For us non-US citizen doesn't apply since we are doing business from overseas and we pay taxes in our countries.

 

[mmichi]

Yes the article is correct, the WY business will be illegal if it does business in California since it needs to incorporate as a foreign business in the state. It's similar to what I mentioned here What is effectively considered "us source income"

BUT, that's only if your business is present in that state... For us non-US citizen doesn't apply since we are doing business from overseas and we pay taxes in our countries.

Thanks, read the thread.

The IRS page related to the same seems to be:
https://www.irs.gov/individuals/int...gn person,Effectively Connected Income (ECI).
Interestingly the page specifically says "
NOTE: If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States.
"

So, my understanding is that stock traders are not considered to be having US Effectively Connected Income.

Or am I misinterpreting it?

 

[PaulKruger]

You need to think every time you read something originating from the USA, they always believe USA is the entire world, they don't understand that there are more countries. So they simply write everything as it apply worldwide, because worldwide means USA

 

[exprtadvisrdev]

Thanks, read the thread.

The IRS page related to the same seems to be:
https://www.irs.gov/individuals/int...gn person,Effectively Connected Income (ECI).
Interestingly the page specifically says "
NOTE: If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States.
"

So, my understanding is that stock traders are not considered to be having US Effectively Connected Income.

Or am I misinterpreting it?

Yes, stock traders (persons, not LLCs) do not trigger an ECI when using a broker from the US. That's why we don't pay capital taxes in the US when we use a broker there BUT we do pay taxes when we receive dividends

 

[mmichi]

Yes, stock traders (persons, not LLCs) do not trigger an ECI when using a broker from the US. That's why we don't pay capital taxes in the US when we use a broker there BUT we do pay taxes when we receive dividends

Its interesting that you mention "persons, not LLCs". So, do LLCs who trade US stocks pay capital gains taxes in the US?

 

[exprtadvisrdev]

So, do LLCs who trade US stocks pay capital gains taxes in the US?

They will depending on: kind of LLC, how many owners, if it does business in the US, etc. If it's just a pass-through LLC then capital gains should be taxed at personal level BUT I think you will need to file in the IRS because of dividends gains, I'm not sure since I have never got stocks with my LLCs, I prefer to use personal accounts or an offshore business

 

[mmichi]

They will depending on: kind of LLC, how many owners, if it does business in the US, etc. If it's just a pass-through LLC then capital gains should be taxed at personal level BUT I think you will need to file in the IRS because of dividends gains, I'm not sure since I have never got stocks with my LLCs, I prefer to use personal accounts or an offshore business

If the LLC is not at all interested in dividends but only capital gains from trading US stocks, what kind of LLC would you suggest?

Also, I noticed that you mentioned "I have never got stocks with my LLCs, I prefer to use personal accounts or an offshore business". Can you please elaborate what you mean by offshore business as I thought LLC was an offshore business entity(assuming one is not in the same country). I understand that there can be different types of LLCs but I wanted to know if you meant something specific when you mentioned "offshore business" as opposed to LLC.

Thanks

 

[exprtadvisrdev]

LLCs are all the same basically, the difference if how they are treated by the IRS or how they are managed but at the bottom they are the same.

I understand that there can be different types of LLCs but I wanted to know if you meant something specific when you mentioned "offshore business" as opposed to LLC.

With "offshore" I'm talking about common offshore jurisdictions (Cayman island for example).

If the LLC is not at all interested in dividends but only capital gains from trading US stocks, what kind of LLC would you suggest?

If you want to use a US LLC, talk to an accountant there who understand about foreign owned LLCs

 

[mmichi]

LLCs are all the same basically, the difference if how they are treated by the IRS or how they are managed but at the bottom they are the same.


With "offshore" I'm talking about common offshore jurisdictions (Cayman island for example).


If you want to use a US LLC, talk to an accountant there who understand about foreign owned LLCs

With regards to the offshore jurisdictions (eg Cayman Islands etc) are there still any decent banks which work with them? I heard that option is pretty much dead. Though I could be wrong.
But if I am right, that raises the question: How come 3 out of 4 hedge funds are in Cayman Islands then. The only answer I can think of is "Banks are possible there for the big boys but not for the little guys"

 

[hernanday]

Hi all,
I was considering a Wyoming offshore LLC. I am a non-US citizen.

However, I came across this article where the author claims that one needs to form 2 different LLCs in case one is not really in Wyoming. The example he gave was that of a person named "Steven" who lived in California and formed a Wyoming LLC.
https://www.llcuniversity.com/wyoming-llc/why-you-shouldnt-form-an-llc-in-wyoming/
He states that "Since Steven is running his business from his home in California, his Wyoming LLC is illegally doing business in California."

Is the author accurate?

If the above article is accurate, wouldn't this also apply to a Delaware or New Mexico LLC? Why would anyone even open a Delaware or New Mexico LLC in that case?

Thanks in advance for your thoughts

He is right, but his example is for the USA. You cannot just incorporate your LLC in Wyoming or Tax Haven-X sit in California, with California employees, assets, and trade, then pay no taxes because it is a Wyoming LLC. If you have a Wyoming LLC and live in Sweden you are going to be paying Swedish rates, and if it is in Ireland or Tax Haven X those rates.

In my eyes the benefit is to non-Americans mainly.

The benefit of Wyoming LLC is as a holding company/entity. Ie. Steve lives in California, his LLC is "sold" or donated to an offshore trust or foundation which he is the beneficiary of. Steve makes $3 million a year in revenue with Cali LLC. $2 million in expenses. With Wyoming LLC- Cali LLC pays out cost of $1 million in licenses to Wyoming LLC for trademarks, patents, royalties, management fees, consulting fees, etc and so on which was purchased in Wyoming for $1 million annually. Cali LLC makes zero income. Wyoming LLC makes $1 million income. Wyoming LLC then donates the money to Belize Trust or Belize Foundation. Wyoming LLC now makes zero net income. Belize Foundation for the animals or flying puffer squirel, has nominees on its boards and Steve has no "control" of it.

Steve pays very little to no taxes. If Steve was not a US citizen, and you replace Cali LLC with say Canadian version business, he could simply move abroad to a zero tax nation and recover the money tax free. Or the Trust could simply pay him the money as a capital distribution (basically anything from the original $1 million would be tax free - not sure about in the USA -but many other countries like Canada.)

https://www.advisor.ca/columnists_/max-reed/tax-consequences-of-inheriting-money-from-the-u-s/" And, since distributions of capital are tax-free in Canada, the inheritance received by Carl would be tax-free."

So if Steve was canadian, Canadian LLC in Vancouver pays $1 million royalties ----> WY LLC - who donates to ---> Belize Foundation---> Who sets up a trust with Steve as beneficiary of the $1 million -----> Who distributes the $1 million in trust capital back to Steve as beneficiary tax free under Canadian tax law, giving him a tax reduction from about $500k in Canadian tax to zero.

To my knowledge, USA tax law taxes even capital distribution (ie non-interest distribution from the trust). Ergo, I don't know/see if Wyoming would have the same advantage to an American.

 

[hernanday]

With regards to the offshore jurisdictions (eg Cayman Islands etc) are there still any decent banks which work with them? I heard that option is pretty much dead. Though I could be wrong.
But if I am right, that raises the question: How come 3 out of 4 hedge funds are in Cayman Islands then. The only answer I can think of is "Banks are possible there for the big boys but not for the little guys"

In many cases those hedge funds have the ability to outright buy banks. They may actually own/control the bank.
I believe the issue is the cost of regulatory is so high, and especially for US citizens with FACTA and CRS many of the larger reputable banks don't want to mess with your $20k which could be drug money and will require 100 hours of man power a year for a really small return. With interest rates so low, the banks can hardly make money off your $20k, now add on high regulation cost, where is the profit for the bank?

The only change I could see, would be for a non-profit to open to help facilitate offshore businesses in the banking sector funded by the tens of thousands of people who want to do that. I think it would be a good business idea. I mean like a non-profit bank that would allow all the crypto guys and others, HQed in a non-crs nation to access offshore banking easily.