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Luxembourg tax residents can benefit from a number of advantages thanks to the LLC. Nevertheless, certain requirements must be respected, in addition to knowing the various reporting obligations.
A bilateral tax treaty has been concluded between the Grand Duchy of Luxembourg and the United States. This treaty recognizes the semi-transparency of the American LLC (provided that it is considered non-ETBUS).
The tax treaty between the Grand Duchy of Luxembourg and the United States, concluded for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and wealth, provides in its article 7:
"The business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.
If the enterprise carries on business as aforesaid, the business profits of the enterprise may be taxed in the other State but only so much of them as are attributable to that permanent establishment".
The tax treatment of the U.S. LLC relates to one or more partners who are Luxembourg tax residents.
Furthermore, the U.S. legal entity is a disregarded entity, i.e., a tax disregarded entity. As a result, the LLC presents itself as a semi-transparent corporation. Thus, the income received passes through it, so it is the individual who is taxed on the income in his country of residence.
Income earned by a U.S. multi-partner or single-partner LLC will be taxable in Luxembourg, due to the non-ETBUS status of the entrepreneur.
Business income held by non-resident aliens receives special tax treatment in the United States. These non-resident aliens are also known as "non-resident aliens" or more commonly "NRAs".
Certain criteria must be met to qualify as an NAR:
- Not being a US citizen;
- Not having lived in the United States for a period of time to fail the substantial presence test.
In addition, NAR income will be subject to U.S. tax if the contractor qualifies as "engaged in a trade or business in the United States", i.e. "ETBUS".
To qualify as an ETBUS, the company must have a "dependant agent" in the United States. This is a person whose role is to perform key tasks, other than simple administrative tasks, for the continuity of your business. Thus, the dependant agent will have an influence on the definition of the commercial strategy or on the management policy of the activity.
In addition, to qualify as a dependent agent, the company must provide services almost exclusively or exclusively to the entity maintained by the NAR.
When filing your income tax return, mistakes can be made. It is essential to remain vigilant in order to avoid the penalty issued by the tax authorities, amounting to 25,000 dollars.
Also, if you have a number of foreign-owned single member LLCs, the fine can add up. With similar errors on multiple forms, you will have to pay tens, if not hundreds, of thousands of dollars in penalties.
ExpertLLCUSA.com is available to help you complete and submit all of these forms, as well as provide you with your EIN and a U.S. address.
You can make an appointment with one of our specialists for your U.S. declarations for an LLC USA owned by one or more Luxembourg tax residents.
Disclaimer: This document has been prepared on the basis of information available in the public domain and is for guidance only. All necessary precautions have been taken to certify the accuracy of the information. Notwithstanding, no legal liability is granted for any consequential incident that may arise from errors or omissions contained in this document.
