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LLC with non US members & no US operation


Taxable income generated by LLC that elects to be treated as disregarded entity for tax purposes, may be considered 'not effectively connected with US trade or business' and as such not be subject to US taxation, if all LLC members are non US residents and living outside of the US and the LLC has no US presence or operation. If members of the LLC live in the US while they performing services on behalf of the LLC, the LLC taxable income could be then considere as 'effectively connected with US trade or business' and as such be subject to US taxation. Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI). This applies whether or not there is any connection between the income, and the trade or business being carried on in the United States, during the tax year. Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as ECI. You usually are considered to be engaged in a U.S. trade or business when you perform personal services in the United States. Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Deductions are allowed against ECI, and it is taxed at the graduated rates or lesser rate under a tax treaty.

The following categories of income are usually considered to be connected with a trade or business in the United States.

  • You are considered to be engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any U.S. source scholarship or fellowship grant received by a nonimmigrant in "F," "J," "M," or "Q" status is treated as effectively connected with a trade or business in the United States.

  • If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States.

  • You usually are engaged in a U.S. trade or business when you perform personal services in the United States.

  • If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income.

  • Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. You must treat the gain or loss as effectively connected with that trade or business.

  • Income from the rental of real property may be treated as ECI if the taxpayer elects to do so.

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