US 8 | LLC or C-Corp

US Tax

As a non-US tax resident, should you run your US business through an LLC or C-Corp?

If you use a C-Corp blocker, should your trading entity sit within an LLC or C-Corp? This is the questions Alfonso Nuñez of Andersen in San Francisco will discuss with you in this episode.

Here is what we learned but please listen in since Al Nunez explains this much better than we ever could.

LLC or C-Corp

You start with the end. If your ultimate goal is a capital gain upon exit and you don’t worry about profit distributions in the meantime, then you might as well place the trading entity within a C-Corp. When you sell your shares, any capital gain will be tax exempt in the US and possibly also in Australia, at least while you hold the profits within your Australian holding company.

But if profit distribution is your goal, then you face double taxation since the US doesn’t have an imputation system. So your C-Corp trading entity pays tax and then your C-Corp blocker pays tax again on the net amount it received. Far from ideal.

So start-ups in Silicon Valley are more likely to use a C-Corp + C-Corp structure. But if you are a more traditional business looking at long-term expansion and not a quick exit, then C-Corp + C-Corp probably won’t work for you and you need to look at just one C-Corp and/or an LLC.

Consolidation

If your C-Corp blocker holds at least 80% of the C-Corp trading entity, you can probably consolidate and avoid double taxation in the US. But if you hold less than 80% in the trading C-Corp, then consolidation is off the table and you face double taxation.

These are just some quick notes. Please listen in since Al Nunez goes into a lot more details and shares many more insights than we listed here.

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