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Tax Planning/Foreign Branch in the US

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Question
I recently established a LLC in Peru with the objective to sell handmade boots from Peru to US customers. Because I want to sell directly to US customers-no distributors or retailers- I am planning to set up a branch of the Peruvian company in the US. I will sell the products online through the US business based in Virginia. I have no employees. My questions are the following:

- In general: What state and federal taxes does a branch of a foreign company in the US pay?

- In the case that I establish the branch in Virginia and then I want to sell my products online to customers in other states, what federal and state taxes would the company need to pay?

-And then, in the case that I establish the branch in Virginia and decide to assist to a trade show or market to sell my products in New York, for example, what federal and state taxes would the company need to pay?

Answer
Let me start by directly answering your question. But understand that your plan is flawed. For instance, Peru does not have Limited Liability Companies, similar to what is defined in the US. You probably purchases a "Limited Company", which according to English common law is close to what we consider a corporation.

When you bring the Peruvian company to the US, it will be subject to all US laws, including tax laws.

As you have laid it out: The US business would pay US federal taxes and any state taxes, on 100% of the profit. Then, since it is owned by a foreign entity the remaining profit will be subject to a 30% withholdings as it goes back to Peru. Then the business would be subject to Peruvian taxes on what is left.

And Finally, you as a US citizen are obligated to pay tax on your worldwide income. On your tax return you would be required to declare your ownership of the Peruvian Limited company and effectively pay taxes on the profits personally, here in the US.

While not fully disclosing is an option, but the risks are very high.

US tax rates change as income increases. Let's say the business made $100,000 in the year as net profit. The Peruvian business registered to do business in the US would be taxed as a real corporation. Federal Corporate tax would be 22.25% average. leaving $77,750. If you operate in Virginia that takes another 6% or $6000 #$71.750#. That net amount is transferred to Peru, 30% withheld #$50,225#. Peru's tax rate is 30%, If Peru has a tax treaty with the US you would get credit for the 30% withheld, creating a wash. You still have $50.225. But you are in the US, you have to declare the value of that Peruvian income personally here and pay taxes on it. That will depend on your personal tax rate which could be 25, 28, 33, 35, 39,6% plus Since you live in Virginia you get to add that tax rate. since the top tax rate kicks in at $17,000 we can reasonable assume that all of that $50,225 would be in highest tax bracket of 5.75%. I'd say you are looking at keeping maybe $32,000 when it is all done.

I think there are better ways.

Call me.

Richard Fritzler
800 658-5105

Tax Planning

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Richard Fritzler

Expertise

I am in the business of tax planning for business owners. Our company helps business owners structure so that they can be reduce the taxes that they owe, making them far more profitable.

Experience

Since 1986 I have been helping successful business owners reduce taxes, protect assets, and limit their liability. The company is Owelesstax, incorporated at www.owelesstax.com


Organizations
National Small Business Owners Association.
Nevada Association of Listed Resident Agents.
Citizens Legal Association
The Business Owners Institute

Publications
Contributing author to "The Corporate Standard Newsletter".
I am also a writer for an email newsletter about business
Googlegroups/Successfulbusiness
I am also an Expert in the areas of Tax Law, Retirement Planning, and Estate tax issues.

Education/Credentials
I have been in the business of assisting business owners in reducing their taxes and liability for over 17 years. Providing retirement option that are not just tax deferred, and not limited to a "token" tax free contribution. Retirement plans that allow for total and complete access before you are 59.5 with no penalties

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