Does an LLC have to withhold taxes when sending foreign-sourced revenues to a foreign member?
Sure, I can address your questions. First, a legal LLC in the US with more than one member has a default tax status of tax partnership for tax purposes as noted in Treasury Regulation Section 301.7701-3(b)(1)(i). A partnership does not represent a tax paying entity but passes ratable share of its income and expense items to it LLC members as tax partners. I am assuming the LLC has multiple members according to the Quora Questions Details Bot. And, I am assuming we are dealing with foreign individual members here.In this fact situation, you do not spend substantial time in the US. Thus, you are considered non resident tax persons (“NRTP”) for US tax purposes under Section 7701(b). A NRTP has responsibility for paying tax on effectively connected income from a United States Trade or Business (“USTB”) as covered in Section 871(b). You pay tax on net profits (revenues less expenses) at graduated rates (Section 1). And, Section 875(1) explains the foreign nationals have effectively connected income from a USTB if the tax partnership does (legal LLC. here).Then, we look at the so called source of your LLC income. As you have explained, you provide technology services from a non US location. Service income represents foreign source income when physically performed outside the US (Section 862(a)(3)).The Internal Revenue Code and Treasury Regulations do not define a USTB. However, the courts have looked at this issue extensively over time and factors such as a US Legal Entity and continued and regular clients relationships in the US means you likely have a USTB in the US. However, you do not have effectively connect income. As Treasury does not consider foreign source service income as effectively connected income under Section 864(c)(4)(A). Thus, you do pay tax on this foreign source income in the US.However, you do have reporting requirements. As you are stilled required to file 1040 NR returns with specific tax filing requirements under Treasury Regulation Section 1.6012-1(b)(1)(i). Even though you $0 income. As this regulation clearly states a NRTP files even if the USTB has no effectively connected income.And, you have annual LLC reporting requirements under Section 6038A. This requirement is new for the 2021 reporting year and carries a $10,000 fine for non compliance. You also require Individual Tax Identification Numbers (“ITIN”) which we would obtain at the time of filing your returns. Obtaining the ITINs require filing certain documents including reporting on identity.The LLC (tax partnership) does not withhold tax when it send the funds to the foreign partners. As Section 1446(a)(1) only requires withholding if the tax partnership has effectively connected income.I have provided this tax analysis based on the above situation facts. If the facts change in any way, the outcome may change considerably. www.rst.tax