Nonresident alien, Delaware LLC and taxes?

Question

I want to form a LLC in Delaware and would like to know how much taxes I have to pay.

I have understood that a LLC can be treated as a partnership and will therefore not be subject to paying U.S. Federal Income Tax.

According to the IRS, http://www.irs.gov/publications/p519/index.html

I live and work all days of the year in the Netherlands, have a Dutch/Netherlands passport, am single and am the sole owner/operator of the LLC. The LLC will not have an office in the U.S. Income is coming solely from doing business on the internet, without selling anything. It is pure affiliate business, meaning that I only send customers to American companies, who pay me for sending the customers to their websites.

There is a Tax Treaty between U.S. and Netherlands, see http://www.irs.gov/businesses/international/article/0,,id=169565,00.html

How much tax do I have to pay, in US and NL?

Answer 1

You do not have to pay tax in either place. By law. Seriously.

I have been conducting business in several countries on three continents. If you adhere to the law, you need not to pay tax at all. Period.

In order to do so do not form any LLC. There is a certain and precise system that wealthy individuals (that's why they are wealthy) and corporation use to structure their business. Tax avoidance is a legal term and it is encouraged. Tax evasion may on the other hand become criminal offense.

Learn the difference and act accordingly. The knowledge is power, the use of knowledge is the only highway to wealth.

Answer 2

Don't do it.  Seriously.

Setting up an LLC is not trivial.  If you are the only shareholder/member, you would be a "sole proprietor"--not a partnership.  

The affiliate income *is* US source income.  It would be considered a commission and falls under the FDAP rules. If paid to a single person, it's withheld at 30%.  If paid to a partner/partnership, it's withheld at 35%--the amount is intentionally higher to ensure that the partnership remembers to file the required US tax return.   (The penalty for failing to file is $85/month for each partner for up to 12 months.)

Answer 3

Don't even THINK of setting up any sort of US business.  That will effectively connect your income to the US and will result in its being taxed in the US.  Since you are a non-resident alien of the US, you have no tax liability here as long as your income is NOT effectively connected to the US.  

Forming an LLC, Corporation (of any type) or a Partnership in the US will be a major error on your part.  Merely doing business with US customers from The Netherlands won't trigger any US tax liabilities, but forming a US entity WILL result in US tax liability.  

The tax treaty does not exempt you from taxation of effectively connected income.

While a Partnership isn't directly taxed, the income flowing to the parters most certainly IS.  By forming a US-based entity, you effectively connect all of the income to the US and ALL partners will have to pay US taxes on the income.

I can think of no compelling reason to establish a US-based entity to conduct your business.  Why are you even considering this??

Edit:  Connecting your income to the US isn't going to affect the taxes you'll pay in The Netherlands.  At best they will offer you a credit for the US taxes paid so that you won't be double taxed.  Your total tax bill will be the same or possibly higher by forming a US-based entity; it will NOT be lower.  And your tax return preparation and reporting costs will definitely rise.  Competent US tax assistance in Europe is VERY costly.  I lived and worked in Europe for about 10 years and was able to charge more than 5 times what I can get here in the US for tax work.