CPA, Tax Attorney, Tax and Legal Adviser to Startups and Established Businesses, Focused on International Tax Issues
If the LLC continues to be a disregarded entity, and you as the sole owner continue to be a nonresident alien for U.S. tax purposes, then you won't be able to get a U.S. tax residency certificate.
If you file an election for the LLC to be taxed as a C corporation, then the LLC will be a regarded entity for U.S. tax purposes, and will qualify as a U.S. tax resident. Once you file the election you can go ahead and complete Form 8802 to obtain the residency certificate, if needed.
There are several states in the U.S. that will allow you to form an LLC or corporation without having to disclose the beneficial owners of the entity. Wyoming, Delaware and Nevada are the most popular jurisdictions when it comes to privacy protections.
Wyoming, for example, has a public database that will show the LLC is formed and validly existing under Wyoming law, but the register doesn't publish your information as the owner. You don't even have to provide this information to Wyoming.
These protections shield your identify from the public and state, but not so much with the IRS and other tax authorities. If the LLC was a single member LLC, you would still need to disclose your ownership on a Schedule C attached to your Form 1040. So, the IRS knows you own it.
If you form a Wyoming Corporation, the corporation is required to file an annual Form 1120. On Schedule K and G of the Form 1120, you're required to disclose the beneficial owners of anyone that owns directly 20% or more of the company.
Mercury.co is another good alternative - a similar platform to Transferwise. It sounds like with your scale you will eventually need to open a USD account with a larger commercial bank in the U.S. (Wells Fargo, Citibank, Chase, etc). You can open a U.S. bank account for a U.K. company, even if the responsible party or shareholders don't have social security numbers (SSN) or Individual Taxpayer Identification Number (ITIN).
Unfortunately, it requires you to physically visit the U.S. and go into a branch office to open the account. I always recommend calling in advance to several branches and set up an appointment. Explain that you're a nonresident looking to open a U.S. bank account for a foreign corporation.
In cases where banks won't open accounts for foreign corporations, you can open a U.S. LLC (Wyoming or Delaware) that's 100% owned by your UK corporation. The US LLC can open the US bank account, and your sales deposits can funnel through those accounts.
Yes you should be reporting the capital contributions. Under the old Form 5472 rules, it's true that only items that impacted taxable income would be reportable transactions. So, a capital contribution by you to the corporation would not be reportable, unless the equity contribution was somehow below or above a fair value contribution in exchange for services that you might provide for the corporation - essentially an imputed reportable transactions.
When the IRS changed the Form 5472 rules to require non-U.S. owned single member LLC's, they expanded the reportable transaction definition to include virtually everything.
The term “transaction” is defined in Treas. Regs. Section 1.482-1(i)(7) to include any sale, assignment, lease, license, loan, advance, contribution or other transfer of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or
on behalf of, another taxpayer.
So, for example, contributions and distributions would be considered reportable transactions with respect to such entities. These amounts can be reported on Lines 12 and 25 with an explanatory footnote that clarities the amounts are capital contributions and not amounts that impact taxable income.
Yes. Generally these amounts should be reported on Form 5472. If you are paying company expenses using your personal funds as the sole shareholder, the amounts would be classified as additional paid-in-capital contributions by the sole shareholder, so they wouldn't be recorded on the company balance sheet as a shareholder loan. These payments would fall under the category of "other amounts paid" or "other amounts received" on the Form 5472.
Under U.S. federal tax rules this arrangement would likely be treated as an installment sale. If you sell the website and are eligible for long term capital gain treatment, the long term capital gain treatment would apply to the initial cash payment, as well as subsequent payments made under the installment agreement.
You would compute your gross profit percentage on the sale of the asset, and apply that profit percentage to all future payments to determine how much of each payment is installment sale income.
There are a few parts to consider. Are you a U.S. tax resident and working from the U.S., or do you live and work from Canada? If you're a U.S. resident, you're generally subject to income taxes on your worldwide earnings, regardless of source. The U.S. revenue from sales to U.S. based customers are subject to federal income taxes and likely state income taxes.
Some of the more popular jurisdictions to form a U.S. entity are Delaware and Wyoming, because of the strong business laws, privacy protections and no state income taxes.
Your sales to Canadian customers may be subject to taxes in Canada. You'll need to assess whether you can leverage treaty benefits under the U.S.-Canada tax treaty. The treaty provides relief regarding what constitutes a permanent establishment in each country, and if you operate a Canadian corporation for your Canada business, the treaty provides reduced dividend withholding tax rates on repatriated profits.
You should definitely seek legal counsel. What your employer is doing is not legal under both federal and state law.
The first issue is whether the working arrangement you had is an employee relationship or a subcontractor arrangement. It's not uncommon for businesses to pay cash to subcontractors, but it's incredibly rare to see that in an employee context.
If your employer was treating you as an employee, they should have collected a Form W-4 and Form W-9, and they are responsible for withholding federal income taxes and payroll taxes on your taxable earnings, as well as issuing you a Form W-2 at year end.