Contact UsNonresident US LLC holdco, parent is a Canadian corp owned by a Canadian resident, no business activity in US, no profit after expenses - can I consolidate LLC corporate tax return with the Canadian corp?
ABC New Mexico LLC is a non-resident US LLC owned by 12345678 Canada inc. The LLC does not have any commercial activity, it serves as a “holding company” for domain names and servers hosted in Canada. No product or service sold, no employee, no office, no representative, no clients, no placement. Owner of can corp never visited the US.
Each year, 12345678 Canada inc gives $10k to the LLC to pay for domain names and servers hosting non-commercial websites. This is the LLC’s only income. After expenses, the LLC ends the year with zero in its bank account. No profit made, no exchange of services, so in theory no “arm’s length” problem between the LLC and the Canadian corporation.
At the state level, no annual declarations are required in New Mexico.
At the IRS level, an LLC is considered a “disregarded entity” or “pass-through”, so no US business tax declaration is required. If the owner of the LLC would be an individual, it would be reported as personal income with Form 1040-NR + Schedule C, but the owner of the LLC is a Canadian corporation.
In theory, ABC LLC would NOT be considered to have a Permanent Establishment (PE) in the USA, nor Effectively Connected Income (ECI), therefore Canadian tax resident.
Except that in Canada, ABC LLC is treated as a corporate entity, unlike in the USA where it is a “pass through”, this is where it gets a little complicated.
1. Did I understand correctly so far?
2. No income tax return to file with the IRS in this scenario, right?
3. Does ABC LLC have to make a corporate income tax return to the CRA as a separate entity, or could it be consolidated to the 12345678 Canada Inc. returns?
4. Apart from IRS Form 5472 (Foreign-Owned US Corp) and CRA T1134, am I missing any other tax obligations?
Each year, 12345678 Canada inc gives $10k to the LLC to pay for domain names and servers hosting non-commercial websites. This is the LLC’s only income. After expenses, the LLC ends the year with zero in its bank account. No profit made, no exchange of services, so in theory no “arm’s length” problem between the LLC and the Canadian corporation.
At the state level, no annual declarations are required in New Mexico.
At the IRS level, an LLC is considered a “disregarded entity” or “pass-through”, so no US business tax declaration is required. If the owner of the LLC would be an individual, it would be reported as personal income with Form 1040-NR + Schedule C, but the owner of the LLC is a Canadian corporation.
In theory, ABC LLC would NOT be considered to have a Permanent Establishment (PE) in the USA, nor Effectively Connected Income (ECI), therefore Canadian tax resident.
Except that in Canada, ABC LLC is treated as a corporate entity, unlike in the USA where it is a “pass through”, this is where it gets a little complicated.
1. Did I understand correctly so far?
2. No income tax return to file with the IRS in this scenario, right?
3. Does ABC LLC have to make a corporate income tax return to the CRA as a separate entity, or could it be consolidated to the 12345678 Canada Inc. returns?
4. Apart from IRS Form 5472 (Foreign-Owned US Corp) and CRA T1134, am I missing any other tax obligations?
