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I formed LLC in 2010-Connecticut. I am NON US resident, from India. I use paypal for all my transactions. Business type is online training. I pay $800 per month for person working for US LLC as independent contractor, has an physical office.

As I am from India, do I need to pay taxes in US? I am paying my personal and company taxes in India; do I need to file taxes in USA and India? Since the LLC formation I never visited US. All business is online. Please guide me. Some suggested to pay taxes only in India.

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You're doing business in the US and derive income from the US, so I'd say that yes, you should file a non-resident tax return in the US. And in Connecticut, as well, since that's where you're conducting business (via your domestic LLC registered there).

Since you paid more than $600 to your contractor, you're probably also supposed to send a 1099 to him on that account on behalf of your LLC (which is you, essentially, if you're the only member).

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  • I cancelled LLC in August-2013. How to file taxes now ? Do i need to submit profit and loss statements from Paypal? how to submit the expenses of India.. Example-in 2012, i received 60,000 USD, and entire money is transferred to India and used for business and expenses, now how to file taxes, pls suggest. I issued 1099 regularly for 2 people. – user14002 Mar 25 '14 at 4:04
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    @user14002 get a tax preparer and have him do that for you. What you transferred to India is completely irrelevant. – littleadv Mar 25 '14 at 4:08
  • Will do, as i paid tax in india, now i need to file personal tax or company tax? i filed personal and company in india. – user14002 Mar 25 '14 at 4:35
  • @user What you filed in India isn't really relevant. What's relevant is how your LLC is treated in the US. This in turn depends on the amount of members and potential elections that you may have made. Again - get a professional to do it for you. – littleadv Mar 25 '14 at 18:50
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This is a complicated question that relies on the US-India Tax Treaty to determine whether the income is taxable to the US or to India. The relevant provision is likely Article 15 on Personal Services. http://www.irs.gov/pub/irs-trty/india.pdf

It seems plausible that your business is personal services, but that's a fact-driven question based on your business model. If the online training is 'personal services' provided by you from India, then it is likely foreign source income under the treaty. The 'fixed base' and '90 days' provisions in Article 15 would not apply to an India resident working solely outside the US.

The question is whether your US LLC was a US taxpayer. If the LLC was a taxpayer, then it has an obligation to pay US tax on any worldwide income and it also arguably disqualifies you from Article 15 (which applies to individuals and firms of individuals, but not companies). If you were the sole owner of the US LLC, and you did not make a Form 8832 election to be treated as subject to entity taxation, then the LLC was a disregarded entity. If you had other owners, and did not make an election, then you are a partnership and I suspect but cannot conclude that the treaty analysis is still valid.

So this is fact-dependent, but you may be exempt from US tax under the tax treaty. However, you may have still had an obligation to file Forms 1099 for your worker. You can also late-file Forms 1099 reporting the nonemployee compensation paid to your worker. Note that this may have tax consequences on the worker if the worker failed to report the income in those years.

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  • Tax treaty exclusions must be explicitly claimed on your tax return using the form 8833. So even if the exemption applies - return is still due. – littleadv Mar 25 '14 at 18:51
  • Yes, looks like that is likely the case, if he must file a return at all (per Pub 519, Ch 7). Looking at the facts, sounds possible that his DRE and contractor might suggest a US trade or business, which would have a return filing obligation. – NL7 Mar 25 '14 at 19:22

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