I am a dual US and EU citizen looking to open an investment holding company under an LLC. For optimal tax circumstances, should the LLC be opened in the US or overseas?
If its purely for investments then beware of the CFC and PFIC rules that you are subject to. The IRS mandates these and are purely for non-United States structures.
Basically they tax you about 10% on the value of the holdings while the assets are stationed offshore in the LLC.
The way around this is to only hold intellectual property offshore. The key point is that intellectual property cannot be priced easily and therefore the 10% tax could be nullified. Ideally because you transferred IP to the LLC for $1 or the LLC was the original owner of the IP at time of creation.
(example: is that patent worthless or worth $2 billion dollars? nobody knows and it was transferred to that LLC for $1 at the time, yet your offshore LLC can license it out for $2 billion a month..... at which point your LLC is more than a passive foreign investment company and is not subject to the PFIC rules)
enjoy. the rules create the opportunities.
What is your reason to choose LLC over (US) C-Corporations or (EU, offshore) Ltd/GmbH?
What you need to look into are corporate capital gains taxes, and that depends on types of investments you'd be holding - assuming paper assets, I'd go for Cyprus or Gibraltar.
The question is one of residency to start off with. Where are you resident for tax purposes? If you are resident for tax purposes in the US then it doesn't much matter where you create the company because it will be subject to Subpart F and the income will be deemed taxable in the US regardless of whether you bring it home or not. If you are an EU resident for tax purposes then it depends on the country you are resident of (please note resident does NOT mean where you live,it means where you are legally liable to pay taxes you could spend 2 solid years out of certain countries and still be liable to pay taxes there). In a perfect world you're tax resident in a country that has no CFC rules like Cyprus and you can structure a holding company out of a zero tax jurisdiction and potentially run the investments through there, but then it will also depend what type of investments they are. If for example they are real estate investments you're going to be subject to tax on them in the jurisdiction there they are located and potentially also in the jurisdiction where you live when you bring the money back home. Anyone who gives you advice without first delving into your tax residency is someone you should run from because they aren't giving you good advice.
In the US the LLC would be transparent for tax purposes, so you won't gain any benefit (other than liability protection).
If you create the LLC elsewhere, the US will tax it as a CFC/PFIC (as had already been mentioned by others) and you don't want that.
Talk to a tax adviser who's licensed in the US (EA/CPA) and in your EU country, and is well-versed in the tax treaty between the US and your current country of residence. It is not simple at all. You may be out of compliance (in the US) already with regards to CFC/PFIC/FBAR/Sub F regulations as many US expats are.