LLC- Foreign Partners

[Jonathan Bouren]

Hello Everyone, 

 First I would like to apologize if this post is in the wrong area, it seemed the closest relevant area. 

Here is the situation. 

    I am an American citizen, I work overseas with two colleagues and we would like to invest together in real estate. One is from the UK, the other is from Ireland. Between the 3 of us we have around 250,000 to invest. We feel like we could use this as a downpayment on a medium sized multi unit or to simply pay cash for a smaller one. They are concerned about the taxes the IRS charges foreigners on income. My questions are this. 

1. What is the best type of entity to form? I have read about the formation of a trust and transfer of ownership to the LLC. Or is it better to just form an LLC and purchase the properties directly through that?

2. What is the best way to protect them from the IRS and keep our investments from getting hammered with IRS taxes due to them being foreign nationals?

3. I had also read that a single member LLC ( with foreign nationals) is disregarded in the US and subject only to personal income tax. If each member formed their own LLC, can we still partner together to invest in one property?

Any information on this subject is appreciated. We would like to work together, and I believe the size and variety in the US market is our best option. So how can I get us in there without destroying their profits through tax? I am also open to communication and consultation with CPAs or REI attorneys that are familiar with this topic.

Thank you !

Jonathan 

[Eamonn McElroy]

"The other thing I would say is that there are some states, like Nevada I believe, where you can set up an LLC without disclosing the names of the people involved in the company. You will have to do more individual research for that but that might solve your problem entirely. If no one knows what the nationality of the investor its not an issue."

Anonymity does not modify filing obligations...  Nor the steep penalties associated with willful negligence.

OP will want to consult an attorney and a tax CPA familiar with international tax obligations, tax treaties, and entity structuring.

A multi-member LLC taxed as a partnership to hold the real estate asset might be the best way to go considering there will be a mix of US persons and non-resident aliens. If the partnership is throwing off ECI, it may be beneficial for the NRAs to invest in the LLC through another LLC taxed as a C Corp.

US tax treaties with the UK and Ireland would need to be examined.

Creating disregarded SMLLCs for the NRAs might create issues with lost tax credits due to the disparity in treatment between countries.  The UK considers US LLCs to be corporations regardless of how they're taxed at the US federal level.

A lot to think about here.  Engage a professional to consider your and your partners facts and circumstances before you start setting up companies.