Canadian starting LLC in US - double taxation?

sdesfric · Post by **sdesfric** » Mon Mar 03, 2014 5:00 am

Hello,

I am a canadian permanent resident.

My business partner (non US, non canadian) and I are working on building an online store that would work with US dropshippers and sell to the US market.

In order to run this, we are considering setting up our business in the US.

An LLC would seem like a good solution, but after researching this online I have stumbled upon issues regarding double taxation.

Mostly what I find online deals with canadians buying property through an LLC ... I also wonder if the info is up to date as apparently there are some new dispositions with the fifth protocol. It's not that clear though as the examples I see are about US LLCs investing in Canada.

1) Is it still the case that the US/Canada tax treaty does not apply to LLCs given that LLCs are fiscally transparent in the US but considered as a corp in canada? Did the fifth protocol change anything for canadian owners of LLCs?

2) How would I minimize double taxation when owning a share of an LLC? Can I deduct what I pay to the IRS from what I pay to the CRA? Do I need to make sure I pay myself "dividends" the same year as when my LLC generates its profit?

3) Anything I ought to know?

Many thanks for your help

sdesfric · Post by **sdesfric** » Mon Mar 03, 2014 6:10 pm

Maybe Ill simplify my questions...

If as a Canadian resident I were be a partner in a US LLC...

Is there a way to avoid double taxation? Does it work if I make sure that any profit my LLC makes in a given year is transferred to me in the same year?

Then I can use whatever taxes I pay in the US as a credit for my Canadian taxes I would have to pay?

Thanks