DELAWARE LIMITED LIABILITY COMPANIES
US PRESENCE WITHOUT US TAXATION

Delaware is a small state situated on the East Coast of the United States of America often referred to as the "Gateway to the United States".  Marked by few regulations and a lack of bureaucracy in arranging its affairs, and with the Delaware Corporation Law being considered throughout the US among the most attractive for organisation purposes, it is a valuable jurisdiction in which to organise new companies.

The policy of Delaware courts has always been to construe the Corporation Law liberally and to interpret any ambiguities or uncertainties in the working of the Statutes so as to reach a reasonable and fair construction. This causes the careful investor to have confidence in the security of the investment.

The concept of the Limited Liability Company ("LLC") is relatively new and is potentially one of the most interesting developments in international corporate and trust work in recent years.  An LLC has corporate form and personality but is categorised as a partnership under the Internal Revenue Code of the USA.  As such, the LLC is not separately taxable but rather its income is taken to flow through to its members who are taxed according to US principles as though they had received the income directly.  Non US persons are only taxed on US source income or income connected with the conduct of a US trade or business.  If the LLC earns any income which falls outside this definition and the members of the LLC are non US persons with no US presence then no tax would be payable either by the LLC or by its members. 

Thus, a non taxable structure can be created by having non US individuals or companies as the members of the LLC.  If the LLC had individual members, those members would most probably suffer taxation on profits received from the LLC in their country of residence so the recommended structure is to have two offshore companies (we recommend Turks and Caicos Island companies) as the members of the LLC.

The US has signed taxation treaties with most developed countries.  The effect of these taxation treaties is to considerably reduce the level of tax which must be withheld on the payment of royalties, dividends and interest to a US individual or corporation.  Opinion is divided as to whether an LLC falls within the terms of these taxation treaties.  The LLC is a relatively new product so there is little precedent available which gives assistance in determining the exact treatment of an LLC by non US countries in relation to the taxation treaties.  Thus, although it would appear as though an LLC may be extremely useful in any tax planning exercise, we recommend that care be exercised and that a suitable legal opinion is sought.  We can arrange such legal opinion from an expert US tax lawyer upon request.

What is clear is that the US LLC is a low profile zero tax company which enjoys the protection and privileges afforded by the US legal system.