Contact UsWe are a small clothing business in California selling shirts and beach wear. We want to set up a manufacturing relationship in India. We have an opportunity to have an Indian business partner and were wondering the best way to set up our company from a tax perspective. Any ideas?
Robert Ferguson
Is your India business partner a US citizen? I assume probably not.
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567 weeks ago
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Tax Professional Answers
Robert Ferguson
First the best way is to set up the company as an LLC in a state that has very good LLC protections on liability issues. Arizona and Wyoming are two that I have had excellent results with. Then establish it as a Sub S corp with the IRS
After the LLC is established, prepare or have prepared an Organizational Agreement defining the relationship of all parties. Many of the terms associated with the Agreement can be found on the internet so if you have one drafted compare it to the ones you will find easily on the internet. Partners in an LLC do not have to have equal ownership but only have a defined percentage of ownership which is stated in the Organizational Agreement.
You partner from India can then be given a K-1 as each owner will be showing that partners share of income revenue, Sec 179 depreciation etc.that each is responsible for. You then would each file your own individual tax forms with the India partner filing a 1040NR form as a none resident.
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567 weeks ago
After the LLC is established, prepare or have prepared an Organizational Agreement defining the relationship of all parties. Many of the terms associated with the Agreement can be found on the internet so if you have one drafted compare it to the ones you will find easily on the internet. Partners in an LLC do not have to have equal ownership but only have a defined percentage of ownership which is stated in the Organizational Agreement.
You partner from India can then be given a K-1 as each owner will be showing that partners share of income revenue, Sec 179 depreciation etc.that each is responsible for. You then would each file your own individual tax forms with the India partner filing a 1040NR form as a none resident.
Lawrence Graves
Since you are (presumably) a US Taxpayer, you will be subject to US tax on profits earned. However, as you have likely read, there are ways to avoid current taxation on profits that are not remitted to the US. Many of the companies in the news lately are being criticized for exploiting this tactic.
There is a tax treaty in force with India which would limit taxes of interest and dividends to 15%. We might be able to improve upon this with a little bit of shopping. There are a number of jurisdictions where an off-shore holding structure (zero tax) can be used to hold shares.
Would prefer not to go further into this topic in a public forum. Let me know off-line if you need specific advice.
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566 weeks ago
There is a tax treaty in force with India which would limit taxes of interest and dividends to 15%. We might be able to improve upon this with a little bit of shopping. There are a number of jurisdictions where an off-shore holding structure (zero tax) can be used to hold shares.
Would prefer not to go further into this topic in a public forum. Let me know off-line if you need specific advice.
Dr. Clifford Frank
The manufacturing business, will be based in India, and the finished goods will be exported to the US for retail sale. This is my understanding.
As a US citizen I would advice that you establish a JV company in a jurisdiction which has good tax treaty network., both with the US and India. The JV company needs to be financed therefore the choice of jurisdiction is important to limit tax on interest.
The JV company should establish the branch in India, through which the manufacturing will be conducted. Your US company will buy from the JV, ensuring that the price is sufficient to avoid transfer pricing issues .
Once the relationship is ended liquidate the JV and repatriate any capital gains accordingly.
Why you should use a JV? a JV keeps the two business interest apart and ring-fence any possible attack against your US assets, subject to you getting the Shareholders agreement drafted correctly, don't just rely on the statutory documents of the company. The JV would also remove any US filing requirements for your Indian partners
Leave a Comment
563 weeks ago
As a US citizen I would advice that you establish a JV company in a jurisdiction which has good tax treaty network., both with the US and India. The JV company needs to be financed therefore the choice of jurisdiction is important to limit tax on interest.
The JV company should establish the branch in India, through which the manufacturing will be conducted. Your US company will buy from the JV, ensuring that the price is sufficient to avoid transfer pricing issues .
Once the relationship is ended liquidate the JV and repatriate any capital gains accordingly.
Why you should use a JV? a JV keeps the two business interest apart and ring-fence any possible attack against your US assets, subject to you getting the Shareholders agreement drafted correctly, don't just rely on the statutory documents of the company. The JV would also remove any US filing requirements for your Indian partners