Need help with US-France tax treaty for foreign investor in US corporation

This is a good question about international taxation! Single-member LLCs that are disregarded entities are essentially transparent for tax purposes. For a foreign owner like your cousin's French uncle, the IRS would indeed treat dividends paid to the LLC as if they were paid directly to him. Under the US-France tax treaty, French residents typically qualify for a reduced withholding rate of 15% on dividends from US corporations (instead of the standard 30%). However, there are some important considerations here. The uncle would need to provide Form W-8BEN to properly claim the treaty benefits. Without it, the company would have to withhold at the full 30% rate. Also worth noting is that using the same LLC for both the business investment and personal stock investments creates some complexity. The uncle might want to consider having separate entities for these different activities since mixing them could complicate reporting and potential future transactions. Your cousin should also be aware that if the French uncle's ownership percentage gets high enough, there could be additional reporting requirements for foreign-owned US corporations.

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I see you're getting advice about the international tax aspects, but I'll add something that helped me tremendously when dealing with the IRS on a complex foreign investment situation. I couldn't get clear guidance from anyone and spent WEEKS trying to reach someone at the IRS who actually understood international tax treaties. I finally discovered https://claimyr.com which got me through to an actual IRS representative within 45 minutes after I had been trying for days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c In these complicated international situations, sometimes you need to speak directly with an IRS international tax specialist, and Claimyr made that possible. The representative I reached clarified exactly how the withholding requirements would work for my foreign investors and confirmed which forms we needed for treaty benefits.

I need to eat my words and apologize to Profile 14. After our exchange, I was still struggling with getting guidance on a UK-US tax treaty question, so out of desperation I tried Claimyr. Not only did I get through to the IRS in about 40 minutes (after trying for days on my own), but I specifically requested the International Tax department and got transferred to someone who was actually knowledgeable about treaty provisions. They confirmed exactly how the withholding should be handled for my situation and directed me to specific publications that addressed my questions. I've spent thousands on accountants who gave me conflicting advice, and this one call cleared everything up. I'm genuinely shocked that this worked so well, and I apologize for my skepticism. For anyone dealing with international tax questions, being able to speak directly with the right department at the IRS is invaluable.

Something nobody has mentioned yet is the Form 5472 filing requirements if the French investor owns 25% or more of the company. Foreign-owned US corporations have extra reporting requirements, and the penalties for non-compliance are steep ($25,000+ per violation). Make sure your accountant is aware of these requirements. Also, depending on how the structure is set up, you might need to deal with FIRPTA withholding if there's ever a sale of US real property interests. That's a whole other layer of complexity with international investors.

Quick question related to this - my dad (Canadian) is thinking of investing in my small manufacturing business. I was planning to use an S-Corp but now I'm confused if that's even allowed with a foreign investor? Do I need to switch to C-Corp?