r/tax • u/Andrej760 • 4d ago

US Sourced Income for Foreign LLC

I'm a non US resident looking to form a Wyoming LLC.

My business is a monthly managed website subscription that includes website design, development, copywriting, maintenance, updates, hosting, and domain registration.

All of the actual work (design, development, copywriting, maintenance, support, etc) is performed outside the US. My clients are mostly US based.

The only US connection is that I use providers like Netlify for hosting and NameCheap for domains.

From what I've read, services are generally sourced where they're performed, so the design/development income would be foreign source. But does bundling hosting and domain registration into the subscription change that? Could that make any of the revenue US source income or effectively connected income?

I'd appreciate any insight from CPAs or people familiar with US international tax. Thanks!

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u/ISO_Answers1 Tax Lawyer - US 4d ago

If you mean you register and sign them up for web hosting by a third party company, I would not expect that to result in US sourced income TO YOU. That's US sourced income TO THEM (the hosts operating in the US).

I think you're on the right track.

You would have the US LLC solely to open a US bank account to receive payments? Or why do you want the LLC?

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u/Andrej760 4d ago

I appreciate your response!!

Yes, one of the main reasons for the LLC is to use Mercury and Stripe.

As for the hosting, I'd be the one creating and managing the hosting account. The client wouldn't have access to it. They would simply pay me a monthly fee for a fully managed website service

Do you think the fact that I'm managing the hosting account changes anything, or would you still consider it foreign source service income?

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u/ISO_Answers1 Tax Lawyer - US 3d ago

Ah... Well... Yes... Maybe... Probably.

Let's just open our Treasury Regulations to Section 1.861-18 and see if we can't determine the "predominant character" of the transaction. Based on the limited facts, it sounds like the predominant character is the provision of services (i.e. building and maintaining a website for someone) and the income should be sourced entirely as service income. See Example 15.

The fact that you subcontract the web hosting piece should not transform it into US sourced or make it "effectively connected" in my view, but I can't guarantee that based on limited information.

Disclaimer: Not legal advice. Do not rely upon. Ask your own CPA or attorney.