Information

Answers to the tax liability question depends on specific variants of the two legal forms of the company. 

In the S Corporation:  only the owner of the company pays taxes, but not the company itself 

In the C Corporation:  general taxes are on two levels - on the owner and on the company 

In the LLC, the levels of tax to be paid are based on the classification of the company. Unless the entrepreneur decides otherwise, the U.S. will classify a LLC as a partnership. This means that taxes are only accessed to the owner of the company. However, if the founder decides to operate his LLC as a corporation, taxes will be due on the two, or both, levels.

Corporation

U.S. corporate tax (i.e. tax at the corporate level) applies here when considered a corporation at the federal level as well as with the respective state. The U.S. corporate tax rate level is staggered between 15% and 35% depending on the revenues of the company. The state of Florida is currently (as of May 2011) collecting a regular tax of around 5.5% on taxable business income. These rates apply - as already described - for U.S. companies which are taxed at the corporate level.

For other types of a U.S. company, the company itself pays no taxes. The tax payable is "passed through" to the stockholders, or owners, of the company. In 2010, the individual income tax rate remained between 10% and 35% of taxable income.

Taxes For Operating a LLC and a Corporation in Germany

A U.S. company founded in Florida which has no business activity in the U.S. but whose business operates in other parts of the world pays only a fee in Florida. Their revenues will, however, be taxed in the country in which they were generated.

This basic information we offer at this point does not replace comprehensive tax advice. ALTON is not allowed to give tax advice, however, we do maintain an extensive network of specialists which includes U.S. tax advisors.

• Centralized Management and Representation: Key management and representation are the typical criteria of a German corporation. In this case the exclusive authority is vested in one or more persons and not all the shareholders of a company. This is the case for a German stock corporation. Not every shareholder is involved in the daily business of making decisions.

• Limited Liability: A feature of the German GmbH, and also the U.S.-founded corporation is that liability is limited. An individual shareholder cannot be held liable for the debts of the company.

• Free Transferability of Shares: Shares of the company can be transferred freely to non-shareholders is a key feature of a German corporation. The free transferability is evident, for example, in joint-stock companies.

• Profit Allocation: The amount of the dividend that is paid out by the corporation will be decided at a Shareholders Meeting. For partnerships, one feature is that a dividend decision is based on the individual shareholders share of profits.

• Capital Raising: While, for a corporation in Germany, there is a duty of shareholders to bring capital into the corporation, this obligation does not apply to partnerships.

• Unlimited Life of the Company: In principle unlimited service life of a company in Germany is evidence of a corporation. Individual partners or shareholders leaving the company will not lead to the dissolution of the company. According to the Federal Ministry of Finance (BMF) for foreign companies, duration of the company is indefinite; and, under foreign corporate law, in case of death, resignation or bankruptcy of a partner; and, by resolution of the shareholders of the company, is it determined in these or similar cases if the company will continue. At this outset, and determined without further considerations, this contingency is provided for in an Operating Agreement. 

• Profit Distribution: Nominal amounts of shares is the basis of distribution of profits for corporations (AG or GmbH). In Germany, partnerships distribute based on investment by, or the number of, individual partners. 

• Formal incorporation Conditions: Corporations in Germany only exist if they have been entered into the Register. Partnerships exist by signing a business contract.

With regard to the points previously mentioned, Germany will evaluate your LLC in order to make its decision as to whether it will treat your LLC as a corporation or as a partnership.  Undesirable high tax burdens could be caused by different determinations made by the mentioned countries - the decision that, while your LLC is a partnership in the U.S., the German authorities determine it to be a corporation.  All efforts should be made to avoid this unfavorable determination.