Do You Have Effectively Connected Income?
Answer a few questions to assess whether your LLC has ECI and what it means for your US tax obligations.
Does your LLC have any employees or contractors working in the United States?
What is Effectively Connected Income (ECI)?
Effectively Connected Income (ECI) is income earned by a foreign person or entity that is connected to a US trade or business. When income qualifies as ECI, it is taxed on a net basis — meaning you can deduct expenses against it — at the same graduated rates that apply to US persons (up to 37% for individuals, 21% for corporations). ECI must be reported on Form 1040-NR (for individuals) or Form 1120-F (for corporations).
What is a US Trade or Business (USTB)?
A US Trade or Business exists when a foreign person or entity engages in activity within the United States that is "considerable, continuous, and regular." Common indicators include having US employees, maintaining a US office, performing services in the US, or selling inventory through US-based operations. Simply trading stocks through a US broker generally does not create a USTB (the "trading safe harbor"). The determination is facts and circumstances based — there is no bright-line test.
This assessment is for informational purposes only and does not constitute tax advice. Tax rules are complex and fact-specific. Consult a qualified tax professional for advice tailored to your situation.
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