Paying yourself from your US LLC is as easy as wiring money to your personal bank account. Yet, it is not as straightforward, since you can save money on your transfers to Italy.
There are two ways to save money when you pay yourself from your LLC: in money transfer fees and in taxes.
In money transfer, one of the simplest ways to save is by using cost-effective services that offer lower transfer fees and better exchange rates. Traditional banks often charge higher fees and offer less favorable rates, so exploring online platforms and specialized money transfer services can make a significant difference in the amount that reaches your account. Consider using online platforms like Wise.
When we speak in terms of taxes, your LLC being in the US and you residing in Italy, understanding the tax laws in both countries and the tax treaties between the U.S. and Italy is key. The laws are designed to collect taxes from you, while the agreements are designed to prevent double taxation, allowing you to optimize your tax liabilities in both countries. Depending on how you structure your distributions from your LLC, you can take advantage of various deductions. Also, proper consulting with a tax professional familiar with both U.S. and Italy tax laws can help you minimize your tax liability while staying compliant with both systems.
Here, we will explain how you can move your money from the United States business account to your Italian personal account and what it means in terms of fees and taxes. This will give you an idea of how much money you will have left to spend.
Ways to pay yourself
Bank
The most straightforward method to pay yourself from your US LLC is through a bank transfer.
You can initiate an international wire transfer from your US LLC bank account to your Italian bank account. All you need to do is to initiate an international wire transfer from one account to another.
If you’re using online banking services like Mercury or Brex, you can cap the fees at $15 or $20 and would be all you’ll need to pay. You just have to select an OUR transfer, not a SHA transfer With OUR transfers your company will pay the costs for the money transfer. It is always capped (with Mercury at $15), which means that all the transfer fees will not exceed $15.
If you opt for an SHA, both parties will share the costs without any upper caps whatsoever, and you can expect costs higher than $15.
Fintech
Fintech platforms offer a modern solution for paying yourself from your US LLC.
While this method is secure, it often incurs higher fees for international transfers. To lower these costs, consider using transfer services like Wise, Payoneer, or Revolut which offer better exchange rates and lower fees. Regularly transferring smaller amounts can also help avoid large charges. Always keep track of the exchange rates and transfer fees to optimize your savings.
These platforms often boast lower fees and more competitive exchange rates compared to traditional banks. For Italian entrepreneurs, using fintech solutions means faster transactions and added convenience, as you can manage everything online.
To start, link your US LLC’s bank account to your chosen fintech service. Then, transfer funds directly to your personal account in Italy. Many of these platforms also offer multi-currency accounts, which can be particularly useful for managing foreign exchange risks. Furthermore, fintech providers typically offer transparent fee structures, so you know exactly what you’re paying. By leveraging these digital tools, you can streamline your financial management, ensuring you’re not only saving time but also minimizing unnecessary costs.
ATM
Withdrawing cash from an ATM is another viable option for accessing funds from your US LLC. If you have a business debit card linked to your US bank account, you can use it to withdraw money at ATMs in Italy. This method offers immediate access to cash without waiting for a bank or fintech transfer to process. However, it’s essential to be aware of the fees involved, as foreign ATM withdrawal fees can add up quickly.
To minimize these fees, check if your US bank offers any partnerships with banks in Italy, potentially reducing or waiving international ATM fees. Additionally, consider withdrawing larger amounts less frequently to cut down on the number of transactions. Always be mindful of the daily withdrawal limits to avoid any surprises. While convenient, using ATMs to access your US LLC funds is best suited for smaller, immediate cash needs rather than regular income transfers.
Also, keep in mind that the money withdrawn from an ATM is considered to be an owner’s draw, which means profit, which means you have to declare it on your personal income tax filing.
Taxes
When it comes to paying taxes for a company incorporated abroad, you always have to take into account the country of incorporation of the company and the country of your residence.
Taxes in the USA
In the US, an LLC is typically a pass-through entity for tax purposes, meaning its income is not taxed at the corporate level. Instead, profits pass through to the owners, who report them on their tax returns.
In the US, if your LLC has no physical presence or employees, you may not owe federal income tax, but state taxes could still apply depending on where the LLC is registered.
In other words, there are only three requirements you need to meet to avoid paying taxes in the US:
- You are a non-resident of the US.
- Your payroll employees do not live in the US.
- You don’t own premises or warehouses in the US.
That saves you from paying income taxes in the US. But running it from Italy affects the tax situation in your home country.
How a US LLC is taxed in Italy
Before we do an overview of how US LLCs are taxed in Italy, let’s see how an individual is considered a tax resident in Italy.
The answer is that they are tax residents if they have their residence or domicile in Italy for the majority of the tax period (January-December). Domicile refers to the place where the individual’s personal and family relationships are primarily established.
A point of interest concerns individuals who operate in countries with a different fiscal year, such as the United States. In such situations, overlaps or dual tax residency may occur. If this happens, it is necessary to evaluate additional elements that demonstrate the individual’s actual residence.
Worldwide Taxation Principle
Italy applies the worldwide taxation principle, meaning that an Italian resident is required to report and pay taxes on all income earned worldwide. In the case of income from foreign companies, it is crucial to distinguish between fiscally transparent and non-transparent entities (C-corps).
LLC (Limited Liability Company) is considered a transparent entity. The income it generates is taxed directly on the individual residing in Italy. This income must be reported in the RL section of the Italian tax return as participation
Types of Income and Their Taxation
Business Income
The income generated by a transparent entity such as an LLC is taxed on the Italian resident individual and must be reported in the RL section of the Italian tax return.
Dividend Income
Dividends distributed by a non-resident opaque company to an Italian resident individual are taxable as personal income and must be declared in Italy.
Generally, these dividends are subject to withholding tax in the company’s country of residence. However, under double taxation treaties, the withholding tax may be reduced to 5% or 15%.
Interest Income
Interest paid by an LLC to an Italian resident individual is taxable in Italy and must be declared. In the United States, these interests may be subject to withholding tax at the time of payment.
Royalty Income
Royalties paid by an LLC to an Italian resident are also taxable in Italy and must be declared.
Pay yourself from your LLC with minimum expenses
Maximizing your income while minimizing expenses is key when paying yourself from your US LLC. Start by choosing the most cost-effective method for transferring funds. Opt for fintech solutions like Wise or Payoneer, which offer competitive exchange rates and lower fees compared to traditional banks. This choice helps reduce money transfer costs significantly.
Incorporate with Neubase
Guidance for US taxes
US tax obligations can be complex, but with Neubase, you’ll have expert guidance every step of the way. Our team ensures that you meet all federal and state tax requirements, helping you avoid potential pitfalls. We assist in preparing and filing necessary tax forms, such as IRS forms 1120, 5472, and 1065, tailored to your LLC’s specific situation.
Our service covers annual reporting, ensuring you remain compliant with both state and federal regulations. Additionally, we offer unlimited consultations to address your tax concerns, providing peace of mind that your LLC is in good standing. Neubase simplifies the tax process, allowing you to focus on growing your business rather than getting bogged down in paperwork. By leveraging our expertise, you can confidently manage your US LLC’s tax obligations, optimize your operations, and potentially lower your tax liabilities.
If you feel like you want to know more about the Neubase process or packages, feel free to schedule a 15-minute free consultation with our team
Guidance for Taxes in Italy
Handling a US LLC from Italy requires an extensive knowledge of the complexities of Italian tax law.
Neubase offers useful information on Italian tax duties in addition to US tax aid. This implies that we are able to put you in touch with an Italian specialist who is knowledgeable about Italian taxes.
Conclusion
In conclusion, effectively paying yourself from your US LLC while residing in Italy requires a well-informed approach to minimize costs and remain compliant with tax regulations in both countries.
Choosing cost-effective transfer methods such as fintech platforms and understanding tax treaties can significantly reduce expenses and prevent double taxation.
Proper planning, professional advice, and leveraging services like Neubase can streamline this process, allowing you to focus on growing your business while maximizing your income.
