# Should I form an LLC from Austria or a GmbH



## Adamonos (8 mo ago)

I am going to be starting an Ecommerce Business (Print on Demand to be specific), and am currently researching all of the legal and tax aspects of running such a business.

Context for the following: I have a US and Austrian citizenship.

My current dilemma is figuring out whether to form an LLC or a GmbH (The local equivalent of a limited liability company). The costs associated with forming such a company are far higher here in Austria, plus nearly half of my income would be cut due to taxes, and then the US will also tax me on top of that (unless I'm missing something). The thing is, if I knew I was going to be staying in Austria for years to come I would just form a GmbH, but I am planning on moving to Switzerland for my studies and then possibly even moving to the US.

Has anyone here run a business before and is knowledgeable about legal/tax laws? I would really appreciate some advice on this matter. Thanks a bunch!


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## MyExpatTaxes (10 mo ago)

We can confirm forming a GmbH could result in quite some additional reporting (Form 5471 is usually required), however it really depends from a tax perspective what makes the most sense. If you form an LLC, it is easier to report in the US however Austria will make it harder to report locally and you will still be taxed on the earnings if you are a resident in Austria. We are not Austrian tax consultants so we cannot say more, however, we recommend you speak to a local Austrian tax accountant to understand the downside of an LLC.

If they are not major, then probably an LLC is the better move if you want to avoid high US tax reporting fees (budget about 500 euro for just the Form 5471 annually).


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## Bevdeforges (Nov 16, 2007)

Just a note here: if you are considered resident in Austria, it may be necessary for you to create an Austrian business entity in order to report your income from an American LLC. Then, you'll have to file as an employee - i.e. pay Austrian taxes and/or social insurances. If you work as an employee of the LLC directly, then the LLC will have to register as an Austrian employer. Otherwise, your earnings and/or draw from the US company could be treated as dividends, which tend to be taxed quite severely in most European countries.

OTOH if you are planning on moving frequently, remember that you'll have to dismantle your Austrian business before you go and probably re-establish a business in Switzerland on moving there. Those acts are not cost-free, either.


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## 255 (Sep 8, 2018)

@Adamonos -- First, I know only as much as I read on Google about Austrian entities -- so my focus will be on the U.S. side. I think your first hurdle is to do a little planning for your proposed new company to include tax planning/asset protection planning/estate planning etc. An LLC in the U.S. is a State entity that is currently in vogue, but may not be your best chioce. LLCs are first catagorized as "single-member" or "multi-member." The default tax regime for a single-member LLC is to file as a "sole-propriortor" utilizing Schedule C to IRS form 1040 (you'd also need certification from the Austrian Government that you are paying Austrian Social Insurance to escape filing Scedule SE to pay U.S. FICA.) Conventional wisdom is that the Sch. C is an audit flag -- but I've seen no proof, in real life. There is also some adverse case law concerning single-member LLCs that put your "liability protection" in question.

Multi-member LLCs are broken down further into "member-managed" and "manager-managed." Managers are like general partners and they do not benefit from the liabilty protection that the limited members receive. The default tax regime is as a partnership filing IRS form 1065. A multi-member LLC is a posibility if you have a C Corp. as the managing member (the C Corp. has inherent liability protection for it's shareholders, officers and directors.

A C Corp. also gives you much more flexibilty, including the ability to have an "accountable plan," a "medical reimbursement plan," "solo-401k" or other traditional pension plans, an "income deferal plan" and much more.

A stand alone C Corp. in a no tax State could be your needs. DE is the choice if you want to eventually go public, NV is good if you live in NV, otherwise WY is probalbly your best choice. NV and WY both have charging order protections.

I personally would not recommend an LLC for any business that has outside customers, unless there is an C Corp. as a Manager (with the exception of the real estate business, but that's a different story.)

An alternative might be to form in a no or low tax jurisdiction, possibly the UAE might be a consideration. Of course this would also provoke U.S. CFC reporting (I don't know if AU has any CFC reporting requirements, but this should be part of your tax planning.) Also, if you are operating in multiple countries, you may have some transfer pricing issues.

If you form outside the U.S., you need to familiarize yourself with GILTI reporting.

Also remember that you can always change your mind and re-domilcile or change your entity structure later, as you learn more. Cheers, 255


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## 255 (Sep 8, 2018)

@Adamonos -- I forgot to mention that if you form a C Corp., you could pay yourself a salary in Austria or Switzerland and take advantage of the Foreign Earned Income Exemption and/or the Foreign Tax Credit. Cheers, 255


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