Taking into account the specifics of the U.S. tax system, the Nevada tax system is based on the distribution of the total taxes to federal (state) and local. Federal taxes and their rates are the same for all states while the types and rates of local taxes are set separately at the discretion of each state`s legislature.
In addition, the size of the tax burden will be different for different types of companies. Therefore, it is necessary to consider everything in complex.
1. State Income Tax.
We would like to start from the good news and inform you that a huge bonus for doing business in Nevada is that there is no income tax at state level:).
2. Federal Income Tax.
There is a federal income tax rate as follows:
- for a “C”-type corporation – 21%;
- for limited liability companies (LLCs) with two or more participants (LLC and Partnerships) – according to US law, LLCs do not pay taxes as legal entities. Instead of it, participants of the legal entity bear the obligation to pay income taxes on their behalf in respect of their behalf. If there is only one participant it pays tax for all LLC profits. If there are several participants they pay taxes according to the numbers of their shares which are specified under the Operating agreement.
Additionally, taxes are paid depending on the state of residence of the founder and the amount of income. First of all, you need to take into account who the founder/participant of the company is, a U.S. resident or not.
If the founder or participant is a resident of the United States, then taxes shall be paid according to the rates shown in table 1 as follows:
How to pay taxes if there are residents of Ukraine as the founders of the company in Nevada?
The issue of tax payments by non-residents is regulated by the Convention between the Government of Ukraine and the US Government on the avoidance of double taxation and the prevention of tax evasion regarding income taxes and capital on the avoidance of double taxation.
In case of existence of non-resident founders there are specific characteristics of the taxation regime for each of the aforementioned types of the enterprises, namely:
- for “C”-type corporations – according to the provisions of the Convention, corporations are considered as the US tax residents, regardless the state of residency of the founders as they are legal entities registered under US law. Accordingly, taxes shall be paid on a common basis using the 21% rate.
- for LLCs, partnerships and private entrepreneurs – according to the principle of pass-through taxation, the non-resident founders pay taxes from its personal income.
For the purposes of taxation of the LLC with a Ukrainian resident founder, you need to consider which market the company will operate in:
- If LLC is targeted at the US market.
According to the Convention, a Ukrainian tax resident pays taxes in accordance with the laws of the United States in regard of the income that was received from the activities of the company’s representative office in the United States according to the rates provided in table 1.
- If LLC is NOT targeted at the US market.
If the person is a citizen and/or a Ukrainian resident and its company will not:
1) conduct sales in the United States;
2) have business assets in the United States;
3 rent a real office in Nevada;
4) have the US resident employees;
5) it will fulfill all the IRS conditions for the submission of the necessary tax reports to confirm the right to exemption from such tax in accordance with the provisions of the Convention.
Then, according to the Convention on the avoidance of double taxation, it pays income tax as provided under the Ukrainian legislation, namely the 18% personal income tax and 1.5% military fee.
*Of course, the list of the aforementioned conditions is not exhaustive. In general, the correct filling of tax forms and the organization of the company business processes in a whole is a very important point since an error can lead to an additional tax burden of 30%.
Therefore, if a company has the Ukrainian resident founders but its profit is only the profit from activities carried out exclusively within the US market then taxes shall be paid in accordance with US law.
In 2015, a commerce tax was introduced at the state level of Nevada. It applies to “C”-type corporations, LLCs, partnerships, private entrepreneurs, etc.
This tax applies to enterprises that have an annual income exceeding $4 million.
The tax rate depends on the business category of the company (there are 26 in total) and varies from 0.331% to 0.051%.
It is worth noting that this type of income is not covered by the Convention on the avoidance of double taxation.
Sales tax consists of state and state district`s rates.
The state rate is 6.85%, and the state district`s rate is set at the discretion of the local government, but no more than 3.665%.
Sales tax rates in various districts of Nevada are shown in table 2 as follows:
In the company hires a person both the employee and the company will have obligations to pay the payroll tax.
Company`s tax liability:
- Social security tax is 6.2%;
- Health insurance tax is 1.45%;
- Non-Employment Tax is 6% for the first $7,000 paid to an employee. At the same time, the company can receive a 5.4% tax return from the state provided that it paid the tax on time.
Total: 13.65% (with a possible return of 5.4%).
Employee`s tax liabilities (levied on salary):
- Federal income tax is set according to the table 1;
- State income tax is not levied;
- Social security tax is 6.2%;
- Health insurance tax is 1.45%;
Total: 7.65% + federal income tax, depending on several conditions.
If the employee is non-resident.
If such an employee is a Ukrainian tax resident, it has to compare the income tax rate determined by table 1 in the USA and the rate in Ukraine that is 18%.
If necessary, it has to pay the difference between these rates.
therefore, an individual that is a Ukrainian resident in is not exempted from the obligation to submit a tax return based on the results of the annual declaration to the State Fiscal Service of Ukraine.
However, it has a right to apply for a tax credit regarding the taxes paid in US when calculating taxes and fees in Ukraine.
Additionally, an individual that is a Ukrainian resident must pay a military fee (1.5%) in Ukraine since this type of tax has no analogues in the United States.
Depending on the type of income that the company or individual plans to receive, other types and rates of taxes may apply. These incomes include:
- Dividends: after the decision on the distribution of profits is settled the tax rate varies depending on the amount of dividends paid and the residence of the person;
- Royalty: it is allowed to use separate taxation (by analogy with payroll tax). Also, the payment of royalty tax depends on the fact of the commercial activities of the royalty holder;
- Income received by art workers, artists, athletes, etc.;
- Income from property;
- Real estate tax etc.
To sum up, it is worth noting that Nevada has one of the best tax climates among all US states. This could be explained due to the fact that no form of income tax is levied at the state level while this tax is a key component of tax expenses of companies.
Therefore, taking into account income tax rates in other states, the tax burden at the Nevada is 5-10% less. Consequently, Nevada is a profitable place to register your company in order to conduct business at the United States market.