US India Business Structure for Trade: LLC, C Corp, Private Limited or LLP

Choosing a US India business structure is mostly a question of where your people sit, who signs the contracts, and which country should tax the profit. An Indian-born founder in Aurora who sources goods from Ahmedabad, a software firm with developers in Pune and customers in Illinois, and an Indian manufacturer opening a U.S. sales arm all face the same decisions: which entity, in which country, owned by whom. The wrong structure can create an unplanned "permanent establishment" in the other country, duplicate filings, and withholding taxes that nobody budgeted for.

Which US India business structure fits your trade?

How does the treaty shape the choice?

Under the 1989 U.S.-India treaty, business profits of an enterprise are taxable only in its home country unless it carries on business through a permanent establishment in the other (Article 7). Article 5 defines a permanent establishment broadly: a branch, office or place of management qualifies, and so does a building site lasting more than 120 days in a twelve-month period. A services permanent establishment arises when an enterprise furnishes services through employees or other personnel in the other country for more than 90 days in any twelve months, or when the services are performed for a related enterprise there. A dependent agent who habitually has and uses authority to conclude contracts, or who secures orders almost wholly for the enterprise, also creates one. Storage, display and delivery of goods, and a fixed place used solely for buying goods or collecting information, do not (Article 5, paragraph 3).

Source-country withholding caps in the treaty are 15% or 25% on dividends (15% for a company owning at least 10% of the voting stock), 10% or 15% on interest, and generally 15% on royalties and fees for included services (10% for certain equipment rentals). Article 24 restricts treaty benefits for non-individuals unless more than 50% of the beneficial interest is held by qualifying residents or citizens, or other tests are met, so check ownership before relying on a cap. Without the treaty, the U.S. imposes a 30% tax on U.S.-source passive income paid to foreign persons, as described in IRS Publication 519, so the paperwork matters. See our US India tax treaty guide.

Step by step: build a cross-border trading structure

1. Map people, contracts and money: where employees work, who negotiates and signs, where goods or services are delivered, and where payments are collected.
2. Choose the lead entity. A U.S. C corporation suits outside investors; an LLC is flexible but changes tax treatment for foreign owners; see U.S. entity types and tax forms.
3. Decide whether a second entity is needed. Use the permanent establishment tests above and read the Indian entity options.
4. Set the intercompany agreements: services, licensing, loans and cost sharing, priced at arm's length.
5. File entity classification elections where needed. For a foreign eligible entity, the default rule in the Form 8832 instructions makes it a partnership if two or more members include one without limited liability, an association taxable as a corporation if all members have limited liability, and disregarded if it has one owner without limited liability. An Indian LLP is a separate case that needs its legal form reviewed.
6. Report the investment. India expects foreign-investment reporting for money coming in (FDI and FEMA reporting); the RBI's LRS FAQ says individual overseas investment must follow the Overseas Investment Rules and counts toward the individual's remittance limit.
7. Open bank accounts, register for GST and U.S. sales tax and payroll where triggered, and calendar all filings.

Which U.S. forms follow ownership?

The Form 5472 instructions say a 25% foreign-owned U.S. corporation, including a foreign-owned disregarded entity such as a single-member LLC, files Form 5472 to report transactions with related parties. A penalty of $25,000 applies for failing to file on time, and more for continued failure after notice. U.S. persons with interests in foreign corporations, partnerships or disregarded entities may file Forms 5471, 8858 or 8865; see our foreign business reporting guide and the Forms 5472 and 1120 guide.

What about transfer pricing and payments between the entities?

Article 9 of the treaty allows each country to adjust profits between associated enterprises to the arm's length level. India has detailed transfer pricing documentation rules (see India transfer pricing basics), and the U.S. has its own related-party rules. Whether a payment is a service fee, royalty, interest or dividend decides the withholding and the treaty cap. A cost-plus service agreement with documented mark-up is the common starting point for an Indian development centre.

Worked example

Kavita, a U.S. citizen in Naperville, forms a Delaware C corporation and owns 100% of a new Indian private limited company that employs eight developers in Pune. The U.S. parent pays the Indian company monthly for services at cost plus a documented mark-up. The Indian company files its own Indian returns, and the parent reports the subsidiary on Form 5471. Later the Indian company pays the U.S. parent a $100,000 dividend. The treaty caps Indian tax on that dividend at 15% (a company owning at least 10% of the voting stock), or $15,000, if the paperwork is in place; without the treaty the Indian domestic rate may differ. The U.S. treatment depends on the rules in force for the tax year. All numbers are hypothetical.

Mistakes to avoid

• Hiring staff in the other country without checking the permanent establishment tests.
• Paying related entities without written agreements and transfer pricing support.
• Forgetting Form 5472 on a foreign-owned U.S. LLC with no income.
• Treating an Indian LLP as automatically a partnership for U.S. tax.
• Assuming the treaty cap applies automatically without a residency certificate and Form 10F.

How we can help

We advise on the U.S. side from Aurora, Illinois: entity selection and registration, entity classification elections, Form 5472, 5471 and related filings, U.S. withholding documentation, and bookkeeping and payroll. We coordinate with your Indian Chartered Accountant and company secretary for Indian company law, FEMA and GST. See our business formation and registrations and business tax returns and planning services. Structures are fact-specific and we do not promise tax results.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.