Introduction The choice of legal entity — company, partnership, LLC, trust, or branch — has profound tax implications in every jurisdiction. For multinational businesses and high-income individuals operating across India and the US, entity selection is one of the most fundamental and highest-leverage decisions in tax planning. In Day 11, we examine the major […]
The choice of legal entity — company, partnership, LLC, trust, or branch — has profound tax implications in every jurisdiction. For multinational businesses and high-income individuals operating across India and the US, entity selection is one of the most fundamental and highest-leverage decisions in tax planning.
In Day 11, we examine the major entity types available in India and the US, their tax treatment, and how to structure operations across jurisdictions for maximum tax efficiency.
1. Private Limited Company (Pvt Ltd)
– Most common structure for businesses
– Corporate tax rate: 22% (existing companies) or 15% (new manufacturing companies)
– Dividend Distribution Tax abolished; dividends taxed in shareholders’ hands
– Liability limited to share capital
– Taxed at 30% on profits (no reduced rate available)
– Partners taxed on share of profits
– No dividend distribution; profit sharing is flexible
– MAT (Minimum Alternate Tax) does not apply to LLPs
– Better for professional services firms
– Single shareholder company
– Same tax rates as Pvt Ltd
– Suitable for solo entrepreneurs
– Taxed at 40% in India (higher than domestic company)
– Creates a PE for the foreign company
– All profits attributable to the branch are taxable in India
– Generally less efficient than incorporating a subsidiary
– Indian-specific entity for family businesses
– Separate taxpayer with basic exemption and deductions
– Can hold investments and business assets
– Must have a Karta (head) and at least two co-parceners
1. C-Corporation (C-Corp)
– Taxed at flat 21% federal corporate rate
– Double taxation: corporate profits taxed, then dividends taxed again
– Access to all US deductions, credits, and treaty benefits
– Required for VC/institutional investment; can issue multiple stock classes
– Pass-through taxation: income flows to shareholders, taxed once
– Limited to 100 shareholders, all must be US citizens or residents
– Not available to non-US founders
– Avoids double taxation; owners pay employment taxes only on reasonable salary
– By default: single-member LLC disregarded, multi-member LLC treated as partnership
– Can elect to be taxed as a corporation (C-Corp or S-Corp)
– Extremely flexible; favoured by small businesses and real estate investors
– Non-US persons can own US LLCs (check-the-box for tax efficiency)
– Pass-through entity
– Common for real estate, private equity, and joint ventures
– Self-employment tax issues for general partners
1. Avoid Branch Structures
Branches create PE risk and are often taxed at higher rates than locally incorporated subsidiaries. A wholly-owned subsidiary is usually more tax-efficient.
2. Use an Intermediate Holding Company
For groups with operations in multiple countries, an intermediate holding company in Singapore, Netherlands, or UAE can:
– Access favourable DTAA networks
– Exempt dividends from subsidiaries
– Reduce withholding tax on intercompany payments
3. IP Holding Structure
Locate intellectual property in a low-tax jurisdiction (Ireland, Netherlands, Singapore) with genuine R&D activity. Charge royalties to operating entities.
4. Separate Trading and Investment Activities
Keep passive investments (shares, bonds, real estate) in separate entities from active business operations. This prevents investment income from being subject to higher business tax rates.
5. Consider Flow-Through vs. Opaque
For US operations:
– Non-US founders generally prefer C-Corp (access to investors, no S-Corp restriction)
– US founders may prefer S-Corp or LLC for single-level taxation
– Investment holding entities often prefer LLC taxed as partnership for flexibility
Entity selection is not a one-time decision — it should be revisited every 3-5 years or whenever significant business events occur (fundraising, expansion, ownership changes). The wrong entity structure can cost millions in unnecessary taxes over a business lifetime.
In Day 12, we cover Charitable Donation Optimisation — how to maximise the tax benefit of charitable giving in both India and the US through strategic timing, choice of assets, and donor-advised funds.
Moiz Ezzi is a Certified Public Accountant (CPA) and Chartered Accountant (CA) specialising in cross-border tax advisory for multinationals, NRIs, and non-US founders with India-US and India-global operations. He advises clients across transfer pricing, international holding structures, DTAA planning, and entity structuring.
Connect with Moiz Ezzi on LinkedIn for weekly cross-border tax insights.
