My main motive is to sell on AWS Marketplace after reading about the monetization blog post.
There are some tax considerations. It is not generally a good idea for Canadians to own US LLCs unless you know exactly what you're doing and why you are doing so. The below analysis assumes "C" status, as "S" status is not permitted for non-US person unit-holders.
In the United States, US LLCs are generally disregarded entities and profits will be taxed in the hands of the unit-holders. From a US perspective, a non-resident will thus receive the flow-through earnings from the US LLC and be required to pay tax as a non-resident individual to the IRS. Note: You'll be required to register the LLC and yourself with the IRS.
Canadian law does not recognize flow-through entities except in the case of partnerships and certain trusts. The US LLC, therefore, will be considered a non-resident corporation and the proceeds (the flow through income) will be treated as a foreign dividend in Canada. You will pay Canadian personal income tax on that.
Because the IRS tax profits in the year incurred, and Canada will tax in the year distributed, frequently you will be unable to utilize a foreign tax credit in Canada for the taxes paid in the United States. Historically, there was also the issue with the tax credit being in the name of the corporate LLC, and as it does not match your personal name, it cannot be utilized, but if I remember correctly the latest Protocol may have addressed that.
The above deals with the general aspects of taxation in the US and Canada. There's another important point and that is permanent establishment. The US LLC will have a permanent establishment in Canada if you run and manage the LLC from Canada. Canada's CRA will require the US LLC to submit a corporate tax return in Canada as well and pay branch tax of 25% on profits (reduced to 5% under the US-CA tax treaty).
A few other issues:
- Interest in foreign companies require form T1134 - Information Return Relating To Controlled and Not-Controlled Foreign Affiliates [1] be filed each year with the CRA. This tax form summarizes the balance sheet and income statement and associated tax treatment in the foreign jurisdictions. It is painful.
- If you have a bank account with over CAD 100,000 in cash, you must also file form T1135 Foreign Income Verification Statement [2].
- You will not have access to the Canadian Small Business Deduction as the US LLC is not considered a CCPC (Canadian-Controlled Private Corporation).
- You will not have access to the $750,000 lifetime Capital Gains Deduction on the sale of your business. (On a related note, sale of a LLC will require tax filings in both countries.)
- You will not have access to a dividend tax credit on dividends received from the corporation. (Although, the combined tax paid in Canada in either situation may be similar--some Excel magic is required to see the tax loss under both scenarios.)
- There are many US IRS forms to be filed too, but I'm not going to itemize them here now.
In conclusion, US LLCs for Canadians are hideously complicated and require careful thought and consideration as it will trigger an avalanche of forms and filings and make the tax planning situation very difficult for your tax adviser.
My personal opinion is that Canadians should stick to numbered provincial or federal incorporation. The overall compliance burden will be much lower and I suspect you can have access to whatever US LLCs have access to with a bit of extra effort. A Canadian company can relatively easily get a US bank account and I would presume merchant-related services, though I have not done that myself.
Basis: I'm a Canadian international tax adviser.
[1] http://www.cra-arc.gc.ca/E/pbg/tf/t1134/README.html [2] http://www.cra-arc.gc.ca/E/pbg/tf/t1135/README.html