The short answer for non-US founders
If you are building a bootstrapped business that pays you from its profits, an LLC is usually simpler and cheaper. If you plan to raise money from venture investors or give stock options to staff, a C corporation is the standard choice. The rest of this page explains why, at the level of general rules. It is not tax advice for your situation: how your home country taxes the company, and whether you have a US trade or business, need a licensed professional.
LLC vs C corp side by side
| Point | Single-member LLC (foreign owner) | C corporation (foreign owner) |
|---|---|---|
| Default federal tax treatment | Disregarded entity: income is treated as the owner's | Separate taxpayer |
| Federal income tax at company level | None while disregarded | 21% of taxable income |
| US tax on the owner | Only on effectively connected income (ECI) and certain US-source income | Dividends: 30% withholding unless a treaty rate applies |
| Main IRS filing | Form 5472 with a pro forma Form 1120, by fax or mail | Form 1120 with Form 5472 attached |
| Delaware yearly charge | $400 annual LLC tax, due 1 June | Franchise tax (minimum $175 or $400 by method) plus $50 annual report, due 1 March |
| Equity for investors and staff | Possible but less familiar to investors | Shares, options and SAFEs are standard |
| S corporation election | Not available to a nonresident alien owner | Not available to a nonresident alien shareholder |
How the IRS classifies an LLC and a corporation
An LLC's federal tax treatment depends on how many members it has, unless it elects otherwise. The IRS says a domestic LLC with one member is treated as an entity disregarded as separate from its owner, and one with at least two members is classified as a partnership.
A "disregarded entity" is still a real company under state law. It protects your personal assets, signs contracts and holds a bank account. For income tax, though, the IRS looks through it to the owner. If you live abroad and the LLC has no US trade or business, that often means no US income tax at all.
A corporation is always a separate taxpayer. It files its own income tax return every year, and the Form 1120 instructions say domestic corporations must file whether or not they have taxable income. Profit is taxed once inside the company, and again in the shareholder's hands when it is paid out as a dividend.
Form 5472 applies to both
A foreign owner triggers Form 5472 either way. The Form 5472 instructions define a reporting corporation as a 25% foreign-owned US corporation, including a foreign-owned US disregarded entity. A corporation is 25% foreign owned if at least one foreign person owns, directly or indirectly, 25% or more of its vote or value at any time in the year.
- LLC: files Form 5472 attached to a pro forma Form 1120 that carries only its name, address and two items. A foreign-owned disregarded entity cannot file electronically, so it faxes or mails the forms.
- C corporation: attaches Form 5472 to its real Form 1120 and files by the return's due date, including extensions.
The penalty is the same for both: $25,000 for each Form 5472 not filed when due, with more if the failure continues after an IRS notice. Our Form 5472 guide covers who files, what counts as a reportable transaction and the dates.
How a C corporation is taxed
A US C corporation pays federal income tax at a flat 21%. Form 1120 is due on the 15th day of the 4th month after the tax year ends, which is 15 April for a calendar-year company, and Form 7004 gives an automatic extension of time to file, generally six months, but not more time to pay. State income or franchise taxes can come on top, depending on where the corporation is formed and does business.
Dividends paid to foreign shareholders
When the corporation pays a dividend to you as a non-US shareholder, US tax is withheld. The IRS explains that most types of US source income received by a foreign person are subject to US tax of 30%, and that a reduced rate, including exemption, may apply under the Internal Revenue Code or a tax treaty between your country of residence and the United States. The corporation acts as the withholding agent, collects a Form W-8BEN from you to document your foreign status and any treaty claim, and reports the payment on Forms 1042 and 1042-S.
A simple illustration, ignoring state tax and any treaty: a corporation with $100,000 of taxable profit pays $21,000 of federal tax (21% x $100,000). If it pays the remaining $79,000 to you as a dividend, 30% withholding takes $23,700 (30% x $79,000), leaving $55,300. A treaty rate would lower the second figure. Your home country may then tax the dividend and may or may not give credit for the US tax. These are illustrative numbers, not a forecast of your tax.
How a foreign-owned LLC is taxed
Because a single-member LLC is disregarded, the IRS treats its income as yours. As a nonresident alien, the IRS says effectively connected income is taxed at graduated rates and certain other US source income (FDAP) at a flat 30% or a lower treaty rate. If you have effectively connected income, you file Form 1040-NR.
If the LLC has no US trade or business and no US source FDAP income, its owner usually has no US income tax to pay. That is general information, not a ruling on your facts. Whether your activity counts as a US trade or business depends on details such as where you and any staff do the work, and it needs a professional review. The LLC still files Form 5472 in any year with reportable transactions, and your home country will usually tax the profit where you live.
Our US LLC for non-residents guide walks through the whole setup.
What investors expect
Venture investors usually expect a C corporation. Stripe describes C corporations on its Atlas company types page as the entity used to grant equity to employees, advisors and investors, and preferred by institutional investors who might be unable to invest in LLCs. It describes LLCs as often used by self-funded or small businesses and common for founders who do not plan to raise venture capital.
So if your plan includes a seed round, an accelerator or employee stock options, starting as a C corporation usually saves a restructuring later. If your plan is a profitable service or ecommerce business that pays you, the LLC's single layer of tax and lighter filings usually fit better.
The Delaware C corp option
Delaware is a common home for startup corporations; Stripe Atlas, for example, forms its C corporations there. The Delaware fee schedule sets a minimum incorporation fee of $109, which varies with the stock authorized, with the same expedite options as for LLCs.
Each year a Delaware corporation files an annual report and pays franchise tax, due on or before 1 March. The annual report fee is $50 for a non-exempt domestic corporation. The minimum franchise tax is $175 under the authorized shares method and $400 under the assumed par value capital method, and a late filing costs a $200 penalty plus 1.5% interest per month. Stripe says most Atlas companies find they pay less tax using the assumed par value capital method than the default authorized shares method; our Delaware franchise tax guide explains the calculation.
We form Delaware corporations for founders abroad through our Delaware C corp formation service.
The Stripe Atlas style choice
If you have looked at Stripe Atlas, you have already met this decision. Atlas forms a Delaware C corporation, a Delaware LLC, or a subsidiary that is also a C corporation, and asks you to pick at the start. According to Stripe's Atlas tax page, Atlas does not provide tax or legal advice, and Delaware taxes and federal returns remain your responsibility after formation.
The same choice applies whoever forms your company. The questions to answer are the ones on this page: will you raise venture capital, will you pay yourself from profit, and how will your home country tax each structure? If Atlas is not a fit, our Stripe Atlas alternatives comparison sets out other routes.
When an LLC can elect corporate tax treatment (Form 8832)
An LLC does not have to accept its default classification. It can file Form 8832, Entity Classification Election, to be taxed as a corporation while keeping its LLC legal form.
- The IRS says an election cannot take effect more than 75 days before the date it is filed, nor later than 12 months after it is filed.
- The Form 8832 instructions say that after an election to change classification, the entity generally cannot change again by election for 60 months, with limited exceptions.
- Once taxed as a corporation, the LLC pays 21% federal tax and files a full Form 1120 with Form 5472 attached, rather than a pro forma 1120.
- S corporation status is not an option for most foreign founders: the IRS says S corporation shareholders may not be nonresident aliens.
Some founders consider the election to keep profits inside the company at the corporate rate or to line up with how their home country taxes foreign companies. Whether it helps you is a tax advice question, so speak to a licensed adviser in the US and in your country of residence before filing it.
Changing the tax classification or converting an LLC into a corporation later can have tax consequences in the US and at home. Get advice before you file an election or convert.
Which should you choose?
- Freelancer, consultant or agency owner abroad: a single-member LLC, usually in Wyoming or New Mexico.
- Ecommerce or SaaS founder funding growth from revenue: an LLC, reviewed with an adviser once profits are large enough that the corporate rate or your home country's rules might change the answer.
- Founder planning to raise venture capital or join an accelerator: a Delaware C corporation from day one.
- Two or more co-founders abroad: an LLC becomes a partnership by default, with more complex filings, so compare it carefully with a C corporation and take advice.
- Undecided between the US and the UK: see our UK Ltd vs US LLC comparison or take the US LLC or UK Ltd quiz.
Going the LLC route? Our non-resident starter bundle includes the formation, EIN, registered agent year one and your first Form 5472.
Raising money? Start with a Delaware corporation instead.
Sources
- IRS: Limited liability company (LLC)
- IRS: Instructions for Form 1120
- IRS: Instructions for Form 7004
- IRS: Instructions for Form 5472
- IRS: NRA withholding
- IRS: Taxation of nonresident aliens
- IRS: About Form 8832, Entity Classification Election
- IRS: Form 8832 and instructions
- IRS: S corporations
- Delaware Division of Corporations: Fee schedule (revised 1 August 2026)
- Delaware Division of Corporations: Annual report and tax information
- Stripe: Atlas company types
- Stripe: Atlas business taxes
Fees, deadlines and rules on this page were last checked on 27 September 2026.