LLC or C-Corp: which one when you are a non-resident?
The LLC pays no federal tax on its profits, the C-Corp pays twenty-one percent and then withholds thirty percent on dividends. Yet tax is not what should decide, what you intend to do with the company is.
8 min read
8 min read
The choice almost always shows up the same way. A business owner reads that a C-Corp looks more serious, or that an investor will demand that form, and hesitates over a structure that will cost several thousand dollars a year to maintain.
The right question is not which one is better, but who will receive the profits, and when.
The LLC, pass-through taxation
An LLC owned by a single foreign person is disregarded for tax purposes. It pays no federal corporate tax as long as it carries on no trade or business on US soil, and the profit is declared in your country of residence. The mechanism is set out in our article on non-resident taxation.
That transparency comes with a filing duty: Form 5472 together with a pro forma 1120, every year, or you face a $25,000 penalty. It is paperwork, not tax, but it is not optional.
The C-Corp, two layers of tax
A C-Corp is a separate taxpayer. It pays twenty-one percent federal tax on its profit, often plus a state tax. When it distributes what is left, a thirty percent withholding applies to dividends paid to a foreign shareholder, sometimes reduced by a tax treaty.
On one hundred dollars of distributed profit, about fifty-five dollars remain before the tax of your country of residence, against one hundred dollars for a pass-through LLC. That is the gap most comparisons leave out.
Double taxation only triggers on distribution. A C-Corp that reinvests all of its profit bears only the twenty-one percent. That makes sense for a startup living off its growth, never for a business that has to pay its owner every month.
When the C-Corp is the answer
Raising money from US investors. Venture funds invest in Delaware C-Corps, because their documents, preferred shares and own tax constraints are built around that form. A pass-through LLC pushes income up to them that they cannot absorb.
Add to that employee equity and multiple shareholders with different rights. If your project is a technology startup that will look for US funding within two years, the C-Corp is the right answer from day one, because converting later costs time and fees.
When the LLC wins, which is most of the time
A freelancer, an agency, an online seller, a software publisher who lives off clients rather than investors: they all take their pay out of the profit. For them the C-Corp adds a layer of tax, heavier accounting and yearly fees, and gives nothing back.
The LLC gives them the same commercial credibility, the same access to Stripe and to US banks, and the same limited liability. A client never asks about a supplier’s corporate form, they look at the invoice and the account they are paying.
Choosing the C-Corp because it sounds better, then discovering at the end of the first year that a full 1120 must be filed, US books kept and a local accountant paid. Prestige then costs several thousand dollars a year.
And the S-Corp, which everyone mentions
It is closed to non-residents. US law reserves that status for US citizens and resident individuals, which rules out a foreign shareholder by definition. Any offer proposing it is either mistaken or misleading you.
What does not change, whichever form you pick
The state of incorporation still has to be chosen, and our state comparison applies to both forms. The Annual Report and franchise tax are due in both cases, and sales tax depends on your activity, never on your status.
LLC Place forms LLCs, because that is the form which serves almost every non-resident entrepreneur. If your project genuinely calls for a C-Corp, it is better to know before paying, and we will tell you.
How LLC Place handles it
We form your LLC in the state that suits your activity, obtain the EIN, provide the business address and track your yearly obligations, Form 5472 as well as the state report.
If your project calls for a C-Corp because a US funding round is planned, we say so before you pay. Selling an unsuitable structure is cheaper in the short run and far more expensive at the end of the first year.
Frequently asked questions
Can I convert my LLC into a C-Corp later?
Yes, through a state law conversion or a tax election filed with the IRS. The operation is prepared with an adviser, usually at the time of a funding round.
Does a C-Corp avoid Form 5472?
No. A company owned twenty-five percent or more by a foreign person also files that form, attached to its full 1120 return.
Does a C-Corp make opening a bank account easier?
Not decisively. Institutions look at the activity, the address and the beneficial owner, as our banking comparison shows.
Related guides
Open a US LLC from other countries: Dubai, Saudi Arabia, Qatar, United Kingdom, India, Canada