Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
It depends on your plans. A C-Corp, usually in Delaware, fits founders who intend to raise venture capital, grant stock options or reinvest profits in the US. An LLC is usually simpler for a non-US founder running a services or trading business without investors, but its tax result depends on whether the income is effectively connected with a US trade or business and on how your home country treats the LLC.
Key takeaways
- A single-member LLC owned by a non-US person is disregarded for US income tax but must still file Form 5472 with a pro forma Form 1120.
- A C-Corp pays federal corporate income tax at 21% on its profits, and dividends to a foreign shareholder face 30% US withholding unless a tax treaty reduces the rate.
- Nonresident aliens cannot own S-Corp shares, so the pass-through corporate election many US owners use is not available.
- US venture investors generally expect a Delaware C-Corp because preferred stock, SAFEs and option plans are built around that structure.
- Some home countries treat a US LLC as a company and others as transparent, which can lead to double taxation or lost foreign tax credits.
How each structure is taxed when the owner is outside the US
Single-member LLC. By default it is disregarded, so the LLC itself pays no federal income tax. What matters is whether its income is effectively connected with a US trade or business — for example because of US employees, a US office or US inventory. If it is, the foreign owner files a US return (Form 1040-NR for an individual, Form 1120-F for a foreign company) and pays US tax on that income. If it is not, there may be no US income tax at all, but Form 5472 is still due every year the LLC has transactions with its owner.
Multi-member LLC. Taxed as a partnership by default. It files Form 1065, and where income is effectively connected the LLC must withhold tax on the share allocable to foreign partners.
C-Corp. A separate taxpayer filing Form 1120 and paying federal tax at 21%, plus state tax where it operates. A corporation at least 25% foreign-owned also attaches Form 5472. The founder generally has no US return just for being a shareholder, but dividends paid out are subject to withholding.
Side-by-side comparison
| Factor | LLC | C-Corp |
|---|---|---|
| US entity-level tax | None by default | 21% federal plus state |
| Owner's own US filing | Required if income is effectively connected | Generally not, unless other US income |
| Annual information returns | Form 5472 (single-member) or Form 1065 | Form 1120, plus Form 5472 if 25%+ foreign-owned |
| Venture capital and option plans | Awkward; usually converted first | Standard |
| Reinvesting profits in the US | Profits taxed to owners as earned | Profits taxed once at 21% while retained |
| Getting cash out | Distributions, no US withholding by default | Dividends, 30% withholding before treaty relief |
| Home-country recognition | Varies widely | Usually treated as an ordinary foreign company |
Neither column is cheaper in every case. The right answer comes from your revenue model, where work is performed and what you plan to do with profits.
Which founder profiles tend to fit which structure
- Software startup planning to raise from US investors: Delaware C-Corp from the start, because investors will usually require it and converting mid-round is disruptive.
- Consultant or agency billing US clients, with all work done abroad: often a single-member LLC, provided the income is not effectively connected and the home country recognizes the structure sensibly.
- E-commerce seller holding inventory in US warehouses: US activity may create a US trade or business, so many choose a C-Corp to keep US tax inside one entity rather than pulling the founder into US personal filings.
- Foreign parent company setting up a US subsidiary: usually a C-Corp, which keeps the parent from filing its own US return on the subsidiary's income.
If you also plan a US visa based on the business, such as an L-1 transfer, discuss structure with immigration counsel early, because the company's set-up becomes part of the evidence.
The home-country question founders skip
The US view is only half the analysis. Your country of residence may treat a US LLC as a transparent entity, taxing you on its profits as they arise, or as an opaque company, taxing you only on distributions. Mismatches can mean the same income is taxed twice without a credit, or that treaty benefits do not apply as expected. Controlled-foreign-company rules may also attribute US profits to you. Confirm the home-country treatment with a local adviser before choosing; it often decides the question.
Can you change your mind later?
Yes, but it costs more later. An LLC can elect to be taxed as a corporation on Form 8832, or convert into a corporation under state law, typically before a priced funding round. Conversion means new governance documents, a fresh cap table and possibly tax consequences on the conversion itself. Starting with the structure your three-year plan needs is almost always cheaper than restructuring under investor deadlines.
Common mistakes to avoid
- Choosing an LLC because "LLCs pay no tax" when US staff, a US office or US inventory make the income effectively connected.
- Forming a C-Corp for a one-person consulting business with no investors and then paying corporate tax plus dividend withholding to extract profits.
- Starting as an LLC while planning a US venture round within a year, forcing a conversion mid-fundraise.
- Ignoring how the home country taxes a US LLC, so the same income is taxed twice without a credit.
- Planning to elect S-Corp status even though nonresident owners are ineligible.
NYBACS 360° support
How NYBACS helps
- Maps your business model, owners and fundraising plans against LLC and C-Corp outcomes before anything is filed.
- Coordinates with US and home-country tax professionals so the structure works on both sides of the border.
- Forms the chosen entity with matching governance documents — operating agreement, or bylaws and founder stock issuance.
- Sets up the right first-year filing calendar, whether that is Form 5472, Form 1065 or Form 1120.
- Manages a later LLC-to-C-Corp conversion and its records if your plans change.
Frequently Asked Questions
Does an LLC with no US office pay any US tax?
Possibly not. If the income is not effectively connected with a US trade or business, a foreign-owned LLC may owe no US income tax, though it still files Form 5472. Whether your activity crosses that line depends on the facts and should be reviewed.
Can a foreign company own a US LLC instead of a C-Corp?
Yes. A single-member LLC owned by a foreign company is disregarded, so if it earns effectively connected income the parent itself files a US return and may face the branch profits tax. That is why many foreign groups prefer a C-Corp subsidiary.
Do US investors really insist on a Delaware C-Corp?
Most institutional venture investors and accelerators expect one, and many make conversion a condition of investing. Angels and strategic investors are sometimes more flexible, but check before you form.
Does QSBS make a C-Corp better for me?
The Section 1202 exclusion for qualified small business stock applies only to C-Corp stock and mainly benefits US taxpayers; its terms changed for stock issued after July 4, 2025. If you may become a US tax resident, include it in the analysis.
Which is cheaper to maintain each year?
A single-member LLC usually has lower running costs, with a pro forma Form 1120 and Form 5472 instead of a full corporate return. A C-Corp adds a full Form 1120, board records and, in Delaware, an annual franchise tax report.
