LLC vs C-Corporation for Non-Residents
Published 3 September 2026 · Reviewed by Ashfaq Khattak, US Tax Consultant
For a non-resident, an LLC is cheaper to run and avoids tax at the entity level; a C-corporation costs more and is what US investors require. One question settles it: is anyone going to buy equity in this company in the next couple of years? If yes, Delaware C-corporation. If no, an LLC — and you can convert later.
The reason people get this wrong is that both are described as "a US company", and the difference only becomes expensive at the moment you least want a surprise: a term sheet, or a tax bill on money you already distributed.
The comparison that matters
| LLC | C-corporation | |
|---|---|---|
| Federal tax at entity level | None. Disregarded or a partnership. | Yes, corporate income tax |
| Tax when profit reaches you | Depends on your own position and treaty | Withholding on the dividend, treaty may reduce it |
| Annual federal filing, one foreign owner | Pro-forma 1120 + Form 5472 | Form 1120, a full return |
| Accepts SAFEs and priced rounds | No, needs converting first | Yes |
| Stock options for staff | Awkward | Designed for it |
| Running cost | Low | Franchise tax, annual report, real accounting |
| Ownership flexibility | High — the operating agreement can say almost anything | Structured by share class |
| Best for | Consultancies, agencies, e-commerce, bootstrapped software | Venture-backed startups, companies issuing equity widely |
The double taxation point, without the scaremongering
A C-corporation pays tax on its profit, and a shareholder receiving a dividend is taxed again. For a foreign shareholder that second layer is withholding at source, which an income tax treaty between the US and your country may reduce substantially — or not at all, if there is no treaty.
This is why the same structure is a good deal for a founder in a treaty country and a poor one for a founder without a treaty. Check your own country against the IRS treaty list before assuming either. It is also why the "double taxation" objection is weaker than it sounds for a company that reinvests rather than distributes: profit left in the company is taxed once, at the corporate rate.
The LLC’s hidden filing, and the C-corp’s hidden cost
- The LLC’s catch: no entity-level tax does not mean no filing. A foreign-owned single-member LLC files a pro-forma Form 1120 with Form 5472 attached every year, at a penalty from $25,000, even with no revenue and no profit. More non-residents are hurt by not knowing this than by any tax rate.
- The C-corp’s catch: a real corporate return, franchise tax, and bookkeeping that has to be good enough to support it. Budget for an accountant, not just a filing fee.
What about an S-corporation?
You cannot use one. An S-corporation may not have a non-resident alien shareholder. Every article recommending an S-corp for its tax treatment is written for US residents, and the election is simply unavailable to you. If you see it recommended for your situation, the advice is not about you. Our three-way comparison covers why in full.
How to decide, in order
- Raising US venture money within two years? Delaware C-corporation. Stop here.
- Issuing equity to employees or advisers? C-corporation.
- Everything else? LLC, in Wyoming unless you have a specific reason otherwise.
- Unsure whether you will raise? LLC now. Conversion is a known transaction and costs less than two years of running the wrong entity.
Frequently asked questions
Should a non-resident choose an LLC or a C-corporation?
One question settles it: is anyone going to buy equity in the next couple of years? If yes, a Delaware C-corporation. If no, an LLC — cheaper to run, no entity-level federal tax, and convertible later. Converting is a well-trodden transaction and costs less than running the wrong entity for two years.
Is a C-corporation really taxed twice?
Profit is taxed at the corporate level and again when distributed as a dividend. For a foreign shareholder the second layer is withholding at source, which an income tax treaty may reduce substantially — or not at all where there is no treaty. Profit retained in the company is taxed once.
Can a non-resident own an S-corporation?
No. An S-corporation may not have a non-resident alien shareholder, so the election is simply unavailable. Any article recommending an S-corp for its tax treatment is written for US residents.
What does an LLC still have to file if it owes no tax?
A foreign-owned single-member LLC files a pro-forma Form 1120 with Form 5472 attached every year, at a penalty starting from $25,000, even with no revenue. More non-residents are hurt by not knowing this than by any tax rate.
Official sources
Rules, forms and fees on this page come from the following official sources, each checked on 2026-09-03. Government fees and deadlines change; confirm the current figure on the agency's own page before you file.