Key Takeaways

  • Foreign nationals can own 100% of a U.S. C Corporation, making it a popular entity for international entrepreneurs.
  • A U.S. mailing address and registered agent are required to form a C Corp, but U.S. citizenship or residency is not.
  • Foreign-owned C Corps are subject to complex U.S. tax rules, including federal corporate tax and potential withholding on dividends or interest.
  • IRS Form 5472 is mandatory for foreign-owned C Corps with certain transactions, and failing to file may result in significant penalties.
  • Proper documentation, tax treaty awareness, and understanding ECI (effectively connected income) vs. FDAP (fixed or determinable annual or periodic income) are essential.
  • A foreign shareholder can’t serve as an officer or employee of the C Corp without the correct U.S. visa.
  • UpCounsel connects users with top-tier legal assistance to navigate C corp foreign ownership laws and compliance.

C corporation for foreign shareholders is the most commonly known entity. Different structures exist as sole proprietorship, partnership, limited liability, and corporation. Regulation is conducted at the state level.

U.S. citizenship is not required when incorporating businesses in the U.S. since everyone applies for the same process. Nevertheless, incompatible languages and methods can be difficult.

Incorporation

Incorporation can attract more buyers. Even if travel is not necessary due to wholesaling and the internet, customers in the U.S. are more likely to shop for services in the U.S. However, many other variables are present, such as state tax/trade laws, employees, leases, and company size.

Why Foreign Entrepreneurs Choose C Corporations

Foreign entrepreneurs often choose C Corporations due to their flexibility in ownership and credibility with U.S. customers and investors. Unlike S Corporations, which limit ownership to U.S. citizens or residents, C Corporations allow 100% foreign ownership. Additionally, they provide:

  • Limited liability protection for shareholders
  • Easier access to venture capital or institutional investors
  • The ability to issue multiple classes of stock
  • Favorable tax treatment through treaty benefits in some jurisdictions

These benefits make C Corps a strong choice for startups looking to scale internationally while doing business in the United States.

Process of Incorporation

  • Register with state(s) a physical, not legal, address. The owner or another authorized individual who has access to legal documents is the qualified agent. There are descriptions regarding Service of Process (Notice of Litigation), annual reports or statements, taxes, and availability during business hours.
  • File formation documents (Articles of Incorporation or Certificate of Incorporation) with the Secretary of State. LLC documents are named Articles of Organization or Certificate of Organization.
  • For U.S. residents, SSN or Federal Tax Identification number is required. For foreigners, Individual Taxpayer Identification number is required

Required Documentation for Foreign Owners

Foreigners incorporating a U.S. C Corporation must submit standard formation documents to the Secretary of State in their chosen state. Additional documentation includes:

  • A valid passport and secondary identification
  • An Individual Taxpayer Identification Number (ITIN) or coordination with a U.S. partner who has an SSN
  • Appointment of a U.S.-based registered agent
  • U.S. mailing address (can be via a virtual office)

While foreigners do not need to be physically present in the U.S. to form the corporation, they should ensure that their documentation aligns with IRS and state regulations.

Business Types

  • LLCs
    • Advantages
      • Non-U.S. citizens own shares
      • No limit to the number of investors
      • No company tax
      • Flexible profit and loss allocations
    • Disadvantages
      • Quarterly income is taxed at the highest graduated rate (35 percent for corporations, 39.6 percent for individuals) when profit is distributed to foreign partners
      • Form 8804 (Annual Return for Partnership Withholding Tax) must be filed
      • Personal U.S. tax returns must be filed
  • S Corporation
    • Advantages
      • Prevents company taxes via personal income tax returns
      • Reduces self-employment tax
      • Real estate investing
  • C Corporation
    • Advantages
      • No U.S. personal income tax returns
      • Ownership of LLC, regardless of partnership
      • Double tax a non-issue if home country complies with U.S dividends laws.

C Corporation and Visa Considerations

While foreign individuals can fully own a C Corporation, this ownership does not grant them the right to work in the U.S. on behalf of their business. Foreign shareholders must obtain appropriate work authorization, such as an E-2 Investor Visa or L-1 Intracompany Transferee Visa, if they intend to operate the business from within the U.S.

Without a visa, foreign owners may not legally act as employees, officers, or directors who perform duties on U.S. soil. Legal counsel should be consulted to explore immigration options aligned with business goals.

Qualifications

  • Resident Alien
    • Green Card (I-551)
    • Or, substantial physical presence in the U.S. for 183 days or more in a given year

Two Types of Income

  1. Trade or business
  2. Not trade or business: there is more withholding. Rents, interests, dividends, royalties, and wages are for investment purposes (fixed, determinable, annual, or periodic). Unless there is an agreement between the foreign country and the U.S., the rate is 30 percent.

Effectively Connected Income (ECI) vs. FDAP Explained

U.S. tax law distinguishes between two major types of income for foreign-owned C Corps:

  1. Effectively Connected Income (ECI):
    • Income that is connected to the conduct of a trade or business in the U.S.
    • Taxed at the U.S. corporate rate (currently 21%)
    • Requires filing IRS Form 1120
  2. Fixed, Determinable, Annual, or Periodic (FDAP) Income:
    • Includes dividends, interest, rents, and royalties
    • Generally taxed at 30% withholding unless reduced by a tax treaty
    • Does not require the same level of operational involvement in the U.S.

Understanding this distinction is crucial for compliance and minimizing tax liability.

Tax Treaty

Foreign countries decide on the amount of tax credit and inspect the kind of tax paid in the U.S. Example of earning ordinary income in the U.S. include:

  • Canada
    • If the owner is a resident alien instead of a non-resident alien, S-Corps are favorable.
    • LLC is not favorable due to double taxes without foreign tax credit from C corporation. Limited partnership or limited liability limited partnership (LLLP) is favorable.
  • Australia
    • If the owner is a resident alien instead of a non-resident alien, S-Corps are favorable.
    • An LLC may be more favorable due to similar laws to the U.S.

If a foreign partner designates the partnership as C corporation, tax returns are affected for the other. The other can do business as LLC, LP, or LLP while having the foreign partner as their S corporation.

How Tax Treaties Affect Withholding and Credits

Tax treaties between the U.S. and many foreign countries can reduce or eliminate the standard 30% withholding tax on dividends, interest, and royalties. To benefit from treaty rates, the foreign shareholder must:

  • Submit IRS Form W-8BEN to the C Corporation
  • Be a resident of a treaty country
  • Provide accurate documentation to establish eligibility

Common treaty benefits include:

  • Reduced dividend withholding (e.g., 15% or 5%)
  • Exemption on interest income (portfolio interest exemption)
  • Prevention of double taxation through foreign tax credits

Always consult the relevant treaty for specific provisions, as benefits and requirements vary by country.

Other Considerations

Resident Status: U.S. residents are taxed worldwide while non-residents only pay for U.S. income. Foreign businesses pay annual state fees.

States: The home country's approval is required and may select the entity.

Financing: A two-year performance in the U.S. is required for capital.

Ownership Tax: The tax rate is same as that of a domestic company with withholding of distribution. Partnerships act as one in matters of tax.

Annual Reporting and Compliance Obligations

Foreign-owned C Corporations face several ongoing compliance requirements:

  • Federal Tax Return (Form 1120): Must be filed annually with the IRS.
  • Form 5472: Required if the foreign shareholder owns at least 25% of the company and engages in a reportable transaction with it.
  • Registered Agent Maintenance: Must maintain a registered agent in the state of incorporation.
  • State Business Filings: Annual reports or franchise tax filings may be required depending on the state.

Noncompliance may result in substantial penalties, including a minimum $25,000 fine for late or missing Form 5472.

Foreigner Owns At Least 25 Percent of a U.S. Company

“Reportable transaction” means money (royalties, rents, sales, interests, not dividends) or property exchange and Form 5472 is required. Part IV describes more about this transaction. If many foreigners own together at least 25 percent, the form is not mandatory. If every individual in the group owns at least 25 percent, then the form is filed individually.

If the company has to pay loan interest to the shareholder, tax can be withheld at 30 percent or less unless there is interest exception (portfolio interest) under Form W8 B EN. The "Applicable Federal Rate” is used if the interest is absent or lower than market rate. The company is not able to subtract dividends and therefore taxed 30 percent or less. An annual $10,000 is fined to each individual jointly and severally for any incomplete or non-filed Form 5472.

Banking and Payments for Foreign-Owned Corporations

Opening a U.S. business bank account is essential for smooth financial operations. Foreign owners should prepare:

  • Certified Articles of Incorporation
  • EIN confirmation letter from the IRS
  • Passport and proof of address
  • Corporate resolution, if multiple shareholders exist

Additionally, online platforms such as Wise or Mercury offer international-friendly banking for C Corporations without requiring in-person visits to U.S. branches. However, traditional banks may still require physical presence or a U.S. address.

Frequently Asked Questions

  1. Can a non-U.S. citizen be the sole owner of a C Corporation?
    Yes. There are no restrictions on foreign nationals owning 100% of a U.S. C Corporation.
  2. What forms does a foreign-owned C Corp need to file?
    At a minimum, Form 1120 (corporate tax return) and Form 5472 (if applicable) must be filed annually.
  3. Are C Corporations double taxed for foreign owners?
    Yes. Profits are taxed at the corporate level, and dividends distributed to foreign shareholders are subject to withholding taxes—unless mitigated by a tax treaty.
  4. Can a foreign shareholder open a U.S. bank account for their C Corp?
    Yes, but the requirements vary by institution. Many require a U.S. address and in-person verification, though some fintech companies offer remote onboarding.
  5. Is a visa required to manage a C Corp from the U.S.?
    Yes. Foreign owners need the appropriate visa to work as officers or employees within the United States.

If you need help with C corporation as a foreign shareholder, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.