Delaware C corp vs LLC: what each costs a founder abroad

Same state, same courts, two very different tax lives.

The choice here isn't Delaware or somewhere else. It's what kind of company you put there. An LLC is invisible to the IRS as a taxpayer when one foreign person owns it. A C corp is a US taxpayer from its first day. Almost every other difference follows from that.

26 U.S.C. 11, 871, 1202 and 1361; IRS Form 5472 instructions; Delaware Division of Corporations fee schedule and franchise tax pages; 30 Del. C. 1902. Sources linked in each chapter.

Two layers of US tax on one side, none on the other.

A C corp pays the federal rate first: 26 U.S.C. 11(b) sets it at 21 percent of taxable income. Whatever it then pays you as a dividend is US-source income to a nonresident, and section 871(a) taxes that at 30%, withheld before the money leaves. A tax treaty can lower the second layer. Nothing removes the first.

A single-member LLC owned by someone abroad is a disregarded entity. Its profit is treated as yours, and the US only taxes a nonresident on income tied to a US trade or business or on certain US-source payments. Clients abroad, work done abroad, no US office or dependent staff: no federal income tax. You still file an information return every year, covered in chapter 5.

Run your own figure

US federal tax only. Excludes your home country's tax, state taxes where the company does business, and the Delaware yearly bill (chapter 4). The LLC line assumes one foreign owner and no US trade or business; with a US office or staff, LLC profit is taxed to you on a US return.

The second layer depends on your passport's tax home, not the company.

Without a treaty, a US company withholds 30% from every dividend it pays you. Where the US has an income tax treaty with your country of residence, the IRS's own Tax Treaty Table 1 gives the reduced rate. The figures below are the general rate for an individual shareholder; a parent company holding a qualifying stake often gets a lower direct-dividend rate.

To get the treaty rate, you give the corporation a Form W-8BEN before the dividend is paid. No form, full 30%.

IRS Tax Treaty Table 1, revision May 2023, column "Dividends paid by U.S. corporations, general". "No treaty": the country isn't listed in that table. Treaties change; your country's row in Table 1 and the treaty text decide.

Notice what the table can't do: even at 10%, the C corp line still starts with the 21% corporate tax. On $100,000 paid out at a 10% treaty rate, US tax is $28,900. The LLC line stays at zero for the same founder, so a treaty narrows the gap but never closes it.

The LLC's bill is a flat number. The corporation's depends on which formula you file under.

Every Delaware LLC pays $400 by 1 June and files no annual report. A Delaware corporation pays a franchise tax and files an annual report, both received by 1 March. The report fee is $50, says the Division of Corporations, and the late penalty is $200 plus interest at 1.5% a month.

Two formulas, and the lower one is yours to claim

The Division's calculation page sets out both:

• Authorized Shares method. $175 for up to 5,000 authorised shares, $250 for 5,001 to 10,000, then $85 for each further 10,000 or part of it.
• Assumed Par Value Capital method. Divide total gross assets (from Schedule L of the federal Form 1120) by all issued shares, to six decimals. That's the assumed par. Multiply by authorised shares, then charge $400 for each $1,000,000 or part. The minimum is $400.

Both stop at $200,000 ($250,000 for a large corporate filer). A tax of $5,000 or more is paid in four instalments: 40% by 1 June, 20% by 1 September, 20% by 1 December and the rest by 1 March.

Why startups get a frightening first notice

Startup lawyers usually authorise millions of shares with a tiny par value, so founders can split equity and leave room for an option pool. Pick a share count and see what each formula gives. Gross assets here are $50,000, with 80% of shares issued and a par value of $0.00001:

The yearly notice is worked out on the first method, which is why a new C corp can be billed five figures. Filing the report with issued shares and gross assets lets you pay the lower amount, and the Division won't make that switch for you. Our Delaware annual fees page has a calculator where you can enter your own share counts and assets.

Both file with the IRS every spring. Only one needs real bookkeeping to do it.

A foreign-owned single-member LLC files a pro forma Form 1120 with Form 5472 attached: name, address, a few boxes, and every transaction between the company and you. A C corp files a full Form 1120 with profit, deductions and a balance sheet, and attaches Form 5472 too, because the IRS instructions make any 25% foreign-owned US corporation a reporting corporation. Missing a 5472 costs $25,000 in either case.

Two more points to know. Delaware's own corporate income tax is 8.7%, but 30 Del. C. 1902(b)(6) exempts a corporation that only keeps a registered office in the state without doing business there. And a US corporation that works or sells in another state may owe that state's tax and filings; so may an LLC, but only where it actually has presence.

The LLC's yearly return is the one most founders abroad get wrong, often by not knowing it exists. Our Form 5472 guide walks through it line by line.

This is the C corp's home ground, and the reason it exists for startups.

One option is off the table for both: 26 U.S.C. 1361(b)(1)(C) bars a corporation with a nonresident alien shareholder from S corporation status. Guides that suggest an S corp election aren't written for you.

You don't have to guess your funding future on day one.

Delaware lets an LLC become a corporation by statutory conversion: same company, new form. Plenty of founders run the cheaper LLC while revenue comes from clients, then convert once a term sheet is real. The Division's fee schedule (revised 1 August 2026) prices it:

There's a second route on the tax side only: Form 8832 elects corporate tax treatment while the company stays an LLC under Delaware law. The election can take effect up to 75 days before you file it and no later than 12 months after, and once you've changed, you generally wait 60 months to change again. Investors buying preferred stock normally want a real corporation, so most founders use the statutory conversion.

Do the tax planning before the paperwork

Form 8832 itself points to Regulations section 301.7701-3(g) for what a change of classification means for tax: in short, the IRS treats you as moving the LLC's assets into a new corporation. Your home country may see a disposal too. Get advice in both countries before you sign, and convert before the round closes so new shares are issued by the corporation.

To a US bank, both are US companies. The paperwork differs.

Business banks and payment processors ask either type for an EIN, the Delaware formation document and identity documents for each owner of 25% or more and for whoever controls the company. Neither structure gets you an account the other can't. What changes is the stack of documents behind the application.

Neither structure needs an SSN to get its EIN; a founder abroad applies by fax or phone. Our US LLC page covers how that works and how Heirson handles the bank step for LLC orders.

Answer honestly about the next 18 months, not the dream.

Three founders, worked through

We form LLCs. That's not a reason to sell you one when you need a corporation.

For everyone else, the founder who earns from clients, sells online or holds assets and wants the profit at home, the Delaware LLC is the efficient choice. Heirson forms it for $269 in year one and $539 a year after, the $400 Delaware tax included, paid in crypto once you've signed. If Delaware's name isn't something your clients care about, our state comparisons show cheaper LLC homes.