A corporation is a taxpayer in its own right. The IRS looks through an LLC to its owner, but a C-Corporation pays tax on its own profit and files its own return, then pays shareholders out of what's left, with more US tax withheld when a foreign shareholder is paid. That's the cost of the structure investors expect, and for a company running at a loss while it raises money, it's a cost mostly put off. Here's what it files and pays.
Federal
A corporation with no profit still files a return showing no tax, along with Form 5472 for its foreign shareholders, and the $25,000 penalty for missing Form 5472 applies to corporations just as it does to LLCs.
Delaware
Delaware charges its corporations a $50 annual report fee and a franchise tax, both due by 1 March. The franchise tax can be worked out two ways, and you pay the lower figure. The authorised shares method starts at $175 for 5,000 shares or fewer and rises quickly with more shares. The assumed par value capital method has a $400 minimum. A startup with millions of authorised shares and few assets usually pays less under the second method, often the $400 minimum, which puts the yearly total at about $450. Delaware doesn't charge income tax on a corporation that doesn't operate there. Paying late adds a $200 penalty and 1.5% interest a month, and a corporation that goes a year without paying or filing loses its charter.
Dividends and the second layer of tax
When the corporation pays a dividend to a foreign shareholder, it withholds 30%, or the lower rate in the shareholder's treaty, and pays it to the IRS. That's the double tax: 21% on the profit, then withholding on what's paid out. Startups avoid it by not paying dividends, which they weren't going to do anyway. A profitable business owned from abroad that isn't raising money usually avoids it by being an LLC.
Where the corporation is run from
A corporation run day to day by founders abroad is a US corporation for US tax. It may also count as resident where the founders live, if that country treats companies as resident where they're managed. Tell your accountant at home where decisions are made. The country pages cover the rules for many countries.
What we do
Premium prepares Form 1120 and Form 5472, has a CPA review them, and files them. It also files the Delaware annual report and pays the franchise tax on your behalf. Every plan puts 1 March and 15 April on your calendar.