Side by side
| LLC | C-Corporation | |
|---|---|---|
| Typical use | Owner-operated businesses, real estate, service companies | Startups raising venture capital, companies planning stock options |
| Federal tax on the entity | None by default (pass-through), unless it elects corporate tax | 21% on profits |
| What the foreign owner files | Single-member: Form 5472 with a pro forma 1120 every year; if the LLC has US business income, the owner generally files Form 1040-NR and pays tax on it | Owner files nothing personally unless dividends or other US income arise; the company files Form 1120 (and Form 5472 if 25% or more foreign-owned) |
| Withholding | Multi-member LLCs taxed as partnerships must withhold on business income allocable to foreign partners | Withholding on dividends paid abroad, reduced by the US–Turkey tax treaty |
| Fundraising | Awkward for venture investors | Standard for venture capital |
| Stock options | Complicated (profits interests) | Standard |
| Qualified small business stock (Section 1202) | Not available | Available if requirements are met |
| E-2 visa | Works | Works |
| L-1 visa (subsidiary or affiliate) | Works | Works |
| Paperwork | Lighter: operating agreement, fewer formalities | Heavier: bylaws, board, stock ledger, annual meetings |
LLC: what foreign owners must know
- Form 5472 is mandatory. A single-member LLC owned by a foreign person must file Form 5472 with a pro forma Form 1120 each year to report transactions with its owner, even if it had no income. The penalty for not filing is $25,000 per year.
- Personal US tax filing. If the LLC carries on a US trade or business, its profits are “effectively connected income” of the owner, who then files a US nonresident return (Form 1040-NR) and pays tax, and may also have state filings.
- Partnership withholding. An LLC with two or more members is taxed as a partnership and must withhold tax on business income allocable to foreign partners.
- Election option. An LLC can elect to be taxed as a corporation, which can simplify filings for a foreign owner while keeping the LLC’s legal flexibility.
C-Corporation: what foreign owners must know
- Corporate tax. The company pays 21% federal income tax on profits, plus any state tax.
- Dividends. Distributions to shareholders in Turkey are subject to US withholding, reduced by the US–Turkey income tax treaty. Many founders keep profits in the company to grow it.
- Qualified small business stock. The 2025 tax law expanded the Section 1202 exclusion for stock issued after July 4, 2025, with a higher cap and shorter tiered holding periods. Whether a foreign founder benefits depends on Turkish tax treatment as well; take advice on both sides.
- Delaware. Most venture-backed startups form in Delaware and register to do business in the state where they operate. See our best state for an LLC guide.
Why nonresidents cannot use an S-Corp
An S-Corporation lets profits pass through to shareholders, but only US citizens and residents may be shareholders. A company with a nonresident owner cannot be an S-Corp.
Visa implications
- E-2: the business must be at least 50% owned by Turkish nationals, and the investor must own at least 50% or have operational control. Both LLCs and corporations qualify; the operating agreement or share records must clearly show ownership.
- L-1: the US entity must be a branch, subsidiary or affiliate of the Turkish company. Ownership percentages decide whether the relationship qualifies.
- Fundraising and E-2: outside investment that brings Turkish ownership below 50% can end E-2 eligibility for the company. Plan the capitalisation table with counsel.
- Converting later: founders often start as an LLC and convert to a C-Corp before raising money. Conversion is common but has tax consequences.
Compliance after formation
- EIN from the IRS, needed for banking and taxes.
- Registered agent and annual state reports.
- Beneficial ownership (BOI) reporting: since March 2025, companies formed in the US are exempt from federal BOI reporting under FinCEN’s interim rule; foreign companies registered to do business in the US may still need to report. See our Corporate Transparency Act guide.
- Form 5472 for foreign-owned entities.
When to talk to a lawyer and a CPA
- Before forming the company, if you plan to apply for an E-2 or L-1.
- If you have co-founders of other nationalities.
- If you expect to raise money in the next two years.
- If you already formed an LLC and are unsure about Form 5472.
Talk to Yellow Law Group. We form US companies for Turkish founders with the visa strategy in mind, and work with CPAs on the tax side. Book a free case evaluation or see our business formation services.
Sources
- Internal Revenue Code §§ 11, 1202, 1441–1446, 6038A; Treas. Reg. § 1.6038A-1
- IRS, Instructions for Form 5472
- IRS, Nonresident aliens and S corporations
- US–Turkey Income Tax Treaty (1996)
- FinCEN, interim final rule on beneficial ownership reporting, March 2025
- 9 FAM 402.9 (E visas); 8 C.F.R. § 214.2(l)
This article is general information, not legal or tax advice, and reflects the rules as of October 1, 2026. Consult a US tax professional about your situation.
