S Corp vs LLC: Why the Question Is Closed for Non-US Residents

Every "S corp vs LLC" guide on the first page of Google is written for an American owner. For a non-resident, Internal Revenue Code section 1361 ends the debate before it starts: a nonresident alien cannot be an S corporation shareholder.

Updated October 18, 2026 · official sources cited at the bottom · no legal or tax guidance

The short answer

If you are not a US citizen and not a US resident, you cannot be a shareholder of an S corporation. That is the whole article. Everything below explains where the rule comes from, why the "S corp vs LLC" debate you keep reading does not reach you, and what your US LLC is instead.

This matters because "s corp vs llc" is one of the most searched entity questions in the United States, and the top-ranking answers all assume an American owner. A founder in Paris, Madrid or Berlin who follows them ends up planning around an option that does not exist for them.

What section 1361 says

The S corporation is not a type of company. It is a tax status that an eligible corporation elects with the IRS. The eligibility conditions are written in Internal Revenue Code section 1361. Among them, the corporation may only have shareholders who are individuals, certain trusts and estates, and it may not have a nonresident alien as a shareholder.

"Nonresident alien" is the tax term for a person who is neither a US citizen nor a US resident for tax purposes. A founder living in France who has no green card and does not meet the substantial presence test is a nonresident alien. Such a person cannot hold shares in an S corporation, and a corporation with such a shareholder cannot keep the election.

Why the self-employment tax argument does not reach you

Competitor guides from doola, Northwest, ZenBusiness and Bizee frame the choice the same way: once profit passes a certain level, an S corp election lets an American owner pay part of the profit as salary and part as a distribution, which changes how self-employment tax applies. The figures in those guides vary, and they belong to a US-resident reader.

For you, the comparison has no second column. There is no S corp election to run the numbers on. The LLC is not "the cheaper option that loses to the S corp above a threshold". It is the option. Any time spent modeling the S corp side is time lost.

What you should model instead is the real recurring cost of the entity, which we lay out in Do You Need an LLC? Pros and Cons, and how the LLC's income is treated in your own country, which is a question for a CPA.

What your US LLC is by default

A single-member LLC owned by a non-resident is, by default, a "disregarded entity" for the IRS. The entity exists under state law, but for federal tax purposes it is looked through to its owner. That default comes with one obligation that many founders discover late.

A foreign-owned US disregarded entity must file a pro forma Form 1120 with Form 5472 attached every year, even when it has no activity and no income. The filing is due by the due date of Form 1120, April 15 for a calendar-year entity, October 15 with an extension on Form 7004. The penalty for not filing is $25,000, with an additional $25,000 if the failure continues more than 90 days after the IRS notifies you.

What you can and cannot elect

An LLC can ask the IRS to be treated as a corporation. That election leads to the C corporation regime, not to the S corporation regime, because the S election stays closed to a nonresident alien owner. Whether a C corporation treatment makes sense for anyone is a question we do not answer: Billionnaire does not form C corporations and does not give guidance on elections.

What we can say is factual. The default regime requires nothing from you at formation. The EIN application (Form SS-4) asks for the type of entity, and a single-member LLC owned by a non-resident is filed as such. Our guide on getting an EIN without a Social Security number walks through that form line by line, including the line 7b entry for an owner without an SSN or ITIN.

What this changes for your choice of state

Nothing. The S corp rule is federal and the same in Wyoming, New Mexico and Delaware. The state choice is a question of fees and annual obligations, all read on the official sites on October 18, 2026.

The registered agent is mandatory in all three states and is the one line that never goes away. Our 3-year totals by state, and by competitor, are in the formation services comparison.

Where to go next

Three pages cover what actually matters for a non-resident founder once the S corp question is set aside:

• Do You Need an LLC? Pros and Cons of Not Having One: the honest list of cases where the LLC is useless, and where it pays.
• Delaware LLC Annual Tax Is $400, Not $300: the official figure, the June 1 deadline and the penalty.
• How to Get an EIN Without an SSN: the IRS fax numbers and the stated turnaround.

If a competitor's page told you to "consider the S corp election once your LLC is profitable", you now know why that advice was written for someone else.

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