For founders outside the US

Foreign Founders Raising From YC or US Investors: LLC or C Corporation Tax Facts

Raising from an accelerator or US investors usually raises the entity question. This page sets out the US tax facts of a disregarded LLC and a C corporation from IRS sources, what Y Combinator itself publishes, and the treaty withholding numbers for founders in 28 countries. It is not advice on which to choose.

Disregarded LLCC corporationY CombinatorSAFETreaty rates

Treaty Numbers by Country Request a Quote

Quick answer

What changes for a foreign founder between a US LLC and a C corporation?

A single-member LLC is disregarded by default: it files Form 5472 with a pro forma Form 1120 and its profit is the owner's. A C corporation is a separate taxpayer at 21% that files Form 1120 (plus Form 5472 while 25% foreign-owned), and dividends it pays to a founder abroad face US withholding at 30% or the treaty rate. YC says companies incorporated outside the US, Canada, Singapore or the Cayman Islands create a parent in one of those places.

Prepared by Illuminous Accounting · Sources checked November 11, 2026

At a glance

Who it is for: Founders outside the US expanding to the US or raising from US investors
Single-member LLC: Disregarded; Form 5472 with a pro forma Form 1120
C corporation: Separate taxpayer at 21%; Form 1120, plus Form 5472 while 25% foreign-owned
Y Combinator: Requires a US, Canadian, Singapore or Cayman parent company (YC FAQ)
Countries in the table: 28

How the IRS classifies an LLC and a corporation

Under Treas. Reg. section 301.7701-3, a US LLC with one owner is disregarded as separate from its owner and an LLC with two or more owners is a partnership, unless it elects on Form 8832 to be taxed as a corporation. After an election, a further change is generally not allowed within 60 months. A company formed as a corporation is a C corporation from the start; corporations cannot use Form 8832 to change (IRS Form 8832).

What each structure files

Structure	Yearly federal filing	Source
Single-member LLC owned by a non-US founder	Form 5472 with a pro forma Form 1120; Form 1040-NR only with income effectively connected with a US trade or business	IRS
LLC with co-founders	Form 1065 partnership return; withholding on foreign partners' effectively connected income	our guide
C corporation	Form 1120, tax at 21% of taxable income; Form 5472 while 25% or more is foreign-owned	IRS, IRS
S corporation	Not available: no nonresident alien shareholders	IRS

What Y Combinator publishes

YC says that if your company is incorporated somewhere other than the United States, Canada, Singapore or the Cayman Islands, you will need to create a parent company in one of those jurisdictions, and the existing company becomes its subsidiary (YC FAQ).

YC's published standard deal is US$500,000: US$125,000 for 7% and US$375,000 on an uncapped MFN SAFE (YC). YC describes the SAFE as an open-source agreement that lets investors fund a startup now for shares of stock later (YC SAFE page).

For tax, a US parent that owns your home-country company is a US corporation controlling a foreign corporation, which brings Form 5471 (IRS; our Form 5471 guide). A home-country company that owns the US company brings Form 5472 for the US company (Form 5472). Deal terms and the parent structure are for your startup lawyer.

Section 1202 (qualified small business stock)

Code section 1202 allows an exclusion of gain on qualified small business stock. IRS Publication 550 sets out the conditions, starting with stock in a C corporation, acquired at original issue, from a corporation within gross asset limits (IRS Pub 550). Stock in an LLC that has not elected corporate treatment is not C corporation stock. P.L. 119-21, enacted July 4, 2025, changed tax rules; check current IRS guidance for the thresholds that apply (IRS).

Taking money out: treaty numbers by country

Dividends, interest and royalties paid by a US company to a founder abroad are subject to US withholding under Code sections 1441 and 1442: 30% by statute, or a lower treaty rate if the founder qualifies (IRS Pub 515). A disregarded LLC pays no dividends; its profit is the owner's. The general treaty rates below are from IRS Tax Treaty Table 1 (Rev. May 2023), which the IRS notes is not a complete guide to eligibility; limitation on benefits articles are from the treaty texts on irs.gov, and E-2 dates from the State Department treaty countries list.

Founder resident in	Dividends	Interest	Copyright royalties	Limitation on benefits	E-2 treaty
Australia	15% (Art. 10(2))	10% (Art. 11(2))	5% (Art. 12(2))	Art. 16	Since December 27, 1991
Austria	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1), (2))	Art. 16	Since May 27, 1931
Belgium	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 21	Since October 3, 1963
China	10% (Art. 9(2))	10% (Art. 10(2))	10% (Art. 11(2))	None listed	Not on list
Denmark	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 22	Since December 10, 2008
France	15% (Art. 10(2))	0% (Art. 11(2))	0% (Art. 12(1))	Art. 30	Since December 21, 1960
Germany	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 28	Since July 14, 1956
India	25% (Art. 10(2))	15% (Art. 11(2))	15% (Art. 12(2)-(4))	Art. 24	Not on list
Ireland	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 23	Since November 18, 1992
Israel	25% (Art. 12(2))	17.5% (Art. 13(2))	10% (Art. 14(1))	None listed	Since May 1, 2019
Italy	15% (Art. 10(2))	10% (Art. 12(2))	0% (Art. 12(2))	None listed	Since July 26, 1949
Japan	10% (Art. 10(2))	10% (Art. 11(2))	0% (Art. 12(1))	Art. 22	Since October 30, 1953
Mexico	10% (Art. 10(2))	15% (Art. 11(2))	10% (Art. 12(2))	Art. 17	Since January 1, 1994
The Netherlands	15% (Art. 10(2))	0% (Art. 12(1))	0% (Art. 13(1))	Art. 26	Since December 5, 1957
New Zealand	15% (Art. 10(2))	10% (Art. 11(2))	5% (Art. 12(2))	Art. 16	Since June 10, 2019
Norway	15% (Art. 8(2))	0% (Art. 9)	0% (Art. 10(1))	None listed	Since January 18, 1928
The Philippines	25% (Art. 11(2))	15% (Art. 12(2))	15% (Art. 13(2))	None listed	Since September 6, 1955
Poland	15% (Art. 11(2))	0% (Art. 12(1))	10% (Art. 13(2))	None listed	Since August 6, 1994
Portugal	15% (Art. 10(2))	10% (Art. 11(2))	10% (Art. 13(2))	Art. 17	Since March 15, 2024
Romania	10% (Art. 10(2))	10% (Art. 11(2))	10% (Art. 12(2))	None listed	Since January 15, 1994
South Africa	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 22	Not on list
South Korea	15% (Art. 12(2))	12% (Art. 13(2))	10% (Art. 14(1))	None listed	Since November 7, 1957
Spain	15% (Art. 10(2))	0% (Art. 11(2))	0% (Art. 12(1))	Art. 17	Since April 14, 1903
Sweden	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 17	Since February 20, 1992
Switzerland	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	None listed	Since November 8, 1855
Thailand	15% (Art. 10(2))	15% (Art. 11(2))	5% (Art. 12(2))	Art. 18	Since June 8, 1968
Turkey	20% (Art. 10(2))	15% (Art. 11(2))	10% (Art. 12(2))	Art. 22	Since May 18, 1990
The United Kingdom	15% (Art. 10(2))	0% (Art. 11(1))	0% (Art. 12(1))	Art. 23	Since July 3, 1815

Starting as an LLC and converting later

An LLC can elect to be taxed as a corporation on Form 8832, subject to the 60-month limitation on changing again (IRS), or convert or merge into a corporation under state law. The tax consequences should be worked out before the change.

Treaty and law references

Entity classification: Treas. Reg. section 301.7701-3; Form 8832 (IRS).
Corporate tax rate: 21% (IRS Form 1120 instructions). Form 5472: Code section 6038A, Treas. Reg. section 1.6038A-1 (IRS). S corporation shareholders: IRS Form 2553 instructions.
Withholding: Code sections 1441 and 1442 (IRS Pub 515); treaty rates: IRS Table 1; treaty texts: IRS A to Z treaty list.
Section 1202: IRS Pub 550. Form 5471: IRS.
Published investor terms: YC FAQ, YC deal, YC SAFE.
Your home country's tax on you and any company there is for a local adviser.

How we help

Structure and deal terms sit with you, your lawyer and your investors; we prepare the US filings once they are set: Form 5472 and the pro forma 1120 for an LLC, Form 1120 and Form 5472 for a corporation, and Form 5471 when a US parent owns your home company. Gurleen Kaur, CPA licensed in British Columbia and Washington State, signs. Written quote first. Also see US tax for foreign founders and the forms we prepare.

Common questions

What does Y Combinator require for a non-US company?

YC says a company incorporated elsewhere than the United States, Canada, Singapore or the Cayman Islands creates a parent in one of those jurisdictions, and the existing company becomes its subsidiary.

What is the US corporate tax rate?

21% of taxable income, per the IRS instructions for Form 1120.

Can a nonresident founder own an S corporation?

No. An S corporation cannot have nonresident alien shareholders.

Can my LLC become a corporation later?

Yes, by electing on Form 8832 (subject to a 60-month limitation on changing again) or by converting under state law.

Sources

Every rule and figure on this page links to the IRS, CRA or other official source it comes from. Amounts change; we re-check them before each engagement.

Gurleen Kaur, CPA licensed in British Columbia and Washington State. Last updated November 11, 2026. This page is general information, not tax or legal advice for your situation.

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