Can a non-us citizen invest in an s corp? (2024)

Can a non-us citizen invest in an s corp?

A foreigner that is a non-resident alien cannot own an S-Corp. As per the IRS, a non-resident alien is an individual who is not a US citizen or a US resident alien.

Understanding S Corporations (S Subchapters)

Specifically, S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations (501(c)(3)). Partnerships, corporations, and nonresident aliens cannot qualify as eligible shareholders.

Who can be a shareholder of an S corporation? All U.S. citizens and U.S. residents can be shareholders of an S corporation. S corporations can have a maximum of 100 shareholders. Most entities, including business trusts, partnerships, and corporations are prohibited from holding stock in S corporations.

Having a particular visa has no impact on whether a non-resident alien can be a S-corporation shareholder. Only a green card or meeting the IRS' “substantial presence test” enables an alien to be eligible to be an S Corporation shareholder.

Who pays more taxes, an LLC or S Corp? Typically, an LLC taxed as a sole proprietorship pays more taxes and S Corp tax status means paying less in taxes. By default, an LLC pays taxes as a sole proprietorship, which includes self-employment tax on your total profits.

There's no requirement for citizenship to operate a business in the U.S., so long as it's the right form of business. This means that a noncitizen can operate a limited liability company (LLC) or a C corporation, but not an S corporation.

An S corporation is generally limited to having at most 100 shareholders and they must be individuals or certain kinds of trusts or estates. Relatives and spouses can often be treated as single shareholders. Another corporation can't buy in to an S corporation, nor can a partnership.

Under the tax code, an S corp may have a non-citizen, resident alien as a shareholder. However, it cannot have a nonresident alien as a shareholder. There are many non-citizens who own U.S. companies. Technically, they are foreigners to the country.

Can an S Corp have foreign income?

Foreign taxes paid by an S corporation pass through to shareholders who can elect to treat them as deductions or credits on their individual returns ( Code Sec. 1373). An S corporation is treated as a partnership rather than a corporation.

Having an ITIN isn't enough to qualify as an S corporation shareholder. S corporations cannot have a nonresident alien as a shareholder. So, you would need to take steps to make yourself a resident of the U.S. for federal tax purposes.

Shareholders of corporations are not considered self-employed.

Setting Up Payments in an S Corp

Generally, owners of an S corp qualify as employees of the business and must receive a salary. If you're an owner who's actively involved in managing your S corp, you're considered an employee of the company and you'll pay yourself a W-2 salary.

Asset protection

One major advantage of an S corporation is that it provides owners limited liability protection, regardless of its tax status. Limited liability protection means that the owners' personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.

Make sure your LLC is approved and has an EIN Number (see how to get an EIN without SSN) before applying for a U.S. LLC bank account. Foreigners (non-US residents) can open a U.S. LLC bank account. You don't have to be an American citizen or a U.S. resident alien to apply for a business bank account in the U.S.

If there will be multiple people involved in running the company, an S Corp would be better than an LLC since there would be oversight via the board of directors. Also, members can be employees, and an S corp allows the members to receive cash dividends from company profits, which can be a great employee perk.

No foreign person can own an S Corp, which leaves all foreign persons with the option of either forming an LLC or a C Corp.

There are generally two ways to get money into an S-Corp – through a capital contribution (equity) or loans (liabilities). If a shareholder contributes $100,000 to their S-Corp and later distributes $50,000 to help pay their personal bills they run into a serious tax problem.

Can an individual be an S corp?

No. An S corporation is an IRS tax status that the owner of an LLC or C corporation can elect. A sole proprietorship can't elect S corp status directly.

A corporation cannot pay an employee's mortgage as a fringe benefit because it is not a typical business deduction the employee would incur on his own, according to the IRS.

S corporation advantages

Single layer of taxation: The main advantage of the S corp over the C corp is that an S corp does not pay a corporate-level income tax. So any distribution of income to the shareholders is only taxed at the individual level.

S Corps don't pay corporate taxes the same way as C Corps do. Instead, the profits pass through to the owner's tax return and then the owner pays income tax on the profits. Each year, the S Corp must file a corporate tax return called Form 1120-S.

The cost to start an S corp varies by state, based on filing fees and state taxes, but you can expect to pay between $800 to $3,000, excluding any lawyer's fees, should you choose to hire one.

A corporation, including one that is taxed as an S corporation, must always file its initial tax return with the Internal Revenue Service, even if it had no business activity to report. For an S corporation, this initial return and all subsequent returns are prepared on Form 1120S – which is an informational return.

Shareholders in an S corporation have an initial stock basis equal to the amount of their capital contributions to the corporation.

The ability for an individual on an H-1B to own or start a business first depends on the structure of the entity. There is one particular corporate structure that as a general rule does not allow foreign ownership: S-Corp. This kind of corporation cannot have shareholders that are not U.S. citizens.

Generally, there are no citizenship or residence requirements for ownership of a C Corporation or an LLC. The same, however, does not apply when it comes to S Corporation, especially when it comes to the residence requirement. According to the IRS, non-resident aliens are not permitted to be shareholders.