What Is the Difference Between an S Corp, C Corp, and LLC for Expat Business Owners?
An LLC passes all income to your personal return with 15.3% self-employment tax on net earnings. An S Corp splits income into salary (subject to payroll tax) and distributions (not subject to payroll tax), reducing SE tax. A C Corp pays its own corporate tax, but a foreign C Corp triggers GILTI inclusions that can tax you before you receive a distribution (IRS: Business Structures).
- For most expats, the LLC is the default; the S Corp and C Corp add complexity that only pays off in specific situations
- LLC: simplest structure, full SE tax, FEIE applies, Form 8858 if foreign
- S Corp: lower SE tax, but cannot have NRA shareholders, and most foreign countries do not recognize the election
- C Corp: no SE tax, but double taxation risk and Form 5471 reporting with $10,000+ penalties
| Feature | LLC (Disregarded/Partnership) | S Corporation | C Corporation (Foreign) |
| Income flows to | Personal return (Schedule C) | Personal return (K-1) | Corporate return; dividends taxed when distributed |
| SE tax (15.3%) | Yes, on net earnings | Only on reasonable salary | No (but GILTI/Subpart F may apply) |
| FEIE applies to | Yes (earned income) | Yes (salary only, not distributions) | No (corporate income is not earned income) |
| Foreign reporting | Form 8858 (FDE) | No additional foreign forms | Form 5471 (if foreign corp) |
| GILTI exposure | No | No | Yes, if foreign C Corp is a CFC |
Key considerations for expats:
- LLC (default): simplest, but you pay 15.3% SE tax on all net income. FEIE can exclude the income from income tax, but NOT from SE tax. Form 8858 is required if the LLC is foreign.
- S Corp: reduces SE tax by splitting income into salary (subject to SE tax) and distributions (not). But S Corps cannot have nonresident alien shareholders, and many foreign countries do not recognize the S Corp election, creating double-taxation risk.
- Foreign C Corp: avoids SE tax entirely, but triggers GILTI/Subpart F inclusions that may be taxed at ordinary rates. Form 5471 reporting is required, with penalties of $10,000+ for non-filing. The Section 962 election can reduce the effective rate.
The S Corp limitation for expats: if your spouse is a nonresident alien, they cannot be an S Corp shareholder. If you live in a country that does not recognize the S election (most countries), the entity may be taxed as a regular corporation locally while being treated as a pass-through entity for U.S. purposes.
For more on foreign business structures, see our Foreign Business Tax Reporting guide. For business reporting help, see our Foreign Business Owner services.
Last updated on April 29, 2026
