Short answer: An LLC is a flexible legal entity whose profits are, by default, taxed to its owners. A C-corp pays its own federal income tax at 21%, and shareholders pay again on dividends. An S-corp is a tax election that passes profits through to shareholders, but nonresident aliens cannot be shareholders. Most non-US sellers therefore choose between an LLC and a C-corp.
This is general information, not legal, tax or financial advice. Entity choice depends on where you live, who owns the business, how much it earns, your plans for profits and the US state involved. Rules change. Speak to a qualified US tax professional, and a professional in your home country, before you form an entity or file any election.
First, a common confusion: an S-corp is not a separate entity
People compare "LLC vs S-corp vs C-corp" as if they were three types of company. They are not quite:
- LLC is a legal entity formed under state law.
- Corporation is a legal entity formed under state law. By default it is taxed as a C-corp.
- S-corp is a federal tax status. The IRS describes S corporations as "corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes."
An eligible corporation can elect S-corp status, and so can an LLC. The Form 2553 instructions allow a "domestic entity eligible to elect to be treated as a corporation" to file, and say such an entity that timely files Form 2553 does not also need Form 8832.
So the real decisions are: which legal entity, and which federal tax treatment.
How each option is taxed
LLC (default treatment)
According to the IRS:
- an LLC with one member is, by default, "treated as an entity disregarded as separate from its owner" for income tax purposes;
- an LLC with two or more members is, by default, "classified as a partnership for federal income tax purposes";
- an LLC can file Form 8832 to elect to be classified as a corporation instead.
For a US individual who owns a single-member LLC, the IRS says the owner "is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship." The self-employment tax rate is 15.3% (12.4% Social Security and 2.9% Medicare). How these rules apply to a non-US owner depends on residency and treaty position, which is a question for a tax professional.
C-corp
The corporation is a separate taxpayer. IRS Publication 542 states that corporations "figure their tax by multiplying taxable income by 21%." Corporations file Form 1120, generally by the 15th day of the 4th month after the end of the tax year.
Profits paid out to owners are taxed again. The IRS explains that "the profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends," and that the corporation "does not get a tax deduction when it distributes dividends." This is the "double taxation" people mention.
S-corp
An S-corp files Form 1120-S, and its income, losses, deductions and credits pass through to shareholders. The IRS notes that this "allows S corporations to avoid double taxation on the corporate income."
The trade-off is payroll. The IRS says distributions and other payments to a corporate officer "must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation." In practice, an owner who works in the business needs a salary on payroll, with employment tax filings.
Who can own each one
This is where non-US sellers find the decision is often made for them.
| Question | LLC | S-corp | C-corp |
|---|---|---|---|
| Legal basis | State-law entity | Federal tax election by an eligible entity | State-law corporation |
| Can a nonresident alien own it? | Yes | No: no nonresident alien shareholders allowed | Yes |
| Owner limits | The S-corp tests below do not apply | No more than 100 shareholders; only allowable shareholder types | The S-corp tests below do not apply |
| Classes of ownership | Set out in the operating agreement | Only one class of stock | Not bound by the S-corp one-class rule |
| Default federal tax | Disregarded (1 member) or partnership (2+) | Pass-through via Form 1120-S | 21% corporate tax via Form 1120 |
| Tax on distributions | Generally none at entity level | Generally none at entity level | Dividends taxed to shareholders |
| Payroll for working owners | Not required by default | Reasonable compensation as wages | Salary if paid, taxed as wages |
The Form 2553 instructions list the S-corp eligibility tests: a domestic corporation or eligible entity, no more than 100 shareholders, only allowable shareholders (individuals, estates, certain trusts and certain exempt organisations), "no nonresident alien shareholders" (other than as potential current beneficiaries of an ESBT) and only one class of stock.
What non-US owners should check
Single-member LLC owned by a foreign person
A foreign-owned single-member LLC is disregarded for income tax by default, but not for every filing. The IRS Form 5472 instructions explain that a foreign-owned US disregarded entity is "treated as an entity separate from its owner and classified as a corporation for the limited purposes" of the reporting rules, and must file Form 5472 attached to a pro forma Form 1120. Build this into your annual calendar from the first year. Our guide to a US LLC for non-US Amazon sellers covers the wider setup.
Multi-member LLC with foreign partners
A multi-member LLC is taxed as a partnership by default. The IRS explains that under section 1446(a), a partnership with income effectively connected with a US trade or business "must pay a withholding tax on the effectively connected taxable income (ECTI) allocable to its foreign partners." Whether your marketplace income is effectively connected is a technical question to settle with a tax professional before you add partners.
C-corp with foreign shareholders
A C-corp can have foreign shareholders, but dividends paid to them are generally subject to US withholding. IRS Publication 515 states that most US-source income received by a foreign person "is subject to U.S. tax of 30%," and that "a reduced rate, including exemption, may apply if there is a tax treaty" between the person's country of residence and the US.
S-corp election timing (for eligible owners)
For owners who are eligible, the Form 2553 instructions say the election must be filed no more than 2 months and 15 days after the beginning of the tax year it is to take effect, or at any time during the preceding tax year. That is why the S-corp conversation usually happens near the end of the year.
Which structure fits which e-commerce seller?
These are common patterns, not recommendations for your case:
| Seller situation | Structure often considered | Why |
|---|---|---|
| Non-US founder starting on Amazon, Walmart or Temu | Single-member LLC | Simple to form; nonresident ownership allowed; flexible |
| US-resident owner with steady, meaningful profit | LLC with S-corp election | Pass-through treatment with salary and distributions; adds payroll |
| Several partners, some outside the US | Multi-member LLC or C-corp | Depends on partnership withholding vs corporate tax and dividend withholding |
| Plans to raise outside investment or reinvest most profits | C-corp | Separate taxpayer at 21%; no S-corp shareholder restrictions |
| Early-stage, low profit | Usually the simplest compliant option | Extra filings can cost more than they save |
Two points apply to everyone. First, state rules matter too: formation fees, annual reports and state taxes differ by state, so check the state where you form and the states where you do business. Second, entity choice does not change your sales tax obligations; see do Amazon sellers need a sales tax permit? for that side.
Mistakes to avoid
- Electing S-corp status with an ineligible owner. A nonresident alien shareholder fails the eligibility test.
- Forgetting Form 5472 for a foreign-owned single-member LLC because "it is disregarded."
- Choosing a C-corp without planning distributions. Taking profits out as dividends means a second layer of tax.
- Skipping payroll in an S-corp when the owner works in the business.
- Letting names and records drift. Keep the legal name, EIN and ownership consistent across formation papers, IRS records and marketplace accounts. Our post on ITIN vs EIN for non-US LLC owners explains which tax ID belongs where.
How ECOMHUTSY helps
ECOMHUTSY has supported e-commerce founders since 2016, working with clients in 50+ countries from our Multan head office and branches across Pakistan, plus offices in Dubai and Westland, MI.
We coordinate formation and filings; we do not replace your tax adviser's judgement on which structure is right. Depending on your decision, our team can support US LLC formation, an S-corp election for eligible owners or C-corp formation. Pricing is confirmed after consultation, because state fees and scope differ. If you are starting from Pakistan, our guide on how to form a US LLC from Pakistan covers the step-by-step process.
Frequently asked questions
Can a non-US person own an S-corp?
No. The Form 2553 instructions require that the corporation has no nonresident alien shareholders, other than as potential current beneficiaries of an ESBT.
Is an LLC or a C-corp better for a non-US Amazon seller?
It depends on your profits, plans for distributions, home-country tax and whether you will add partners or investors. Many start with a single-member LLC for simplicity, but a tax professional should confirm it for your situation.
Can an LLC be taxed as an S-corp?
Yes, if it is eligible. An LLC can file Form 2553, and the instructions say an eligible entity that timely files it does not also need Form 8832.
What is double taxation in a C-corp?
The corporation pays tax on its profit, and shareholders pay tax again when that profit is paid out as dividends. The corporation cannot deduct the dividends.
When should I decide?
Before you form, if possible, because changing later adds filings. For eligible owners considering an S-corp, the election deadline is tied to the start of the tax year.
Talk through your structure
Comparing structures for a new or growing store? Share your ownership, residency and plans, and our team will explain the formation and filing steps for each option and confirm scope and pricing. We will also tell you where you need a tax professional's sign-off.
Not legal, tax or financial advice. Information reflects IRS publications and instructions as of October 2026 and may change.
Sources
- IRS, Limited liability company (LLC): https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- IRS, Single member limited liability companies: https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies
- IRS, Self-employment tax (Social Security and Medicare taxes): https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
- IRS, Instructions for Form 2553 (Rev. December 2020): https://www.irs.gov/instructions/i2553
- IRS, S corporations: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
- IRS, S corporation compensation and medical insurance issues: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
- IRS, Publication 542, Corporations (Rev. January 2024): https://www.irs.gov/publications/p542
- IRS, Forming a corporation: https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation
- IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/instructions/i5472
- IRS, Partnership withholding (section 1446): https://www.irs.gov/individuals/international-taxpayers/partnership-withholding
- IRS, Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities: https://www.irs.gov/publications/p515
