The Wyoming LLC vs. Delaware C-Corp Blueprint
You are not a U.S. person. You are about to form a U.S. entity for a business you will run from somewhere else, and two names dominate every shortlist: a Wyoming LLC and a Delaware C corporation. The comparison is usually sold to you as a matter of filing fees and privacy. It is really a decision about which U.S. tax return ends up with your personal name on it.
Settle the tax character before you settle the state
State law and federal tax classification are two separate systems, and founders routinely collapse them into one question. Wyoming and Delaware determine your governance documents, your annual fees, and which courthouse hears a dispute. They do not determine how the Internal Revenue Code treats your income.
Classification comes from the entity classification regulations. An LLC with a single owner is by default disregarded as separate from that owner under Treas. Reg. §301.7701-3(b)(1)(ii). A corporation formed under a state incorporation statute is a corporation per se under Treas. Reg. §301.7701-2(b)(1), with no election available. The asymmetry matters: an LLC can elect corporate treatment on Form 8832, but a corporation cannot elect its way back out.
So the honest framing is not "Wyoming or Delaware." It is "pass-through or corporate," followed by "and in which state do I want to pay the annual fee."
What pass-through treatment does to a non-resident specifically
When the LLC is disregarded, the law treats the business as yours directly. Everything downstream follows from that single fact.
If the activity rises to a U.S. trade or business and the income is effectively connected under IRC §864(c), you personally are taxed on a net basis at graduated rates under IRC §871(b), and you personally file Form 1040-NR. That return is due April 15 if you were an employee receiving wages subject to withholding or you maintain an office or place of business in the United States, and otherwise on the fifteenth day of the sixth month after year end. Deductions and credits are not automatic on a late return: Treas. Reg. §1.874-1 conditions them on filing within a defined window.
If the activity does not rise to a U.S. trade or business and produces no U.S. source fixed or determinable annual or periodical income, there may be no U.S. income tax liability at all. That is a sourcing conclusion under IRC §§861–865, not a state-of-formation conclusion, and it is reached the same way whether you formed in Wyoming or in Delaware.
Add a second member and the classification changes again. The LLC becomes a partnership, and IRC §1446(a) requires the partnership to withhold on effectively connected taxable income allocable to a foreign partner at the highest rate under IRC §1 for a noncorporate partner and the IRC §11(b) rate for a corporate one, reported on Forms 8804, 8805, and 8813.
The reporting consequence that belongs only to the single-member LLC
Treas. Reg. §301.7701-2(c)(2)(vi) does something counterintuitive. A domestic entity that is otherwise disregarded, but is wholly owned directly or indirectly by one foreign person, is treated as an entity separate from its owner and classified as a domestic corporation solely for purposes of IRC §6038A. The rule applies to taxable years of such entities beginning after December 31, 2016 and ending on or after December 13, 2017.
The practical result is a filing obligation that exists even when the entity owes nothing and has no income tax return to file: a pro forma Form 1120 carrying a Form 5472. Failure carries $25,000 for each taxable year under IRC §6038A(d)(1), plus $25,000 for each 30-day period or fraction of one after 90 days from the date the IRS mails notice, under IRC §6038A(d)(2).
A 25 percent foreign-owned Delaware C corporation also files Form 5472. The difference is context. The corporation was already preparing a real Form 1120 with a real preparer looking at it. The LLC's obligation is freestanding, attaches to an entity with no other federal filing, and is therefore the one that gets missed.
How cash actually leaves each structure
This is where the two paths diverge most sharply, and it is worth being concrete.
Out of a disregarded LLC, a "distribution" is not a distribution in any tax sense. There is no second person to pay. Nothing is withheld under IRC §1441 because no payment is being made between separate taxpayers. The money was already yours for tax purposes when the entity earned it. But the movement is still a reportable transaction: the Form 5472 instructions direct that contributions to and distributions from the entity, and amounts paid or received in connection with its formation, dissolution, acquisition, and disposition, be reported in Part V as transactions within the meaning of Treas. Reg. §1.482-1(i)(7).
Out of a C corporation, there are two layers. The corporation pays 21 percent on taxable income under IRC §11(b). A dividend is then U.S. source income subject to 30 percent tax under IRC §881(a) or §871(a), collected by withholding under IRC §§1441–1442, and reduced only where a treaty article applies and the payer holds a valid Form W-8BEN or W-8BEN-E.
An illustrative arithmetic, using round numbers and no state tax: on $500,000 of corporate taxable income, the entity-level charge at 21 percent is $105,000. If the remaining $395,000 were paid out as a dividend with no treaty reduction available, withholding at 30 percent would be $118,500. These are illustrative figures only; the actual outcome depends on your treaty position, your documentation, and whether a distribution is made at all.
Side by side
| Dimension | Wyoming LLC, single foreign member | Delaware C corporation |
|---|---|---|
| Default classification | Disregarded, Treas. Reg. §301.7701-3(b)(1)(ii) | Corporation per se, Treas. Reg. §301.7701-2(b)(1) |
| Who files | You, on Form 1040-NR, if there is ECI | The entity, on Form 1120 |
| Entity-level tax | None | 21 percent, IRC §11(b) |
| Tax on money out | None on the transfer itself | 30 percent on dividends, IRC §881(a)/§871(a), treaty may reduce |
| Form 5472 exposure | Yes, via Treas. Reg. §301.7701-2(c)(2)(vi), with a pro forma Form 1120 | Yes, if 25 percent foreign-owned, filed with the real Form 1120 |
| Annual state cost | Greater of $60 or $0.0002 per dollar of Wyoming assets, Wyo. Stat. §17-29-209 | Franchise tax from $175 or $400 depending on method, plus $50 annual report |
| State deadline | First day of the anniversary month | March 1 |
| Suitability for equity financing | Requires conversion or restructuring | What institutional financing documents assume |
What changes the moment outside capital appears
Priced equity rounds need preferred stock, a board, an option pool, and stock that can be issued subject to vesting with an IRC §83(b) election available on a 30-day clock. Those instruments are corporate instruments. Venture financing documents are conventionally drafted for a Delaware corporation, and a pass-through allocating operating income to investors is generally the opposite of what a fund wants.
There is a nuance about qualified small business stock worth stating plainly, because it is often quoted at non-residents as a personal benefit. IRC §1202 excludes gain for noncorporate holders of stock in a domestic C corporation. The 2025 reconciliation act changed the regime for stock acquired after July 4, 2025, introducing a tiered exclusion at three, four, and five years, raising the per-issuer cap to $15 million with inflation indexing, and raising the issuer gross asset ceiling to $75 million. Stock acquired on or before that date remains under the prior rules. But gain on the sale of stock by a non-resident individual is generally sourced to the seller's residence under IRC §865(a) and falls outside U.S. tax absent effectively connected income or a FIRPTA interest. So the §1202 design question is usually about what your U.S. investors receive, not about you.
Converting an LLC into a corporation later is possible. It is also a structural event with its own tax consequences that has to be modeled against your specific facts and timing rather than assumed to be costless.
State differences that carry weight, and the ones that do not
Three differences genuinely affect you.
- Annual cost and calendar. Delaware corporations owe franchise tax and an annual report by March 1, with a minimum of $175 under the authorized shares method or $400 under the assumed par value capital method, a $50 report fee for non-exempt domestic corporations, and a $200 penalty plus 1.5 percent monthly interest for late filing. Delaware LLCs owe a flat $300 annual tax by June 1 and file no annual report. Wyoming charges the greater of $60 or two-tenths of one mill per dollar of assets located and employed in Wyoming, due the first day of the anniversary month.
- State income tax. Delaware imposes an 8.7 percent corporate income tax on income allocated and apportioned to Delaware, with an exemption at 30 Del. C. §1902(b)(8) for corporations whose Delaware activity is confined to maintaining and managing intangible investments. Wyoming imposes no corporate or individual income tax. Neither fact does much work if you have no people, property, or activity in either state. State exposure follows where the business actually is, and after South Dakota v. Wayfair, Inc. (2018) sales tax registration thresholds follow customers rather than physical presence.
- Governance depth. Delaware's corporate case law is real and valuable once there are outside shareholders and disputes worth litigating. For a single-owner company with no investors, it is a feature you are paying for and not using.
The difference that is mostly marketing is privacy. Wyoming's public filing record is thin. That does not touch federal reporting, and it does not survive account opening: under 31 CFR §1010.230, a covered financial institution must identify each individual owning 25 percent or more of a legal entity customer plus one individual with significant control. Separately, FinCEN's interim final rule of March 26, 2025 narrowed the beneficial ownership reporting company definition to entities formed under foreign law and registered to do business in a U.S. State or tribal jurisdiction, which removed U.S.-formed entities from that regime. That position has been subject to further rulemaking and should be confirmed as of the date you act on it.
Four questions to answer before you file anything
Work through these in order. The answers, not the brochure, select the structure.
- Where is the work performed, and by whom? Services income is sourced by place of performance under IRC §861(a)(3) and §862(a)(3), which is the first gate on whether U.S. tax applies at all.
- Will you raise priced equity from institutional investors within roughly two years? If yes, the corporate path avoids a later conversion.
- Does your country of residence have an income tax treaty with the United States, and can you obtain a residency certificate on Form 6166 by filing Form 8802? Treaty relief on dividends is only available with documentation in the payer's hands before payment.
- Are you prepared to file a personal U.S. return? Pass-through treatment puts your name on Form 1040-NR. That is a durable consequence, not an administrative detail.
If you already formed an entity before working through those questions, the useful next step is a structural review that reconciles the entity you have against the facts of the business you are actually running, which is what the firm's diagnostic is built to do. Broader background on how these structures are assembled sits on the incorporation architecture pillar. This article is general information about how the cited provisions operate and is not advice on your circumstances.