Can a non-resident own an S corp?

The IRS rule

An S corp's owners must be individuals, or certain trusts and estates, and none of them can be a nonresident alien. Partnerships and companies can't be owners either. If one owner doesn't qualify, the whole company can't be an S corp. All the S corp rules

Who counts as a nonresident alien

Anyone who isn't a US citizen, unless they pass one of two IRS tests:

• The green card test: you're a lawful permanent resident of the US.
• The substantial presence test: you were in the US for at least 31 days this year, and 183 days over three years, counting every day this year, a third of last year's days and a sixth of the year before's.

Some days don't count toward that test, including days as a student on an F, J, M or Q visa, or as a teacher or trainee on a J or Q visa.

The IRS also has choices that override both tests: a first-year choice to be treated as a resident, a nonresident spouse of a US citizen or resident being treated as a resident, the closer connection exception, and tax treaties.

US citizens are never nonresident aliens, even if they've lived abroad for years. Residency comes from these tests and choices, not from having a tax number such as an ITIN or an EIN.

If your spouse lives outside the US

In some countries, and in some US states, the law makes what a married couple acquires their joint (community) property. If your spouse is a nonresident alien and that law gives them a share in your company's stock, the IRS counts them as an owner, and the company can't be an S corp. That's true even if you're a US citizen and the shares are in your name alone.

The Treasury's own regulation shows the way through: if you and your spouse choose to treat your spouse as a US resident, the company can qualify. That choice is made on a joint US tax return, and it means you're both taxed in the US on your worldwide income. A qualified tax professional can check how the law where you live treats your shares, and whether the choice suits you.

If an owner moves abroad or sells shares

S corp status isn't checked only once. If the company stops qualifying, for example because a share goes to a nonresident alien or to a company, the election ends automatically that day. The company can't make it again for 5 years without the IRS's consent. The IRS can grant relief when the change was inadvertent.

What works instead

Both are open to owners anywhere, and both give you a US company with an EIN:

LLC or C corporation, side by side. If you later become a US resident, the LLC or corporation can file Form 2553 then, as long as every owner qualifies.

Mistakes to avoid

• Filing Form 2553 anyway. With a nonresident alien owner the company doesn't qualify, however the form is filled in.
• Adding a co-founder abroad to an existing S corp. The status ends the day they become an owner.
• Owning it through your company abroad. Companies can't hold S corp shares.
• Forgetting a spouse abroad. Where community property law gives a nonresident alien spouse a share, the company doesn't qualify unless the spouse is treated as a US resident.
• Counting student-visa days. Days on an F, J, M or Q student visa don't count toward the substantial presence test.
• Relying on an ITIN. It doesn't make you a US resident.
• Missing the yearly Form 5472 once you choose an LLC instead. It's due even with no income, and missing it can cost $25,000.

What we handle for founders abroad

Most founders who ask about an S corp from abroad want a US company, simply taxed. We set up the one that fits and keep its filings on time.

Everything that's different when you live outside the US

This guide explains the IRS's rules. It isn't tax advice for your own situation.