A C-Corporation in the U.S. is an independent legal entity that is separate from its owners, providing shareholders with protection from personal liability.
Foreign individuals or entities can own shares in a C-Corporation, regardless of whether they are physically present in the United States.
In a C-Corporation, any dividends paid to foreign owners are subject to double taxation – once at the corporate level and again at the individual level when distributed as dividends to shareholders. Generally, a corporation pays tax on its net income at a rate of 21% (as of 2025). When the corporation distributes dividends to its foreign owners, a withholding tax of 30% (as of 2025) generally applies, unless a tax treaty reduces this rate. This creates a second layer of tax on income that has already been taxed at the corporate level.
Example: ABC International is a C-Corporation with owners from Germany. Here are the tax filings and related tax consequences for the C-Corporation:
Tax Filing: ABC International should file Form 1120.
Tax at the Corporate Level: As a C-Corporation, ABC will be subject to a corporate tax rate of 21% (as of 2025), unless otherwise reduced by a tax treaty.
Assuming ABC has a net profit of $300,000 in 2025, the corporation will pay 21% in corporate income tax, which amounts to $63,000. This leaves $237,000 in after-tax earnings.
Tax at the Foreign Shareholder Level: When ABC distributes dividends to its foreign owners, a withholding tax of 30% (2025) generally applies, unless it is reduced by a tax treaty.
For instance, if a German shareholder receives $100,000 in dividends, they would typically be subject to the 30% dividend withholding tax. This results in a withholding tax amount of $30,000 ($100,000 x 30%).
However, under the U.S.-Germany Tax Treaty, the reduced dividend withholding tax rate is 15%. Therefore, the shareholder will be subject to the 15% withholding tax under this treaty.
In this case, ABC will be responsible for collecting and remitting this tax to the IRS. The withheld dividend amount will be $15,000, resulting in a net payment of $85,000 ($100,000 – $15,000) to the German shareholder.
This example highlights the issue of double taxation, where the same income is taxed first at the corporate level and then again at the individual level.