A multi-member LLC with foreign members can also elect to be treated as a C-corporation for tax purposes. With a C-Corp tax designation, the LLC is no longer eligible for pass-through taxation, and the company is subject to corporate taxes on its profits.
An LLC can elect to be taxed similarly to a C-Corporation by submitting Form 8832 to the IRS. This election changes the LLC’s tax treatment. Here, the LLC is taxed as a separate entity, and it should file a corporate tax return under Form 1120. This structure can benefit businesses that want to retain earnings and offer various employee fringe benefits.
However, this also means that any dividends paid to all owners, including foreign owners, are subject to double taxation. This occurs once at the corporate level and again at the individual level when the dividends are distributed to shareholders. An LLC that is taxed as a C-Corp pays tax on its net income at a rate of 21% (2025). When the corporation distributes dividends to its foreign owners, a withholding tax of 30% (2025) generally applies, unless it is reduced by a tax treaty. Thus, this represents a second layer of tax on the same income that has already been taxed at the corporate level. The LLC withholds this withholding tax on foreign shareholders and remits it to the Internal Revenue Service (IRS).
Example: ABC International LLC is a multi-member LLC with owners from Germany. The LLC elects to be treated as a C-Corporation. Here are the tax filings and related tax consequences of the LLC:
Tax filing: ABC International will need to file Form 8832 with the IRS and elect to be treated as a C-corporation.
Tax at corporate level: As a C-Corp LLC, ABC will be subject to the corporate tax rate of 21% (2025), unless otherwise reduced by tax treaty.
Now let’s assume that ABC International LLC has net profit of $300,000 in 2025. They will be subject to 21% (as of 2025) corporate income tax. Therefore, the LLC’s taxable amount will be $63,000, resulting in $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% (as of 2025) generally applies, unless it is reduced by a tax treaty.
Let’s assume a German shareholder received $100,000 as dividend. Typically, shareholders may be subject to a dividend withholding tax rate of 30%. This will result in the withholding tax amount of $30,000 ($100,000 x 30%). However, under the US-German Tax treaty, the reduced dividend withholding tax rate is 15%. Therefore, the shareholder will be subject to 15% withholding tax rate under the U.S.-Germany tax treaty. Here ABC will be responsible for collecting and remitting this tax to the IRS.
Therefore, the withheld dividend amount will be $15,000, resulting in a net payment of $85,000 to the German shareholder.