An Affiliate in the U.S. is a company in which another company owns a significant minority stake (typically 10-50%), but not a controlling interest.
Affiliates operate as separate legal entities with independent management but maintain a financial and strategic relationship through partial ownership. Unlike subsidiaries, affiliates do not have more than 50% of their voting stock controlled by the parent company.
A foreign individual or entity can choose to form an affiliate in the U.S. through significant foreign ownership or control.
Specifically, this occurs when a foreign individual or organization owns or controls at least 10% of the voting rights in a U.S. company. This threshold applies to both incorporated businesses (like corporations) and unincorporated businesses (such as partnerships or limited liability companies).
Foreign individuals or entities establishing U.S. affiliates face several key tax consequences. The tax treatment differs based on whether the entity is incorporated or unincorporated.
For example, if the U.S. business is unincorporated, it is not legally separate from its owners. So, the owner(s) don’t pay corporate tax rates. Instead, they report all profits and losses on their personal tax returns and pay taxes at their personal income tax rate. If the owners are foreign individuals or entities, they may be liable for the taxes, rather than the unincorporated U.S. Company.
On the other hand, if the U.S. business is incorporated, it establishes a separate legal entity subject to U.S. corporate income tax at the rate of 21% (as of 2025). However, this also means that any dividend paid to foreign owners is subject to additional tax. As a result, income is subject to double taxation—once at the corporate level and again at the individual level when distributed as dividends to shareholders. A C-Corp pays tax on its net income at 21% (2025). When the corporation distributes dividends to a foreign owner, a withholding tax of 30% generally applies unless reduced by a tax treaty.