S-Corporation and Nonresident Aliens
Can an Expatriate Own an S-Corporation as a Nonresident Alien: Oftentimes, many of the Expatriates that we represent are also entrepreneurs — and may have their hand in many different investments and businesses at the time of expatriation. One common issue our International Tax Lawyers come across, is what happens to the expatriate from an IRS tax perspective who was the owner or shareholder of an S-corporation. In other words, can an expatriate, nonresident alien have ownership in an S- Corporation?
S Corporation Flow-Through
When a US Person forms a small business corporation to act as an S-Corp, the income flows through direct to the shareholders. Therefore, this avoids the two-level of taxes that occur with a C Corporation. But, in order to meet the requirements of an S-Corporation, the small business must meet certain elements.
As provided by the IRS:
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
- May be individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
Nonresident Aliens & Ownership of an S-Corporation
When a US Citizen or Long-Term Lawful Permanent Resident becomes a non-resident alien, they no longer qualify as a US person who may be a shareholder of an S-Corporation.
In addition, since Partnerships and Corporations are also disqualified from becoming an S-corporation shareholders, the non-resident alien is limited in being a shareholder of an S-Corp.
While the nonresident alien does not qualify to directly hold ownership, they may be able to establish a trust sufficient to hold ownership through an ESBT in accordance with TCJA rules.
Interested in Expatriation from the U.S.?
Our firm specializes exclusively in international tax and expatriation.
Contact our firm for assistance with getting compliant.