LLC, C-Corp or S-Corp: Which structure to choose for an Italian SME entering the US (2026)
Author: Link2America | USA Market Consultants
Updated: June 2026
Reading time: 12 minutes
Category: Practical Guide · US Corporate Structures · International Taxation
In short: The LLC is the most used structure, but it is not automatically the right choice for an Italian company. The correct answer depends on three variables: what you want to do in the USA, where you are a tax resident, and what your growth plans are over the next three years. This guide helps you understand which structure is right for you — before investing time and money.
Table of Contents
- Why the choice of structure is critical for Italian SMEs
- Comparison of the three structures: LLC, C-Corp, S-Corp
- LLC: the most used, but not always the most suitable
- C-Corporation: When is it the right choice
- S-Corporation: the limit that almost nobody knows
- The three most common scenarios for Italian SMEs
- Scenario 1: solo export, nessuna presenza fisica
- Scenario 2: US office, American employees
- Scenario 3: American partner or fundraising
- Summary comparison table
- The 5 most common mistakes when choosing the structure
- Frequently Asked Questions (Q&A)
- How can we help you?
1) Why the choice of structure is critical for Italian SMEs
Opening a company in the USA has become technically simple. You can form a Delaware LLC in a few days, spending less than 200 dollars. The problem is not opening it — it is opening the right one for your specific situation.
For an American entrepreneur, the LLC is almost always the obvious choice: simple, flexible, tax-efficient. For an Italian entrepreneur, the same reasoning can lead to a costly mistake. The reason is simple: The Italian and American tax systems overlap, and the structure you choose determines how your profits are taxed in not one, but two countries.
An error in judgment at this stage typically translates to:
- unplanned double taxation of profits (in the US and Italy)
- tax filing obligations in Italy on income you thought you had “kept” in the USA
- inability to raise capital from American investors at a later stage
- corporate restructuring costs ranging between $10,000 and $30,000 when changing structure after launch
The right structure is chosen only once, at the beginning. Changing it later is possible, but costly.
2) The three structures compared: LLC, C-Corp, S-Corp
In the US there are different legal forms for a business, but for an Italian SME wanting to enter the American market, the relevant options are essentially three. Here is a quick initial overview.
LLC (Limited Liability Company) It is the most common business structure in the U.S.: more than 70% of new American businesses are incorporated as LLCs. It combines the protection from personal liability typical of corporations with the tax flexibility of partnerships. Its main advantage is the so-called pass-through taxationthe company does not pay its own federal taxes, the profits “pass through” directly to the partners who report them on their personal income.
C-Corporation (C-Corp) It is the American equivalent of a joint-stock company. A C-Corp is a separate taxable entity: it pays federal corporate tax at a rate of 21% on its profits. Only when it distributes dividends to shareholders are those dividends taxed a second time. This mechanism is called double taxation and it is the main disadvantage of the C-Corp for simple structures. However, it is the only form accepted by American institutional investors (venture capital, private equity) and the preferred structure for companies intended to raise capital.
S-Corporation (S-Corp) It is an American corporation that has opted for pass-through taxation, similar to an LLC. It has higher management costs than an LLC and stricter constraints. The most significant limitation for Italian SMEs: An S-Corp cannot have foreign shareholders. An Italian citizen who is not a U.S. resident cannot be a shareholder of an S-Corp. This effectively excludes it from 90% of the situations faced by Italian SMEs entering the U.S. market.
3) LLC: the most used, but not always the most suitable
How does the tax system work
The LLC is by default a pass-through entity: its profits are attributed directly to the shareholders and taxed on their personal tax return. In the USA this works very well: an American entrepreneur in Florida or Texas (states without a state income tax) only pays federal tax on personal income.
For an Italian entrepreneur, the picture is more complex. The Italian Revenue Agency considers the LLC to be a fiscally transparent entity, which means that LLC profits are included in the personal income of the Italian partner even if they are not distributed. This phenomenon is called phantom income: If you generate a profit of 100,000 euros and decide to reinvest the entire amount in the U.S. company, you won’t receive a single euro—but you must still report those 100,000 euros in Italy and pay IRPEF taxes on them (maximum rate 43%).
Italian tax obligations for an LLC member
An Italian member of a US LLC is required to:
- declare participation in RW Board of the Italian tax return (tax monitoring of foreign assets)
- I will present the FBAR (FinCEN Form 114) if you have US bank accounts with a balance of more than 10,000 dollars at any time during the year
- discuss with your accountant the risk of foreign investment — or the requalification of the LLC as an Italian company if actual management takes place from Italy
US tax obligations for an LLC with Italian members
On the American side, an LLC with foreign members is required to file the Form 5472 (Information Return for a 25% Foreign-Owned U.S. Corporation) along with Form 1120, even if there is no U.S. taxable income. Failure to file results in a penalty of $25,000 for each violation.
When the LLC is the right choice for an Italian
The LLC remains a valid structure for Italian SMEs in these cases:
- the entrepreneur has already transferred their tax residence to the USA (or is in the process of doing so)
- the company serves exclusively as a commercial vehicle for the US market, with minimal profits and limited activity
- A simple and economical structure is desired as a first exploratory step, with full awareness of the Italian tax implications
4) C-Corporation: when is the right choice
How does the tax system work
The C-Corp pays the 21% of federal corporate tax on its profits (flat rate following the 2017 Tax Cuts and Jobs Act). In addition to this is the state income tax, which varies from state to state: Florida has a rate of 5.5%, Delaware 8.7%, and Nevada 0%.
When a C-Corp distributes dividends to an Italian shareholder, the applicable Conventional deduction of 15% as provided for in the Italy-U.S. Tax Treaty (signed in 1984, ratified in 1985). The withholding tax rate is reduced to 5% if the Italian shareholder has held more than 25% of the capital for over 12 months. In Italy, dividends received from foreign companies are subject to a 26% substitute tax, with credit recognized for taxes already paid in the U.S.
The advantage of the C-Corp over the LLC for Italian partners
Paradoxically, the C-Corp — which has a reputation for being an “expensive” structure due to double taxation — can be more efficient than the LLC for an Italian partner who is a non-US resident. The reason is control over profit distribution: with the C-Corp, the Italian partner pays Italian taxes only on the profits they actually receive as dividends, not on those that the company reinvests. It eliminates the phantom income problem.
When to choose a C-Corp
The C-Corporation is the recommended choice in these scenarios:
- It is planned to reinvest the profits in the USA for several years without distributing them
- we want to attract American investors (venture capital, angel investors, family offices)
- a future listing or exit to American buyers is expected
- You have an American partner who requires a traditional corporate structure
- The US business volume is significant and there is a desire to clearly separate American taxation from Italian taxation.
5) S-Corporation: the limit that almost nobody knows
What it is and how it works
The S-Corp is an American corporation that filed the Form 2553 to the IRS to be taxed transparently, similar to an LLC. It avoids the double taxation of a C-Corp while maintaining the more formal corporate structure of a corporation.
The constraint that excludes it for the majority of Italian SMEs
To be eligible to elect S-Corp status, the company must meet specific requirements. The most relevant one for Italian SMEs is this: All partners must be US citizens or permanent residents of the US (Green Card or visa allowing permanent residence). An Italian citizen who is not a US resident cannot be a shareholder of an S-Corp.
This requirement automatically excludes the S-Corp from most situations in which Italian businesses find themselves when entering the US market.
When an S-Corp can be relevant
The S-Corp becomes an option only if the Italian entrepreneur has already obtained US permanent residency (Green Card) or US citizenship. In this case, it can be an efficient structure to manage the compensation of the shareholder-director in a tax-optimized manner.
6) The three most common scenarios for Italian SMEs
7) Scenario 1: solo export, nessuna presenza fisica negli USA
Profile: Italian company looking to sell products or services in the USA without opening a physical office, without American employees, and without relocating.
Objective: having an American company to open US bank accounts, issue invoices in dollars, and contract with American partners and distributors credibly.
Recommended structure: LLC
In this scenario, the LLC is appropriate, but with a few caveats:
- The LLC's profits will be declared in Italy as the partner's personal income (pass-through).
- if profits are low or are immediately reinvested in US assets, the Italian tax impact is manageable
- It is essential to agree with the Italian accountant on the correct filling out of Section RW and the assessment of the foreign-subjection risk.
Recommended state for incorporation: Wyoming (low costs, strong member privacy, no state income tax) or Delaware (if future growth with investors is anticipated).
8) Scenario 2: US office, American employees, on-site presence
Profile: Italian company opening an operational headquarters in the USA, hiring American personnel, and managing local operations. The entrepreneur spends significant periods in the USA but maintains tax residency in Italy.
Objective: solid structure for significant US operations, with a clear separation between Italian and American taxation.
Recommended structure: C-Corporation
In this scenario, the C-Corp offers concrete advantages:
- clear separation between US corporate income and Italian personal income
- no phantom income: the Italian partner pays Italian taxes only on dividends actually received
- credible structure for US corporate clients and potential partnerships with US companies
- ability to reinvest US profits into business development without immediate tax impact in Italy
Watch out for the additional costs of a C-Corp compared to an LLC:
- more formal and expensive accounting (typically $3,000–$8,000/year)
- obligation to hold board meetings and minutes of shareholders' meetings
- double taxation on distributed profits (manageable with tax planning)
9) Scenario 3: US partner or fundraising from US investors
Profile: Italian company looking to enter the US market with a local American partner, or to raise capital from American investors (angels, VCs, corporate venture).
Objective: structure that allows the participation of American partners and is compatible with the typical investment mechanisms of the US market.
Recommended structure: Delaware C-Corporation
This is the case where the C-Corp is not just recommended — it is practically the only option:
- American investors, particularly venture capitalists, invest almost exclusively in Delaware C-Corps
- The C-Corp allows the issuance of different classes of stock (common, preferred) necessary to structure investment rounds.
- The Delaware legal structure is the best known and most appreciated in the American startup and corporate ecosystems.
- Standard investment contracts (SAFE, convertible note) are designed for C-Corps, not LLCs
An alternative structure for the non-investor US partner: If the American partner is an operational partner (not a financial investor), the LLC with a well-structured operating agreement can work. In this case, it is essential to draft a detailed Operating Agreement that regulates the rights, duties, and exit mechanisms of each partner.
10) Summary comparative table
| Feature | LLC | C-Corp | S-Corp |
|---|---|---|---|
| Foreign members admitted | ✅ Yes | ✅ Yes | ❌ No |
| Double taxation | ❌ No (pass-through) | ✅ Yes (manageable) | ❌ No (pass-through) |
| Phantom income for Italians | ⚠️ High risk | ✅ No risk | ⚠️ High risk |
| Attractiveness for US investors | ⚠️ Limited | ✅ High | ❌ No |
| Annual management costs | 💲 Bassi | 💲💲 Medi-alti | 💲💲 Medi |
| Administrative complexity | 🟢 Bassa | 🔴 High | 🟡 Media |
| Export only suitability | ✅ Good | ✅ Great | ❌ Not applicable |
| US physical presence eligibility | 🟡 With caution | ✅ Great | ❌ Not applicable |
| Capital raising eligibility | Limited | ✅ Ideal | ❌ Not applicable |
| Mandatory Form 5472 | ✅ Yes (foreign partners) | ✅ Yes | N/A |
| RW Section in Italy | ✅ Mandatory | ✅ Mandatory | N/A |
11) The 5 most common mistakes when choosing the structure
1. Choosing the LLC because “everyone uses it” The popularity of the LLC in the USA is real, but it is based on an assumption that does not apply to Italians: the members are US residents. Copying this choice without considering the Italian tax implications is the most common mistake.
2. Do not consider phantom income Many Italian entrepreneurs are surprised when their Italian accountant asks them to declare income they have never seen in their bank account. The LLC taxes profits on a pass-through basis—even those you left in the American company.
3. Choosing the structure thinking only about today The right structure for those exporting today might not be the right one for someone opening an office in two years or looking for an American investor in three. Changing structures is possible but costly. It is worth thinking about it beforehand.
4. Ignoring reporting obligations in Italy FBAR, Quadro RW, Form 5472: these are mandatory requirements. The penalties for omission are disproportionately high compared to the cost of handling them properly with an expert in US-Italian taxation.
5. Relying on an accountant who knows only the Italian or only the American system A US corporate structure with Italian partners requires expertise in both tax systems simultaneously. An Italian accountant who doesn't know US taxation, or a US attorney who doesn't know the Italian implications, will give you a partial—and potentially wrong—answer.
12) Frequently Asked Questions (Q&A)
What is the main difference between an LLC and a C-Corp for an Italian?
The main difference lies in how profits are taxed. An LLC is a pass-through entity: profits are attributed directly to the Italian shareholder and taxed in Italy as personal income, even if they are not distributed (phantom income). A C-Corp is a separate taxable entity: it pays 21% in corporate tax in the U.S., and the Italian shareholder pays Italian taxes only on the dividends they actually receive. For those planning to reinvest profits back into the U.S. business, the C-Corp eliminates the issue of phantom income.
Can an Italian open an S-Corp in the USA?
No. The S-Corporation requires that all shareholders be US citizens or permanent residents in the US (Green Card holders). A non-resident Italian citizen cannot be a shareholder of an S-Corp. For the vast majority of Italian SMEs entering the US market, the S-Corp is not a viable option.
How much does it cost to form an LLC in the USA?
Setting up an LLC has very low direct costs: state fees range from 50 dollars (Kentucky) to 500 dollars (Massachusetts). Delaware and Wyoming, the two states most used by foreigners, cost about 90 and 100 dollars respectively. To these must be added the costs of the registered agent (100-300 dollars/year), any legal expenses for drafting the Operating Agreement (500-2,000 dollars one-off), and the costs of annual tax compliance (Italian-American CPA: 1,500-4,000 euros/year).
Is it better to incorporate in Delaware or another state?
It depends on how you plan to use it. Delaware is the preferred choice for C-Corps aiming to raise capital from US investors: Delaware's legal system is the most established and recognized in the US corporate ecosystem. Wyoming is the optimal choice for non-resident LLCs wanting simplicity, privacy, and low costs. Florida is recommended if you have actual physical operations in the state (you still need a registered agent in the state where you actually operate).
If I live in Italy and open an LLC in the USA, do I have to declare anything to the Italian Revenue Agency?
Yes, with specific obligations. You must report your participation in the LLC in Section RW of the Italian tax return (monitoring of foreign assets). If you have US bank accounts with a balance exceeding $10,000 at any time during the year, you must file the FBAR (FinCEN Form 114) by April 15. LLC profits are included in your Italian taxable income even if they are not distributed. Failure to declare entails significant penalties.
What is Form 5472 and who must file it?
Form 5472 is an informational form required by the IRS for LLCs with foreign members who own 25% or more of the company. It must be filed annually along with Form 1120, even if there is no U.S. taxable income. It reports all transactions between the LLC and its foreign members: capital contributions, loans, distributions, and services rendered. Failure to file results in an automatic penalty of $25,000 for each violation.
Can I convert an LLC to a C-Corp at a later time?
Yes, it is technically possible to convert an LLC into a C-Corp (or vice versa) at a later time. However, the process is not free: it involves legal and tax costs typically ranging between 10,000 and 30,000 dollars, and it can have immediate tax implications in both the US and Italy. For this reason, it is strongly recommended to choose the right structure from the beginning, considering not only current needs but also those of the next 3-5 years.
Is the Italian LLC the same as the American LLC?
No. The American LLC does not have a direct equivalent in Italian law. It is often compared to an SRL, but the correspondence is only partial. The most significant tax difference is that the American LLC is a pass-through entity (transparent) by default, whereas the Italian SRL is an autonomous tax entity that pays IRES. This difference has concrete consequences for the management of taxation for Italian shareholders.
Does an E-2 or L-1 visa change the recommended corporate structure?
Not directly, but indirectly yes. If you obtain a visa that allows you to work in the USA and you transfer your tax residency to the USA, the problem of phantom income and Form RW ceases to be relevant from an Italian perspective. In that case, the LLC becomes a simple and efficient option once again, exactly as it is for an American entrepreneur. The visa changes your tax residency, not the legal structure of the company.
Which structure is best if I want to sell on Amazon USA?
It depends on the volume and the strategy. For a first exploratory approach with limited volumes, the LLC is sufficient and cheaper to manage. If you anticipate significant revenue and want to optimize US profit taxation while avoiding phantom income, the C-Corp is more suitable. In either case, you will need an EIN (Employer Identification Number), a US business bank account, and a US physical address to register as a seller on Amazon.
13) How can we help you
Choosing the right corporate structure is one of the most important decisions you will make in your internationalization journey to the USA. It is not a decision that can be delegated entirely to an Italian accountant without American experience, nor to an American attorney without knowledge of the Italian tax system.
At Link2America, we work with Italian entrepreneurs and SMEs looking to enter the US market from a solid position—with the proper legal structure, a planned tax strategy, and a clear vision of real costs and obligations.
Our approach: Before recommending a structure, let's understand where you are today and where you want to be in three years. Let's analyze your business model, your current tax scenario in Italy, and your goals in the US market. Only then will we propose the most suitable structure.
The first step is free: We have prepared a preliminary questionnaire that allows us to arrive at the first call already focused on your specific case. No time wasted by either party.
👉 Fill out the questionnaire below to be contacted within 48 hours.
This guide is updated to June 2026 and is for informational purposes only. It does not constitute tax or legal advice. For specific decisions regarding your situation, we recommend consulting an experienced Italian-American tax professional.
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