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If you’re an international founder building a U.S.-based company, the first surprise is usually this: tax compliance starts early. Often it starts before revenue, before customers, and sometimes before you’ve even opened a bank account. Most first-year issues aren’t the result of complex tax planning; they’re basic misunderstandings that snowball into penalties, missed filings, and administrative headaches when you least have time for them.
Below are the first-year obligations that trip up international founders most often and what’s actually required.
Understanding payroll from day one.
Read our Founder’s Guide to Getting Started.
Filing obligations exist even with zero revenue
“No revenue” is not the same as “nothing to file.”
If your company is a Delaware corporation, Delaware will still expect an annual report and franchise tax payment. The Delaware Franchise Tax is not an income tax. It’s a fee for the privilege of being incorporated there. Even a dormant company can fall out of good standing if you ignore it.
On the federal side, a Delaware C Corporation generally needs to file a corporate return even if there was no activity. The habit to build in year one is simple: every year your company exists, assume there’s a filing requirement and verify what applies.
Federal corporate income tax return (Form 1120) annually, regardless of activity
Delaware Annual Report and Franchise Tax by March 1
Form 5472 for foreign-owned entities (details below)
Too many companies treat “no revenue” as a free pass. That’s how penalties start quietly accumulating and how companies lose good standing at exactly the wrong time (e.g., fundraising, banking, vendor onboarding, etc.)
Form 5472 applies to almost every foreign-owned U.S. entity
Form 5472 is the sleeper issue for international founders. It’s not hard because it’s complicated. It’s hard because people don’t realize it applies to them until it’s already too late.
The IRS requires Form 5472 for a 25% foreign-owned U.S. corporation (and it can also apply in other situations, including certain foreign-owned U.S. disregarded entities). A corporation is considered 25% foreign owned if at least one direct or indirect 25% foreign shareholder exists at any point during the tax year.
A common misconception is that “disregarded for tax purposes” means “no U.S. filing requirements.” But that’s not how the IRS treats foreign-owned disregarded entities. Form 5472 may still be required even if there is no income or activity.
Required:
Form 5472 is due every year on April 15 for single-member U.S. LLCs.
Form 5472 must be filed along with a simplified version of Form 1120 (U.S. Corporation Income Tax Return).
What counts as a reportable transaction
In practice, “reportable transactions” can be very ordinary founder behavior, especially in year one. Form 5472 is used to report transactions between a foreign-owned U.S. LLC and its owner or related parties.
Examples include:
Capital contributions (you send money into the company to cover expenses)
Loans (you lend money to the company, or the company lends money to you)
Service fees (payments such as management fees)
Distributions (you move money out of the company to your personal account)
Penalty exposure
The IRS penalty for failing to file Form 5472 can be severe. A $25,000 penalty may be assessed for failing to file when due and in the prescribed manner, and the penalty can also apply for recordkeeping failures. A substantially incomplete form counts as a failure to file.
If you’re required to file and don’t do so in time, additional penalties can apply after IRS notice, and the total can grow quickly.
Common but risky mistakes:
Assuming “no income” means “no Form 5472,” and then forgetting that reimbursements, owner loans, or founder-paid expenses can be reportable transactions.
Assuming you can e-file: foreign-owned disregarded entities generally must mail or fax and cannot e-file.
Getting an EIN without an SSN or ITIN
International founders often get stuck when applying for a Federal Employer Identification Number, or EIN, because the process is easy to misunderstand.
You do not need an Individual Taxpayer Identification Number, or ITIN, to apply for an EIN. In many cases it’s not even possible to obtain an ITIN just to get an EIN, because an ITIN application is typically filed with an initial U.S. tax return.
The IRS instructions for Form SS-4 explain how to complete the “responsible party” field if the responsible party doesn’t have (and isn’t eligible for) a Social Security Number (SSN) or ITIN: you enter “foreign” or “N/A” on line 7b.
In practice, most international founders apply by fax or mail. IRS response times vary; the key is to fill it out correctly so you don’t lose weeks to a rejection and resubmission.
Only applicants with an SSN or ITIN can use the online EIN application; non-residents typically fax Form SS-4.
Recommended: Apply for your EIN immediately after incorporation. You’ll generally need it to open a U.S. bank account and to complete filings such as Form 5472.
Delaware Franchise Tax calculation traps
The Delaware Franchise Tax is one of those “simple, until it isn’t” obligations, especially for startups that authorize a large number of shares.
Delaware’s default bill commonly reflects the Authorized Shares Method, which can produce a very large number if you authorized millions of shares (a common startup structure).
There’s also the Assumed Par Value Method, which is based on issued shares and gross assets and often results in a much lower amount for early-stage startups. Many startups use this method to avoid overpaying.
Required:
Delaware Domestic Corporation Annual Reports and Franchise Taxes for the prior year are due annually on or before March 1 and are filed online.
Delaware LLCs, LPs, and GPs generally pay an annual tax of $300.
Failure to file and pay can trigger a $200 penalty plus 1.5% interest per month on tax and penalty.
The 83(b) election has a hard 30-day deadline
If you receive restricted stock and want the typical tax treatment founders aim for, the 83(b) election is one of the most time-sensitive filings you’ll ever make. Miss the window, and you don’t get a second chance.
An 83(b) election can allow you to be taxed based on the fair market value at grant rather than at vesting. But the election must be filed within 30 days after you receive the restricted stock, and failing to file on time can create serious downstream tax issues. The 30-day deadline is absolute. No cure, no do-over.
One operational detail that catches founders: the grant date is often the date the board approves the grant, not the date you finally receive or sign the paperwork. That can compress your window dramatically.
Complete the 83(b) election form and mail it to the IRS within 30 days of the stock grant. Use certified mail so you have proof of delivery. Provide a copy to your company and keep a copy for your own records; include it with your annual return. If you live in a foreign country (or meet certain other criteria), the mailing address guidance can differ.
State tax obligations beyond Delaware
Incorporating in Delaware doesn’t automatically mean Delaware is where your tax footprint ends.
Delaware corporations that aren’t conducting business in Delaware generally aren’t subject to Delaware corporate income tax, but they still pay Delaware franchise tax administered by the Delaware Department of State.
Where things get real is when you do business in other states. If you have employees, customers, or physical presence outside Delaware, you may create a “nexus” that triggers additional obligations: corporate income tax filings, sales tax registration and collection, and payroll tax registration where employees work.
Before you hire your first U.S.-based employee or contractor (or start selling broadly into multiple states), map your likely state exposure with a tax professional. It’s much easier to set up correctly than to unwind later.
Withholding on payments to international founders
When a U.S. company pays certain types of income to foreign persons (including international founders), it may have withholding and reporting obligations. This can include dividends, directors’ fees, and other payments. Even if a tax treaty reduces the rate, reporting is still the company’s job.
Tax treaties between the U.S. and many countries can reduce or eliminate the standard 30% withholding tax on dividends, interest, and royalties, depending on the situation.
Proper withholding and reporting on payments from the U.S. entity to foreign owners, including dividends and certain fees, is required. It’s also recommended that you understand your home country’s treaty position and how it interacts with founder compensation before you start paying yourself from the company.
Key deadlines summary
Filing | Deadline | Penalty for missing |
Delaware Franchise Tax + Annual Report | March 1 | $200 + 1.5% per month interest |
Form 1120 (C-Corp tax return) | April 15 (extension available) | 5% per month up to 25% of unpaid tax |
Form 5472 (foreign-owned entities) | April 15 | $25,000 per form |
83(b) Election | 30 days from stock grant | Loss of tax benefit (no cure) |
What founders typically do next
If you want a simple operating rhythm for year one, focus on getting the basics correct and documented.
Confirm your EIN status: If you don’t have one yet, file Form SS-4 by fax and track the response.
Calendar the real deadlines: Put March 1 (Delaware), April 15 (federal), and any 83(b) deadline into a shared calendar that your co-founder and finance owner both see.
Track “money in / money out” cleanly: Founder-paid expenses, reimbursements, loans, and distributions are easy to blur together in early days. Clean records make Form 5472 (and future diligence) far less painful.
Engage a U.S. tax professional before your first filing: The best time to get help is early on.
Re-check whether your entity structure still matches reality: In some cases, a C corporation can be a better fit for foreign founders with U.S.-sourced income, depending on your situation and treaty position.
Getting U.S. compliance right in the first year is mostly about staying in motion: get the EIN, calendar the deadlines, keep clean transaction records, and don’t ignore “information-only” filings like Form 5472. If you’re an international founder, a short working session with a U.S. tax pro (before deadlines hit) can prevent the most expensive category of mistake: the one you didn’t realize you were making until penalties arrive.
To learn how to handle your first year in business, download The Founder’s Getting Started Guide to Payroll. You’ll see exactly how to set up payroll from incorporation onward and avoid costly compliance mistakes.
Legal disclaimer: The information provided is for informational purposes only and should not be considered legal advice.
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