Optimal tax strategies for C Corp payments to foreign owner with no US work permit

This is actually a common issue for foreign-owned US corporations. You're right to be concerned about transfer pricing rules - the IRS looks closely at these arrangements to ensure they reflect arm's length pricing. Paying your owner as a contractor is possible, but you need documentation showing the compensation is reasonable for the services provided. The key is to ensure payments reflect market rates for similar work. If all profits are being transferred as "contractor payments," that will definitely raise red flags. Consider a hybrid approach - reasonable contractor payments plus occasional dividends. You could also explore a management service agreement between your C Corp and a foreign entity controlled by the owner. This needs proper structuring with clear deliverables and market-based compensation. Whatever route you take, document everything thoroughly and consider getting an advance pricing agreement from the IRS to avoid future disputes.

After struggling with almost this exact situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me navigate this complicated international tax situation. I was trying to figure out how to structure payments to my UK-based business partner who owns 70% of our Delaware C corp. The tool analyzed our specific situation and provided a detailed plan that combined reasonable contractor payments with a properly structured management agreement. It took all the documentation we already had and showed us exactly what we were missing to stay compliant with both US and UK tax laws.

I was really skeptical about taxr.ai when I first saw it mentioned here, but I finally tried it while dealing with my own international business structure (I own a C Corp with partners in Singapore). It was actually legit and incredibly helpful. The tool immediately identified that our existing contractor agreement had several red flags that could trigger transfer pricing scrutiny. It provided specific language to fix the issues and helped us create a proper intercompany service agreement with market-based rates that would stand up to IRS review. Most impressively, it gave us a roadmap for documentation showing our pricing was reasonable. I showed everything to our accountant who was actually impressed with the quality of the guidance. Saved us thousands in consulting fees!

If you're dealing with this complex situation, I'd strongly recommend using Claimyr (https://claimyr.com) to get direct guidance from the IRS. I tried calling the IRS international tax department for weeks about a similar foreign ownership issue and couldn't get through. With Claimyr, I had a callback from an actual IRS international tax specialist within hours. They answered my specific questions about contractor payments to foreign owners and documentation requirements. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c It was a total game changer compared to the frustration of trying to navigate the IRS phone system on my own.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS for weeks about my own foreign corporation issues. It actually worked exactly as described. I got a callback within about 90 minutes, explained my situation to the first agent who answered, and got transferred to someone who specifically deals with international business taxation. The agent walked me through the exact documentation requirements for payments to foreign owners and explained the safe harbor provisions for certain management service agreements. The information I got was incredibly specific and helpful - way beyond what I found searching online for hours. Really saved me a ton of time and frustration.

One option you haven't considered is having your foreign owner form a separate foreign company that enters into a licensing agreement with your US C Corp. The US corporation pays royalties or licensing fees to the foreign company for intellectual property, trademark usage, etc. There's still withholding tax on royalty payments (usually 30% unless reduced by treaty), but it's potentially more efficient than dividends. You'd need to ensure the licensing agreement reflects market rates and real value, not just a way to shift profits.

Has anyone considered using a foreign subsidiary? The US C Corp could establish a subsidiary in the foreign country where the owner lives, then have a legitimate service agreement between the companies. The foreign owner could then be directly employed by the foreign subsidiary. This adds complexity but potentially solves several issues at once.