LLC vs C-Corp for Spanish Founders: Which US Entity Is Right for You?
Spanish founders building a US business face a specific structural challenge: Spain's tax treatment of a US LLC is unfavourable, and the US-Spain tax treaty has important implications for which entity you choose. This guide covers the key differences and the Spanish-specific considerations.
The core difference
An LLC is a pass-through entity — no US corporate tax, profits flow to owners. A C-Corp is a separate taxable entity — 21% US corporate tax, then dividend withholding on distributions. C-Corps are the standard for venture-backed companies.
The Spanish tax dimension
Spain taxes Spanish residents on worldwide income. The treatment of a US LLC under Spanish tax law creates specific problems.
The LLC transparency problem: Spain generally treats a US LLC as a transparent entity, similar to a Spanish sociedad civil. This means Spanish tax applies to the LLC's profits directly, even if not distributed. The US also taxes the LLC's income at the individual level. The result is a risk of double taxation on the same income, with limited treaty relief.
The C-Corp advantage: Spain treats a US C-Corp as an opaque entity. Spanish tax on corporate profits is deferred until you take a dividend or salary. The US-Spain tax treaty (in force since 1990, updated 2013) reduces dividend withholding to 5% for qualifying corporate shareholders (holding 10%+ of the C-Corp) and 15% for individuals. The treaty also provides relief from double taxation through foreign tax credits.
The SL holding structure: Many Spanish founders use a Spanish SL (Sociedad Limitada) as the holding entity that owns the US C-Corp shares. This structure — Spanish SL → US C-Corp — can be tax-efficient under the right conditions. If this is your situation, the US entity should be a C-Corp.
When to choose an LLC
- Simple service business, no retained earnings, no fundraising plans
- You have confirmed with a Spanish cross-border tax adviser that the transparent treatment does not create double taxation in your specific case
- You want the lowest administrative overhead
When to choose a C-Corp
- You plan to raise venture capital or angel investment
- You want to issue stock options to employees or advisers
- You want to retain profits in the US entity
- You are using or plan to use a Spanish SL as the holding entity
- You want treaty-protected dividend treatment
Practical comparison
| Feature | LLC | C-Corp |
|---|---|---|
| US federal tax | Pass-through | 21% corporate rate |
| Spanish treatment | Transparent (double taxation risk) | Opaque (deferred until distribution) |
| US-Spain treaty | Limited benefit for LLCs | Reduced withholding (5%/15%) |
| SL holding structure | Incompatible | Standard |
| VC fundraising | Difficult | Standard |
| Employee equity | Complex | Standardised |
What Keystone Bridge recommends
For most Spanish founders building a scalable business, the C-Corp is the better choice. The treaty protection and clean equity structure outweigh the double-taxation cost. For founders running a simple service business, the LLC can work — but only with a Spanish cross-border tax adviser confirming the structure first.
We handle formation, EIN, registered agent, and operating documents. For the Spanish-specific tax analysis, you need a cross-border specialist.
This guide is for informational purposes only and is not financial, tax, or legal advice. Consult a qualified adviser for your specific situation.