The short answer: Incorporate in Delaware if you expect to raise from US venture investors in the next year or so. They invest in Delaware C-corps, and flipping later costs more. Stay with your home company if your money is coming from home investors, grants or revenue. You can sell to US customers without a US company.
Much of the advice on this question comes from companies that sell US formation, and the answer is usually "incorporate in Delaware". That is the right answer for a founder about to raise from US funds. For a founder who has not raised, it is one of three structures, and the US company brings US filings from its first year whether or not money has come in.
This is general information, not legal or tax advice for your company.
By Ronnie Jaffa, Co-Founder & CEO ·
What are the three structures?
| Home company only | Delaware parent, home subsidiary | Home company, US subsidiary | |
| Who investors buy shares in | The home company | The Delaware company | The home company |
| Where the team and IP usually sit | Home company | Home subsidiary | Home company |
| US filings | None until there is US activity | From year one: Form 1120, Form 5471 for the subsidiary, often Form 5472, Delaware, usually an FBAR, BE-13 (usually a Claim for Exemption) | From year one for the US subsidiary |
| Typical reason | Raising at home, grants, revenue | Raising from US venture funds | Selling or hiring in the US while raising at home |
| How it changes later | A flip to a Delaware parent | Usually final | A flip, or the subsidiary stays a sales arm |
The middle column is what people mean by "incorporating in the US". It is also what a flip produces, which is why the real question is often not whether, but when.
What does a Delaware C-corp get you?
The structure US investors expect. US venture funds' standard deal documents are written for Delaware corporations, and so are their lawyers' habits. Many funds can invest in a foreign company, but each one is an exception that costs time. The companion piece on why US VCs insist on a Delaware parent covers the reasons in detail.
The law the market knows. Delaware's corporate law and its Court of Chancery are the reference point for US corporate governance. Nearly 70% of US-based IPOs in 2025 chose Delaware, as did 68.2% of the Fortune 500, according to the state's own annual report.
QSBS for holders who pay US tax. Shares in a qualifying Delaware C-corp can be qualified small business stock, which can exclude gain from US tax after three to five years. Shares in a foreign company cannot. This matters to US investors and to any founder who is, or may become, a US taxpayer.
No foreign-company tax questions for US investors. A foreign startup that holds mostly cash and earns little can fall within the US rules for passive foreign investment companies, which tax its US shareholders harshly unless they make elections and track the company's numbers each year. A US company removes the question.
A cleaner path to a US exit. US acquirers and US public markets work most easily with a US company.
What does it cost you?
US compliance from the first year. A Delaware parent with a foreign subsidiary files a corporate return, Form 5471 for the subsidiary, a Delaware annual report, usually an FBAR, a BE-13 filing within 45 days (for most startups, the short Claim for Exemption), and Form 5472 if a foreign shareholder holds 25% or more and there is a reportable transaction with a related party. None of these depends on revenue. The After the Flip timeline puts them on one calendar.
Two sets of books and two tax authorities. The home company becomes a subsidiary with its own accounts, plus an intercompany agreement that both countries' tax authorities will read.
US tax on the subsidiary's profit. A Delaware parent that owns more than half of its home subsidiary owns a controlled foreign corporation. Each year the parent includes the subsidiary's net CFC tested income, the regime called GILTI until 2026, on its own return. From 2026 the effective US rate on that income is about 12.6% before credits, with a credit for 90% of the foreign tax paid on it. A subsidiary paying its full home-country rate usually leaves little or no US tax; one on a reduced rate, such as an Israeli preferred technology enterprise, can leave some. Either way, the calculation is made and reported every year.
Foreign R&D is deducted slowly. When the US parent pays its subsidiary to build the product, whether that cost counts as the parent's foreign research for US tax purposes depends on the intercompany arrangement, including which company holds the rights to the results and bears the financial risk. Since 2025, research done in the US is deducted in the year it is paid under Section 174A, while research done abroad is still spread over 15 years under Section 174. Where it applies, that slow deduction can leave a startup with US taxable income even while its accounts show a loss. It is one more reason the intercompany agreement needs a US tax adviser's read.
A residence question. A Delaware company run day to day from Tel Aviv or London can be treated as resident in Israel or the UK as well. Both countries treat a company as resident where its control and management are exercised. Where board decisions are actually made becomes something to plan and document.
Home-country programs work differently. Israel Innovation Authority grants go to Israeli R&D companies, so the Israeli company keeps receiving them as a subsidiary, under the grant rules on know-how. UK SEIS and EIS relief depends on conditions, including a UK permanent establishment of the company investors buy into. A US parent makes those conditions harder to meet, and UK angels may prefer to invest in a UK company.
Home investors may prefer home. An Israeli or UK seed fund may be set up to invest in local companies. Ask before assuming a Delaware parent helps the round.
What does staying at home get you?
One company, one tax authority and one set of filings. Grants and local tax reliefs work as designed. Local investors are comfortable. And you can still sell to US customers: a foreign company can contract with US buyers, take payment in dollars and give customers a W-8BEN-E instead of a W-9. The US expansion checklist covers what that involves.
The cost of staying at home arrives later, if a US lead investor asks for a Delaware parent. At that point you flip, and a flip is easier the earlier it happens:
- Fewer people to bring along. Every shareholder and option holder exchanges into the new parent, and an Israeli flip needs an Israel Tax Authority ruling applied for before closing. A UK flip relies on HMRC's share-for-share rules instead, which changed on 26 November 2025.
- QSBS starts later and covers less. Shares received in exchange for home-company shares generally do not qualify, because Section 1202 covers only shares originally issued for cash, property other than stock, or services. New shares the US company issues after the flip can qualify if they meet the Section 1202 requirements, including the $75 million limit set in 2025, which applies to the company's aggregate gross assets, not its valuation.
- The cap table conditions bite harder. The Israeli ruling's two-year conditions run into the following rounds.
Why not a cheaper US LLC?
A single-member Delaware or Wyoming LLC is the cheapest US entity to form, and many formation sites suggest one to foreign founders. It solves the wrong problem. For a foreign owner, the LLC is ignored for income tax but treated as a corporation for related-party reporting, so it files a pro forma Form 1120 with Form 5472 for every year it has a reportable transaction, which in practice is almost every year: even the owner paying the LLC's registered-agent fee counts. A missed Form 5472 carries an initial penalty of $25,000 per required form, per tax year. The Form 5472 guide sets out the filing.
The LLC also cannot issue qualified small business stock, which only a C-corp can, and US venture funds will not invest in it as it stands. Founders who start with one usually convert it, or form a C-corp anyway, before the first US round. If a US entity is the answer, form the C-corp. If it is not yet, sell from home.
So which should you choose?
| If this is true | Choose |
| You expect a US venture fund to lead a round within about a year | Delaware parent, home subsidiary, now |
| Your seed money is from home investors, grants or angels using home-country reliefs | Home company; flip when a US lead asks |
| You are selling to US customers but raising at home | Home company; add a US subsidiary when you hire in the US |
| You are moving to the US yourself | Delaware parent; take advice on your personal tax move first |
| You are not sure | Home company, plus a plan for what would trigger the flip |
The one wrong answer is a Delaware company formed "to look serious" with no US raise planned. It brings every US filing with none of the reasons for having them.
One company, three answers
Illustrative case, not a client. Two founders run a nine-person data-tooling company from Tel Aviv. They have $600,000 from Israeli angels, $180,000 a year from four US customers, and an Israel Innovation Authority grant application in progress. The right structure depends on what happens next.
| What happens next | Structure | What they do first |
| An Israeli seed fund leads the next round | Stay with the Israeli Ltd | Keep selling with a W-8BEN-E and work through the US expansion checklist |
| A US fund sends a term sheet | Delaware parent, Israeli subsidiary | File the Israel Tax Authority ruling application before closing, move options into the parent's plan with an Israeli appendix, and check the grant terms |
| They hire a US account executive but keep raising at home | Israeli Ltd, for now | Hire through an employer of record, and form a US subsidiary when the US team outgrows it |
What they should not do is form a Delaware company now in case the US fund appears. Even before it owns anything, it would owe a Form 1120, a Delaware annual report and a BE-13 filing this year, and a Form 5472 if the founders fund its costs, for a round that may come from Tel Aviv.
Short answers
Can a foreign founder own a Delaware C-corp? Yes. There is no citizenship or residency requirement for shareholders or directors of a Delaware corporation. An S-corp is different: it cannot have a non-resident alien shareholder.
Is Delaware better than Wyoming or Nevada for a startup? For a company that will raise venture money, yes, because investors' documents and expectations are built on Delaware. Cheaper states save a little on fees and cost more at the term sheet.
Do I need a US company to open a US bank account or use Stripe? Not always. Many providers serve foreign companies, though requirements vary by provider.
Can I incorporate now and flip the home company in later? Yes. Founders sometimes form the Delaware company early and run the exchange when the round is ready, with two cautions. The Delaware company owes US filings from the day it is formed, not from the exchange. And for an Israeli flip, the Israel Tax Authority's green track expects a new parent with no prior activity, so keep it a dormant shell until the exchange.
Does a Delaware parent mean US tax on our Israeli or UK profits? It can. The parent includes its subsidiary's net CFC tested income each year, at about 12.6% before credits from 2026, with a credit for 90% of the foreign tax paid on it. A subsidiary taxed at its full home rate usually leaves little or none.
Sources
All checked November 10, 2026.
- Delaware Division of Corporations, 2025 Annual Report — share of US IPOs and of the Fortune 500 incorporated in Delaware
- 26 U.S.C. §1202, as amended by the One Big Beautiful Bill Act — QSBS holding periods, caps and the $75 million gross-asset test
- 26 U.S.C. §§1297 and 1298 — passive foreign investment company tests
- 26 U.S.C. §1361(b) — S corporation shareholder rules
- Israel Income Tax Ordinance, Section 1, and HMRC's guidance on company residence — control and management
- HMRC SEIS and EIS guidance — permanent establishment and qualifying conditions
- 26 U.S.C. §§951A, 250 and 960(d), as amended by the One Big Beautiful Bill Act — net CFC tested income, the 40% deduction and the 90% credit from 2026
- 26 U.S.C. §§174 and 174A — 15-year amortization of foreign research; expensing of domestic research from 2025
- 26 U.S.C. §6038A and Treas. Reg. §301.7701-2(c)(2)(vi) — Form 5472 for foreign-owned single-member LLCs