A domestic corporation is a corporation that does business within the country where it was established, headquartered or based. For example, if a company opens in the United States, then within the United States that particular company is considered a domestic company. If a company opens and was incorporated in Italy, however, and then does business within the United States, then it is considered a foreign corporation. A company's status as either a domestic or foreign corporation can have an impact on its tax liability in some cases.
When a corporation is created, articles of incorporation must be filed within the United States, and similar articles or paperwork must be filed in other countries as well. These articles of incorporation stipulate the name of the organization, its purpose, and other relevant factors such as who the corporate officers are. Articles of incorporation can create different types of corporation, such as a C-corporation, an S-corporation, or a limited liability corporation (LLC). While each of the different types of corporation has different tax implications, in every situation, the corporation becomes a separate legal entity that is distinct from its owners, and that corporation is considered to be registered or incorporated in the state in which the articles of incorporation were filed.
The corporation is not limited to doing business in the state, or even in the country, where the articles were filed. The corporation, however, is considered a domestic corporation as long as it does business within the country where it filed its incorporation papers. This means a company that files its papers in Delaware, California, New York or any other state is considered a domestic corporation within the United States.
A company that is considered a domestic corporation is generally entitled to do business throughout the country in which it was incorporated without paying import and export duties on its products. If a company sends products to another country, however, it may face an additional import tariff or may face other barriers to trade, such as different foreign laws or restrictions on its product or sales volumes. While these barriers to trade do not always exist for a foreign corporation — if two countries have free trade agreements, for example, there may be no barriers or additional tariffs — the barriers can make it more expensive for a foreign corporation to do business in a given area than it is for a domestic corporation.