Expanding into the U.S. market is an exciting opportunity for foreign businesses. However, navigating the regulatory, legal, and tax landscape can be complex. One of the most effective ways to establish a presence in the U.S. is by setting up a subsidiary — a separate legal entity incorporated in the United States while owned by the foreign parent company.

This guide provides a clear, step-by-step approach for foreign businesses looking to establish a U.S. subsidiary, ensuring compliance, efficiency, and smooth operations from day one.

Why Set Up a U.S. Subsidiary?

A U.S. subsidiary offers several advantages over other entry methods like branches or representative offices:

• Limited liability: The U.S. entity is a separate legal entity, protecting the parent company from liabilities.
  
• Local credibility: U.S. clients, vendors, and partners may prefer dealing with a domestic entity.
  
• Tax planning: A subsidiary allows better management of U.S. taxes and eligibility for certain deductions and incentives.
  
• Operational flexibility: Hire employees, open bank accounts, and enter contracts directly in the U.S.
  

Pro Tip: Structuring your U.S. operations as a subsidiary rather than a branch provides legal protection and simplifies compliance with U.S. regulations.

Step 1: Choose the Right Business Structure

Foreign businesses can set up subsidiaries in several forms, including:

• Corporation (C-Corp or S-Corp)
  
• Limited Liability Company (LLC)
  

Considerations:

• C-Corp: Most common for foreign-owned subsidiaries. Suitable for raising capital, investors, or public offerings.
  
• S-Corp: Not available for foreign-owned entities (all shareholders must be U.S. citizens or residents).
  
• LLC: Offers flexibility and pass-through taxation, but foreign ownership can complicate tax filings.
  

Pro Tip: Consult a U.S. legal and tax advisor to determine which structure aligns with your business goals.

Step 2: Select the State of Incorporation

The U.S. consists of 50 states, each with its own incorporation rules and taxes. Popular states for foreign businesses include:

• Delaware: Known for business-friendly laws and strong legal protections.
  
• California: Strategic for tech and consumer markets but has higher taxes.
  
• Nevada: Offers favorable tax treatment and privacy protections.
  

Pro Tip: Consider your target market, tax implications, and regulatory requirements when choosing the state.

Step 3: Register the Subsidiary

Steps typically include:

1. Choose a business name that complies with state rules.
   
2. File formation documents (Articles of Incorporation for corporations or Articles of Organization for LLCs) with the Secretary of State.
   
3. Appoint a registered agent for legal and official correspondence.
   
4. Obtain an Employer Identification Number (EIN) from the IRS for tax reporting.
   

Pro Tip: Professional incorporation services can streamline this process and ensure compliance.

Step 4: Open U.S. Bank Accounts

A U.S. bank account is critical for managing operations, paying employees, and receiving payments. Requirements typically include:

• Formation documents
  
• EIN
  
• Personal identification for authorized signatories
  

Pro Tip: Choose a bank experienced in handling foreign-owned entities to simplify account setup.

Step 5: Comply with Local, State, and Federal Regulations

Operating in the U.S. requires adherence to multiple regulations:

• Tax compliance: Federal, state, and local taxes, including income, payroll, and sales tax.
  
• Employment laws: Comply with labor laws, benefits, and reporting requirements.
  
• Licenses and permits: Industry-specific permits may be required depending on operations.
  

Pro Tip: Establish an internal compliance checklist or work with a professional to ensure ongoing adherence to U.S. regulations.

Step 6: Establish Accounting and Bookkeeping Systems

A clean financial system is crucial for compliance and decision-making:

• Maintain separate books from the parent company
  
• Track income, expenses, payroll, and taxes accurately
  
• Implement accounting software compatible with U.S. reporting requirements
  

Pro Tip: Partner with a local accounting firm to navigate U.S. GAAP, IRS requirements, and state-specific filings.

Step 7: Consider Tax Planning Strategies

Foreign-owned subsidiaries face unique tax considerations, including:

• Transfer pricing rules for intercompany transactions
  
• Double taxation agreements between the U.S. and home country
  
• State and federal corporate income tax planning
  

Pro Tip: Work with cross-border tax specialists to optimize your U.S. subsidiary’s tax structure.

Why Partner with Bay Area Accounting Solutions (BAAS)

At Bay Area Accounting Solutions, we help foreign businesses set up and manage U.S. subsidiaries across Fremont, San Jose, Oakland, and beyond. Our services include:

• U.S. entity formation and registration
  
• Bookkeeping and financial reporting
  
• Tax planning and compliance
  
• Payroll and HR support
  

Partnering with BAAS ensures your U.S. operations are compliant, financially sound, and positioned for growth.

Conclusion

Setting up a U.S. subsidiary is a strategic move for foreign businesses seeking a foothold in the American market. By choosing the right structure, complying with U.S. regulations, and implementing strong accounting systems, your business can operate efficiently and avoid costly pitfalls.

Ready to expand into the U.S.? Contact Bay Area Accounting Solutions today to set up your subsidiary and navigate U.S. business compliance with confidence.

FAQ — U.S. Subsidiaries for Foreign Businesses

Q1: Can any foreign company establish a U.S. subsidiary?
Yes, most foreign businesses can form a U.S. subsidiary, though S-Corp election is not available to foreign owners.

Q2: Do I need a U.S. address for my subsidiary?
Yes, a registered agent with a U.S. address is required in the state of incorporation.

Q3: Are U.S. subsidiaries taxed separately?
Yes. The subsidiary is treated as a separate entity and must comply with federal and state tax obligations.

Q4: Can profits be sent back to the parent company?
Yes, but proper tax planning is essential to avoid double taxation and comply with transfer pricing rules.

Q5: Do I need professional help to set up a U.S. subsidiary?
While not mandatory, working with legal and accounting professionals ensures compliance, efficiency, and smooth operations.