Setting Up a US Subsidiary for Your Foreign Company
Expanding your company into the USA? Subsidiary vs branch, LLC vs Inc for a corporate parent, banking, intercompany agreements, transfer pricing basics and annual compliance.
If you already run a company in India, the UAE, the UK or elsewhere, and you are winning US clients, a US subsidiary is often the cleanest way to enter the American market. It gives you a local legal entity, a US bank account, a W-9 for procurement teams, and a ring-fenced vehicle for US contracts and staff.
This guide covers the structural choices and what a foreign parent needs to plan for.
Subsidiary vs branch
| US subsidiary | Branch of the foreign company | |
|---|---|---|
| Separate legal entity | Yes | No |
| Liability | Ring-fenced in the subsidiary | Parent is directly exposed |
| US tax filings | Subsidiary files its own returns | Parent files US returns for the branch |
| Market credibility | High; a US company | Lower; a foreign company operating in the USA |
| Banking | US business account in the subsidiary's name | More difficult |
| Exit or investment | Shares can be sold or issued | Not separable |
Most foreign companies choose a subsidiary.
LLC or Inc for a corporate parent?
C-Corporation
- A separate taxpayer paying 21% federal corporate tax on its profits.
- Clean separation between the US business and the parent.
- Dividends to the parent are subject to US withholding (30%, often reduced by treaty). See dividends to a foreign owner.
- The usual choice for operating subsidiaries with US staff, offices or significant US revenue.
LLC owned by the foreign company
- A single-member LLC owned by a foreign corporation is, by default, a disregarded entity. For US tax purposes its activity is treated as the parent's, which can mean the parent has US filing obligations if the business is effectively connected with the USA, and branch-level taxes can apply.
- The LLC still files Form 5472 with a pro forma 1120. See Form 5472 explained.
- Many groups have the LLC elect corporate tax treatment, which makes it behave like a C-Corporation for tax while keeping LLC governance.
The right answer depends on your group structure, home-country tax rules and plans. We help you choose.
Which state?
If the subsidiary will have an office or staff in a particular state, forming there or registering there is usually necessary. Otherwise Delaware or Wyoming are common. See which state should a non-resident choose.
Intercompany agreements and transfer pricing
When the parent and subsidiary trade with each other, for example the parent provides development or support services, licenses its brand or software, or sells goods, those transactions should be:
- documented in written intercompany agreements,
- priced at market rates (the arm's-length principle), and
- reported: a 25% or more foreign-owned US corporation reports related-party transactions on Form 5472.
Tax authorities in both countries look at these prices. A typical simple model is for the parent to provide services to the subsidiary at cost plus a reasonable mark-up, or for the subsidiary to sell in the USA and pay the parent for delivery work.
Home-country rules
Your home country may have rules on overseas investment, approvals, reporting and how profits are brought back. In India, for example, investment in a foreign subsidiary follows the overseas investment framework, with reporting through an authorised bank. Plan these steps before forming and funding the US company.
Banking
The subsidiary opens a US business bank account in its own name. Banks will ask about the parent company: its documents, ownership and ultimate beneficial owners. See the US business bank account guide and KYC for US business banking.
Hiring in the USA
If the subsidiary hires US employees, it runs US payroll, withholds taxes and registers in the employee's state. See hiring in the USA as a non-resident company.
Annual compliance
- Federal return: Form 1120 (C-Corp) or Form 5472 + pro forma 1120 (disregarded LLC), with Form 5472 for related-party transactions.
- State annual report and franchise tax.
- Withholding filings for dividends or other payments to the parent.
- Intercompany documentation kept up to date.
How UCB helps
We form the subsidiary in the right state, obtain its EIN, open its US business bank account, and handle annual federal and state compliance. We coordinate with your home-country accountant on intercompany arrangements. See the company + EIN + bank account package.
Expanding your company into the USA? WhatsApp us at +91 8105 199 399 or email info@ucbsolutions.com and we will propose the right structure.
Let our experts handle it for you
Every business is different. Message us with your country, business type and goals, and we will recommend the right structure, state and package. We do the work; you focus on your business.
This article is general information for non-resident business owners and is not legal or tax advice. Rules and fees change; contact us to confirm what applies to your situation.
