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5 Steps for Opening a Foreign Subsidiary Corporation in the United States

If your company is considering opening a foreign subsidiary in the United States below are the 5 steps necessary to open your US operations:

1. Form a Corporate Entity

The first step to forming your corporate entity is to engage with an accounting firm or law firm that can help determine the ideal entity type and jurisdiction location for your organization (LLC, S-Corporation, C-Corporation). Additionally, your US corporate entity will likely require Articles of Incorporation, Bylaws, and named Officers. You'll need to obtain a Federal Employer Identification Number (FEIN) for your US corporation. You'll also need obtain a tax withholding numbers and state unemployment numbers from each state where you have employees.

2. Setup Accounting Operations and Transfer Pricing

Your US operations will need to have its own and separate accounting operations. Engaging with the appropriate Certified Public Accounting firm is a key step in this process. Your CPA firm can independently establish the required transfer pricing metrics between the parent company and your US subsidiary. The CPA firm will also prepare and file your company's federal and state tax returns plus any required sales or property taxes. You'll also need a solution for most of the regularly accounting activities setting up and managing the accounting software, compiling monthly and annual financial statements (often referred to as bookkeeping), accounts payable, accounts receivable, 1099 administration, and ongoing transfer pricing accounting. Most large CPA firms do not handle the regular accounting activities for their clients so you'll most likely need to find another solution.

3. Open a US Bank Account

Establishing a US bank account is a critical component of opening a subsidiary company in The United States but it's also one of the more challenging steps to execute. Your US company will need banks accounts, checks, debit or credit cards, plus ACH and wire transfer capabilities to do business with US customers. Banking in The United States is a highly regulated and complex industry. One of the primary challenges for foreign companies that want to open US bank accounts is the "Know Your Customer" (KYC) regulation for financial institutions. These regulation are designed to prevent money laundering activities and require banks to verify the ownership, business operations, and financial conditions of their clients. Since this verification due diligence is difficult to properly conduct no foreign companies many US banks will simply won't open accounts for wholly owned US subsidiary companies.

4. Establish a US Office Location

Your US subsidiary will need to establish a physical office location in the United States. Many partners and vendors (Banks: See Step # 3 above) will require a physical office location. In many instances, a rented Post Office Box will not suffice for an office address. Fortunately, there are now many low cost options for establishing an office location including co-working spaces. In addition to a US office location, your company will want to setup a US phone system and phone numbers. There are many virtual receptionist providers now available so you can have a live and professional person answer the phone when sales prospects, customers, partners, and vendors call your US company. Your office may also require Internet and IT infrastructure implementation and support services.

5. Secure Insurance Coverages

To do business in The United States your customers, partners, and vendors will require your US subsidiary to have certain insurance coverage. At a minimum, your US subsidiary will be required to have General Liability Insurance . Often times, customers or vendors will specify the "limits of liability" they require your company to carry before they conduct business with you. If your company is in the technology industry or rely on technology to deliver your products or services there is growing trend towards requiring "Errors and Omissions" (E&O) insurance coverage and even "Cyber and Privacy" insurance that provides compensation for liabilities that can arise from hacking and ransomware attacks. To protect the named Officers and Directors of your US Corporation from personal liability and legal fees should they be sued individually Directors & Officers Insurance can be secured.

If you have questions about opening a foreign subsidiary corporation in the United States feel free to contact us. We will be happy to answer your questions.

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