Your Roadmap to Expanding into the U.S. as a Foreign Founder

Foreign founders expanding to the U.S. face many critical decisions. You must select a suitable legal entity (typically a Delaware C-Corp) and state of incorporation, since S-Corps cannot have foreign owners. You will obtain a U.S. EIN, form a U.S. corporation, and open local bank accounts. Then register (“foreign qualify”) in any state where you do business (e.g. have offices or employees) and set up tax accounts (income, franchise, sales, payroll). Hire U.S.-authorized employees (visas like H-1B, L-1, etc. are limited), establish payroll withholding, and buy workers’ comp insurance. Adopt U.S. GAAP in your books (especially ASC 606 for SaaS revenue) and strengthen internal controls (the COSO framework is recommended). Finally, manage cash and FX through U.S. banking and currency hedging, and prepare for fundraising (VCs almost always insist on C-Corps). ERB Proximo’s CFO/advisory team can guide each step.

Entity Selection & Formation

Choose the right entity at the outset. A U.S. C-Corporation (often in Delaware) is generally recommended for startups – especially those seeking VC or a U.S. listing. C-Corps allow foreign ownership and do not “pass through” income to owners, so foreign founders need not file U.S. personal returns. In contrast, a U.S. LLC is flexible but taxed by default as a partnership: with foreign members it triggers quarterly withholding and personal tax filing obligations (you can avoid this by electing corporate tax status for the LLC). S-Corporations are not an option for foreign owners (non-U.S. shareholders are prohibited).

Form your entity by filing Articles of Incorporation (a/k/a Charter) in the chosen state.

Many startups pick Delaware for its business-friendly laws, but some consider no-tax or lower-regulation states like Nevada, Wyoming or even Texas. If you will have a real U.S. office or employees in a particular state, forming there can simplify local issues. You will need a U.S. registered agent and address in the formation state.

Tax Registration & Compliance (Federal & State)

After formation, register with tax authorities. Federally, the new company (with its EIN) must file Form 1120 (U.S. Corp Income Tax Return) and pay 21% on net income.

Register in every state where the company “does business”. This usually includes each state with offices, warehouses, or employees, and often states where you sell goods/services above nexus thresholds.

File a Certificate of Authority (foreign qualification) in those states. Obtain state tax IDs for corporate income or franchise tax, and if applicable, sales/use tax.

• Sales Tax: The U.S. has no federal sales tax. States (and localities) impose sales and use taxes. Determine if your offerings are taxable in each state (for example, most SaaS is considered tangible service and is taxed differently by state). Register with state revenue departments as a sales tax vendor, collect at the correct rate, and remit typically monthly or quarterly.
• Corporate/Franchise Tax: Many states levy a tax on corporate income or a flat franchise tax. Even Delaware charges an annual franchise tax on the amount of authorized stock. File annual state returns in each incorporated/qualified state.
• Registration Process: In each relevant state, pay the filing fee (often $50–$200) to foreign-qualify. Use a registered agent service for each state. Annual reports with possible disclosure of officers and share counts may be required.

Transfer Pricing & Intercompany Accounting

If your U.S. entity is part of a foreign group, any transactions between the U.S. company and affiliates must comply with U.S. transfer-pricing rules (IRC §482)

This means setting intercompany prices (for products, services, IP licenses, cost-sharing, etc.) on an arm’s-length basis.

Maintain documentation justifying how prices or cost allocations were determined (methodology, comparables). While formal documentation isn’t mandatory for smaller companies, it’s advisable to prepare at least internal analysis. For example, if your U.S. unit is paying a foreign affiliate for software development or management fees, the IRS could challenge an unreasonable markup. If your group is large (over €750M global revenue), you must file a Country-by-Country report.

Payroll, Employment & Immigration

Work Authorization: Any staff working physically in the U.S. must have legal status. Typical visas include H-1B (specialty skilled worker – capped at 85,000 visas per year), L-1 (intracompany transferee for managers or specialists), E-3 (Australians), and TN (Canadians/Mexicans under USMCA). Begin visa processes early (some, like L-1, require one year of prior service abroad). Do not have employees start without valid U.S. work authorization.

Payroll Setup: Setting up payroll in the U.S. involves registering with both federal and state authorities and making sure taxes are handled correctly from day one.

At the federal level, this means withholding Social Security, Medicare, and income taxes from employee wages, as well as paying the employer’s share of these taxes. You’ll also file regular reports, including quarterly filings and an annual unemployment tax return.

At the state level, requirements vary, but typically include registering for state income tax withholding and unemployment insurance.

Accounting Policies & Reporting (GAAP vs Local)

Your U.S. subsidiary’s books must follow U.S. GAAP. If your parent company uses another GAAP (e.g. IFRS), know there are differences. For example, ASC 606 (U.S. revenue standard) and IFRS 15 are largely similar, but differ on issues like shipping fees and contract costs. Early on, establish accounting policies aligned with ASC 606 for revenue, ASC 718 for stock compensation, etc.

SaaS Revenue Recognition (ASC 606)

For SaaS businesses, revenue recognition rules are critical. Follow the 5-step ASC 606 model: identify contracts and obligations, determine price, allocate, and recognize as service is delivered. Prepayments (like an annual subscription) are booked as deferred revenue and recognized evenly. Custom setup fees or multi-year contracts might be split into different performance obligations. Always amortize income consistent with customer usage.