Expanding into the United States is a major strategic move that requires careful financial, regulatory, and operational planning. The U.S. market offers significant growth opportunities, but it also comes with complex compliance requirements at both federal and state levels. A finance team must be fully prepared to manage entity setup, taxation, payroll, banking, and reporting obligations from day one. ERB’s expertise in cross-border finance and U.S. market entry makes it especially suited to guide companies through this process efficiently and compliantly.

Entity Formation and Registration

Establishing a business presence in the United States will begin with choosing an appropriate entity type that will essentially dictate financing, sales, use and corporate taxes. Most foreign businesses will opt to either register a C corporation or an LLC. The main difference is that the LLC provides flexibility on how the business will be taxed, whereas the C corporation is normally preferred when businesses want expanded growth potential and prepare for outside financing.

After selecting the legal structure of the company, the company must be registered in all states of its operations. This generally involves completing and filing either paperwork for incorporation or foreign registration documentation with that state’s Secretary of State. If the business doesn’t register appropriately, it can result in fines or limited legal protections.

The next step in successfully entering the U.S. market is obtaining an Employer Identification Number (EIN). This number is obtained from the U.S. Internal Revenue Service (IRS), using IRS Form SS-4. This number is necessary to report tax liabilities, pay employees and open a business bank account.

As part of the Corporate Transparency Act (CTA), businesses that are foreign and registering to operate in the United States are required to file Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN) within thirty (30) days. This report must provide the business’s owner(s) and ownership information.

Banking and Treasury Setup

Opening a U.S. business bank account is essential for managing operations and receiving payments. Most banks require a registered U.S. entity, an EIN, and detailed documentation about owners and directors due to strict Know Your Customer (KYC) and anti-money laundering (AML) regulations.

Typical requirements include:

1. EIN confirmation letter
2. Articles of incorporation
3. Identification of beneficial owners
4. Proof of a U.S. business address

Many banks also require in-person verification.

Companies need to have a process in place to execute cross-border payments, convert currencies and fund the parent company against the US operation from a treasury point of view. Because exchange rate volatilities can affect profit margins, many firms hedge against this by using hedging strategies or making purchases on a dollar-denominated basis.

Federal Tax Obligations

Federal taxes in the United States are a difficult area of expanding into this market.

An American subsidiary will file 1120 Form for tax reporting purposes while a foreign company or entity with no American subsidiary will file 1120-F returns for reporting U.S. sourced income.

Corporate tax returns are typically due April 15 for calendar-year reporting companies.

Any corporation whose annual tax liability exceeds $500 must make quarterly estimated payments of tax, and failure to make such payments may result in penalties for the corporation.

Transfer Pricing

IRS transfer pricing rules (Section 482) must be followed if transactions occur between the United States company and its foreign parent company. Transfer prices for intercompany transactions must be at “arm’s length,” i.e., what nonrelated entities would charge for similar products and services.

Appropriate documentation must be provided and a formal agreement must exist. U.S. companies owned 25% or more (by a foreign entity) must file Form 5472 with the IRS, which provides information regarding related-party transactions.

Withholding Taxes

Foreign entities receiving dividends, royalties, or interest payments from the United States are subject to a 30-percent withholding tax unless an applicable income tax treaty reduces the tax rate. To claim benefits under the treaty, a company must complete and submit a Form W-8BEN-E and withhold any amounts required by U.S. tax laws on Forms 1042 and 1042-S.

State and Local Taxes

Beyond federal taxes, companies must comply with state-level obligations.

Regulatory Forms and Registrations (Summary Table)

To simplify the key compliance requirements, here is a summary of the main forms and registrations your finance team should prepare:

Corporate and Franchise Taxes

Most states impose income or franchise taxes, often requiring separate registrations and filings. Even if no income is generated, some states still charge minimum taxes or fees.

Sales Tax

In the United States, there is no VAT system, and the only type of tax applied at the state level is sales tax. According to the outcomes of South Dakota v. Wayfair case, companies may be required to collect a sales tax on their sales made in a state where they do not have a physical presence but exceed certain economic thresholds (generally $100,000 in sales or 200 transactions).

Payroll Taxes

Employers must register in each state where they have employees to handle income tax withholding and unemployment insurance. Some states also require additional contributions such as disability insurance.

Local Requirements

Cities and counties may impose business licenses or local taxes, which vary significantly by location.

Payroll and Employment Compliance

Hiring employees in the U.S. introduces several compliance obligations.

Employees must complete Form W-4 for tax withholding, and employers must withhold federal income tax as well as Social Security and Medicare contributions.

Employers must:

1. File Form 941 quarterly for payroll taxes
2. File Form 940 annually for unemployment tax
3. Issue Form W-2 to employees annually

Employers are also required by law to follow federal Labor laws on waged, and overtime pay for employees working under them as per the Fair Labor Standards Act (FLSA) so they must conspicuously post required Labor law notices where employees can easily see them. Proper classification of employees is also extremely important because incorrectly classifying workers as independent contractors can lead to severe consequences for the employer. All employees must have their employment eligibility verified using Form I-9, Employment Eligibility Verification, through the DHS E-Verify system.

For employers who provide employee benefits, they must follow the requirements of ERISA and the Affordable Care Act (ACA) regarding providing access to health care coverage for their employees which includes larger employers having to provide certain types of information to the federal government.

Accounting and Reporting Standards

Financial reporting in the U.S. generally follows U.S. GAAP. Even if the parent company uses IFRS, the U.S. entity may need to maintain GAAP-compliant records for local reporting and audits.

Companies should establish:

1. A consistent accounting framework
2. Internal controls for financial reporting
3. Clear reconciliation and reporting processes

Strong internal controls improve audit readiness and enhance credibility with investors and financial institutions.

Cross-Border Finance and FX Management

Managing cross-border finances involves handling payments between the U.S. entity and its parent company while complying with tax and regulatory requirements.

Companies must plan for:

1. Profit repatriation (dividends, royalties)
2. Withholding tax implications
3. Currency risk exposure

Using financial instruments such as forward contracts can help mitigate foreign exchange risks. Additionally, companies must comply with U.S. sanctions laws, as banks may block transactions involving restricted parties.

FAQ

 Do I need an EIN before starting operations?
Yes. An EIN is required for hiring employees, opening bank accounts, and filing taxes.

 What tax return does a U.S. subsidiary file?
A U.S. subsidiary files Form 1120, while a foreign entity without a subsidiary files Form 1120-F.

 When do I need to collect sales tax?
When your business meets a state’s economic nexus threshold, typically $100,000 in sales or 200 transactions annually.

 What payroll filings are required?
Employers must file Form 941 quarterly, Form 940 annually, and issue W-2 forms to employees.

 What is transfer pricing and why does it matter?
Transfer pricing ensures that intercompany transactions are conducted at market rates. It is required by U.S. tax law and must be documented.

Why ERB?

ERB provides specialized expertise in international finance, U.S. tax compliance, and cross-border operations. Their experience supporting global companies entering the U.S. ensures a structured, compliant, and efficient expansion process.