Reviewed by Laurie Spicer · Last reviewed: October 19, 2026
This article is for general information only and does not constitute legal, tax, or HR advice. Consult a qualified professional for your situation.
A quick internet search of ‘How to set up a US entity’ yields more than 350 million entries. Clearly, there is an abundance of information. Before we get into HOW to do it, let’s discuss a more important question – WHEN should you set up a US Subsidiary? Very few resources outline key scenarios to consider.
The first step to setting up your US subsidiary is to choose the type of company, which most typically will be a C-Corporation, with the second option being an LLC.
Please allow me to assume something about you, valued reader. You run a company somewhere in the world outside of the United States. You are considering expanding to the US and speculate the first step is to set up a US entity. You may be relieved to know you don’t have to set up a US entity right away in many instances.
It is true that many foreign business owners immediately set up entities to do business in the US. There are many reasons to do this. However, there are also important reasons to avoid or postpone the process.
Once you have decided a US entity is justified, the next two questions are entity type and state. Our guides cover LLC against C-Corp for foreign founders and which state to form in.
Table of Contents
Money & Banking
You may need access to US dollars within a banking system to pay US invoices or accept fees for your services. Is it time to set up a US entity? Not necessarily.
International banks in your home country may offer USD accounts, and foreign exchange companies, such as Wise, make it easy to pay in many currencies.
When a client, vendor, or government agency requires you to have a US bank account, it is time to set up a US entity. You can’t get a true US business bank account without one.
You may be seeking venture funding from US investors. Is it time to set up a US entity? Yes.
According to Notion Capital Managers LLP, location matters, especially in the early stages. A non-US company seeking funding to grow their business in the US will be more successful with a US company. It’s not impossible without an entity, but to increase your chances of securing US funds, set up that subsidiary company.
Offices & Real Estate
Knowing when to set up your US subsidiary to manage office space is simple. Below are the typical approaches to secure your US address.
I want to… | Is it time to set up a US entity? | Why? |
Have a virtual office address in the US | No | Most virtual offices will allow you to set up an account using a foreign bank account. |
Lease office space | Probably | Many landlords won’t feel comfortable with a foreign company signing a lease. They may require a US entity and a US bank account. |
Buy or build an office | Yes | There is no denying that building or buying real estate for your company represents a bona fide US presence and should be accompanied by a US entity. |
US Clients
Congratulations, you have US clients. Do you have to have a US entity? No.
However, even though you don’t have to have a US entity you may be subject to US taxes. Foothold America US Expansion Advisor, Laurie Spicer, let’s her clients know that getting tax advice early in the process is critical. “You may need a Federal Employer Identification Number (EIN) associated with your home country company to pay taxes on sales in the US. Even though this isn’t the same as setting up a US subsidiary, it’s important to know what revenue threshold will trigger federal or state tax,” warns Spicer.
If you are about to secure a significant piece of business from a large US company, be sure to find out if they will require you to have a US entity and a US bank account. Many non-US businesses have been thrown into a panic after celebrating a huge US sales win. Supplying an EIN or completing the IRS form W-8BEN-E, a Certificate of Status of Beneficial Owner for United States Tax Withholding & Reporting (Entities), may be enough for your US clients.
Hiring Employees
To get and keep your US business flowing, you’ll soon need people on the ground. Having your home country team manage US clients from many time zones away can be exhausting and inefficient. You have several options to consider for your people power.
Should you hire them directly, use an Employer of Record service, use independent contractors, agents, or distributors? In large part, it depends on your rollout plan. Let’s run through a few common scenarios and consider the best options.
1. You earned a short-term US contract
Congratulations. It often happens that a US business is testing you, and they want to see you perform under a short-term contract before doing more business with you.
You have a few options to fulfil the contract.
- Your home country staff can do the work. This is easy and a great way for a client to see you in action. Obviously, this doesn’t work if the person must be onsite.
- You can find an independent contractor to provide service. The use of a contractor for a few months is a fine solution, especially if delivery of this service is finite. If the contract is eligible for a long term extension, you must be careful because in the long-term this person needs to become an employee. Is your contractor willing or able to become a full-time permanent employee?
- Use an Employer of Record service, such as Foothold America’s Employer of Record Service. There are no long-term contracts and should the client contract continue, you continue the service with Foothold America. Easy.
2. You have a few US sales and want to test the waters further.
Congratulations. You are gaining traction.
You have the same options as above, though hiring directly and using an Employer of Record service are the most appropriate and the safest to avoid worker misclassification.
3. You have significant revenue from the US and want to build a small team.
Congratulations. You’re cooking now.
You can grow a sizable team of 50+ while using our Employer of Record service. With dedicated support, you can avoid hiring HR and payroll employees keeping your US team lean and focused.
4. You plan to scale in the US with dozens of employees in the first few years.
Congratulations. You’re ready to make your mark.
As your commitment to the US market grows, the option to hire employees directly may become more attractive. When you plan to have at least five employees, it becomes economically favourable to hire directly from an administrative perspective. You will need a US entity that Foothold America can set up for you. Keep in mind, a subsidiary means more complexity, tax, accounting, and employment advice.
Scaling doesn’t mean you can’t keep using an Employer of Record service through substantial growth. If avoiding complexity and administrative time is a priority, this may be the way to go.
5. You are planning an IPO down the road and want to be viewed as a US company.
Congratulations. You are beginning with the end in mind.
In this case, we recommend setting up a US entity from the start and putting your accounting function in place. You’ll want to show several years of squeaky clean US accounts and filings.
Now that you have an idea when to set up your US entity, let’s take a quick look at how to. We can narrow it down to two steps.
- Watch this two-minute video – Seven Steps to Setting Up a US Entity
- Speak with a Foothold America US Expansion Advisor.
Because setting up your US subsidiary involves working with US federal and state authorities, it’s challenging to know how much time it will take. On the quick side, it could be just a few weeks before you have all the documents you need to set up a US bank account. Depending on the bank’s policies and efficiency, setting up a business checking account can take weeks to months. A prudent rule of thumb is to plan on two to three months for a full US entity setup.
Further reading
Frequently Asked Questions
Quick answers to the questions international employers ask most about this topic.
Do we need a US subsidiary to sell to American clients?
No. Many foreign companies invoice US clients from their home entity and receive dollars through a USD account. Some larger clients may ask for an EIN or a completed Form W-8BEN-E instead. US tax obligations can still arise without a local entity, so speak to a qualified US tax adviser about your revenue thresholds early.
How long should we allow for setting up a US subsidiary?
Plan for a few months from start to a fully working entity. Incorporation and the EIN can move quickly, but opening a business bank account often takes weeks. Gathering documents, choosing a state and agreeing ownership all add time. Starting the bank paperwork as soon as the EIN arrives keeps the whole process moving.
Can we hire US staff before forming a subsidiary?
Yes. An Employer of Record employs your US hires on your behalf, handling payroll, benefits and employment compliance. This lets you test the market without forming a company or registering as an employer in each state. Many businesses use an Employer of Record service first, then move staff across once a subsidiary makes financial sense.
Should a foreign parent company choose an LLC or a C-Corporation?
Most foreign parent companies choose a C-Corporation. It is the structure US investors, banks and large clients know best, and it keeps US profits taxed at company level. An LLC can suit some smaller set-ups, but its tax treatment for foreign owners is more complex. Speak to a qualified US tax adviser before you decide.
What usually signals that it is time to form a US subsidiary?
Usually it is when US activity outgrows the workarounds. Common triggers include clients or landlords requiring a US entity, plans to raise money from US investors, or a growing local team. Companies planning a future US listing often incorporate early to build clean accounts. Our US Entity Setup service can manage the formation itself.
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