A Family Business Setting Up in the United States
A family company from Europe is opening a subsidiary, a branch or a sales office in the United States, or an owner is moving here to run it. The entity has to be formed and registered, its profits and its payments to the parent taxed under the Code and the convention, its ownership reported, and the owners’ own position settled: who holds the U.S. shares, what happens at a death, and who moves. The firm forms the subsidiary and acts as its outside counsel, with the family’s advisers at home.
Law stated as of October 2026
In brief.
- A U.S. subsidiary is a corporation taxed at 21 percent on its profits (section 11(b)); a branch pays the same tax on its U.S. profits plus a branch profits tax of 30 percent on what it remits, reduced by the convention (section 884).
- Dividends to the foreign parent are withheld upon at 30 percent, reduced by most conventions to 5 percent for a parent holding 10 percent, and under some, on conditions, to zero for an 80 percent parent; interest on shareholder loans is not portfolio interest and depends on the convention (sections 881, 871(h)(3)).
- A U.S. corporation that is 25 percent foreign-owned files Form 5472 for its transactions with the family and the parent, on pain of USD 25,000 a year (section 6038A); a foreign company registered in a state reports its beneficial owners to FinCEN (31 C.F.R. § 1010.380).
- Shares of the U.S. company held by an individual abroad are U.S.-situs property for the estate tax (section 2104(a)); shares held through the parent are not. The domicile-type conventions leave the shares to the owner’s country in any event.
- A family member who moves to run the business becomes a U.S. taxpayer on worldwide income, with the reporting of the family’s structures at home, and the question of domicile for the estate tax.
What is happening
The U.S. business starts with a choice of form. A subsidiary incorporated in a state, or a limited liability company that elects to be taxed as a corporation, pays federal income tax at 21 percent on its profits (section 11(b)) and state tax where it operates; its dividends to the parent are U.S.-source income withheld upon at 30 percent, which the income tax conventions reduce to 15 percent for portfolio holders, to 5 percent for a company holding at least 10 percent of the voting stock and, under some conventions and on conditions, to zero for a parent holding 80 percent (section 881; section 1442). A branch of the foreign company pays the same tax on its effectively connected profits and a branch profits tax of 30 percent on the amount deemed remitted, which the convention reduces in the same way as dividends (section 884). A limited liability company that keeps its default classification is transparent and makes the foreign owner itself a U.S. taxpayer filing U.S. returns. Loans from the parent carry interest that is not portfolio interest in the hands of a 10 percent shareholder (section 871(h)(3)) and is withheld upon at 30 percent unless the convention reduces it, usually to zero; the terms of intercompany loans, services and sales must meet the arm’s length standard (section 482).
Reporting follows ownership. A U.S. corporation that is 25 percent foreign-owned, and a foreign-owned single-member LLC, file Form 5472 each year for the transactions with the foreign owner and related parties, keep the records that support them, and pay USD 25,000 for each year the form is missing (section 6038A). A company formed under foreign law that registers to do business in a state is a reporting company under the Corporate Transparency Act and reports its beneficial owners to FinCEN within 30 days of registration; companies formed in the United States no longer report (31 C.F.R. § 1010.380). The U.S. company needs an employer identification number, a registered agent in each state where it is formed or qualified, and the state registrations of a business with employees. For the owners, the question is who holds the U.S. shares. Shares of a U.S. corporation held by an individual who lives abroad are property situated in the United States for the estate tax, taxed above USD 60,000 at rates up to 40 percent unless a domicile-type convention leaves them to the home country (section 2104(a)); shares held by the parent company are the parent’s asset, outside the individual’s U.S. estate. A gift of U.S. shares by a person abroad is not subject to U.S. gift tax (section 2501(a)(2)). A family member who moves to run the subsidiary becomes a U.S. resident on arrival for the income tax, with the reporting of the family’s companies, trusts and accounts at home, and, if the move is for good, a U.S. domiciliary for the estate tax.
| Question | Subsidiary (corporation) | Branch or transparent LLC |
|---|---|---|
| Federal tax on profits | 21 percent on the subsidiary’s taxable income | 21 percent (corporate parent) or graduated rates (individual owner) on the effectively connected profits |
| Tax on what goes to the parent | Withholding on dividends: 30 percent, 15, 5 or 0 under the convention | Branch profits tax of 30 percent, reduced under the convention; none for an individual owner |
| Who files in the United States | The subsidiary (Form 1120, Form 5472) | The foreign company or the individual owner (Form 1120-F or Form 1040-NR), Form 5472 for a single-member LLC |
| Liability shield | The subsidiary’s | An LLC’s, but not a branch’s |
| Beneficial ownership report | None for a company formed in the United States | Required for a foreign company registered in a state |
| Estate tax on the owner’s interest | U.S.-situs if held by an individual; not if held by the parent | Interest in an LLC: situs not settled; branch assets: U.S.-situs |
What has to happen, in order
- Choose the form and the state
Corporation, LLC or branch; the state of formation and the states of registration; the ownership through the parent or by family members.
- Form and register
The articles, the operating agreement or bylaws, the registered agent, the employer identification number, the state and local registrations and the bank account.
- Capitalize
Equity and shareholder loans in the proportion the convention and the interest deduction rules favour; the intercompany agreements for loans, services and sales at arm’s length.
- Apply the convention
The withholding rates on dividends, interest and royalties to the parent, the limitation on benefits article, and the forms the subsidiary needs from the parent (Form W-8BEN-E).
- Set up the reporting
Form 5472 and its records, the beneficial ownership report where it applies, and the calendar of federal and state filings.
- Settle the owners’ side
Who holds the shares, the estate tax position of each holder, the shareholders’ agreement and the succession of the shares at a death.
- Plan the move of family members
Residence start, pre-arrival steps, the reporting of structures at home and the estate tax domicile (see Moving to the United States).
How the firm helps
The firm forms the U.S. entity and acts as its outside counsel: corporate, tax and the owners’ estate planning, with the family’s advisers at home. Immigration and employment law are handled with colleagues in those fields.
- The choice of form and the formation and registration of the entity in any state.
- The intercompany agreements, the capitalization and the treaty position, prepared in the firm’s federal tax practice.
- Form 5472, the beneficial ownership report and the compliance calendar.
- The shareholders’ agreement and the estate plan for the owners’ U.S. interests.
- The planning for family members who move to the United States.
What documents to prepare for the initial consultation
- The parent company’s articles, shareholder list and latest financial statements
- A short description of the planned U.S. activity, its location and the expected staff
- The intended ownership of the U.S. entity, and whether family members will hold shares directly
- Drafts of intercompany arrangements: loans, services, licenses, supply
- Existing contracts with U.S. customers, distributors or suppliers
- Leases or purchase offers for U.S. premises
- The citizenship and residence of the family members involved, and who intends to move
- Existing wills and shareholder agreements of the owners
- The home country adviser’s memorandum on the structure, if one exists
Copies are sufficient. The firm sets up a secure portal for the documents and reviews them before the consultation.
The income tax conventions set the withholding on dividends, interest and royalties to the parent, reduce or remove the branch profits tax, and decide when a sales office is a permanent establishment; their limitation on benefits articles must be met by the parent. The estate tax conventions of the domicile type leave the shares of the U.S. company held by an individual to the home country; the United States keeps the business property of a branch (Germany: Articles 7 and 9 of the estate tax convention).
Describe the project in a few lines
The home country, the planned activity, the intended ownership and who will move are enough for the firm to say which form fits and what the first steps are.
