Setting up a company in the USA: the legal roadmap for German businesses

Can a German national set up a company in the US?

Yes. Neither US citizenship nor residence in the US is a prerequisite for setting up and owning a US company. A German company or private individual can set up an LLC or a corporation in almost any state and hold all the shares. Essentially, what is required is a registered agent with a service-of-process address in the state of incorporation, the articles of incorporation and a tax number for federal purposes, the Employer Identification Number (EIN).

The incorporation process should be kept separate from two other issues that are often conflated with it. Ownership of a US company does not, in itself, permit the holder to work in the US or to reside there permanently. A suitable visa is required for this. Furthermore, incorporation does not determine how profits are taxed, as this depends on the legal form of the company, its affiliation within a group and the double taxation agreement. Anyone who fails to clarify both of these points in advance may set up the company quickly, but will face problems later on regarding staff deployment and tax.

LLC or C-corporation: Which legal form is most suitable from a German perspective?

The two most important legal forms in practical terms are the Limited Liability Company (LLC) and the C-corporation. Both limit liability to the company’s assets, but differ considerably in terms of structure and tax treatment.

The C-corporation is a corporation in the traditional sense. At federal level, it is subject to corporation tax at 21 per cent, with additional state income taxes depending on the state. Distributions to shareholders are taxed again. In the typical scenario of a German parent company with an operating US subsidiary, the C-corporation is often the starting point for consideration. Structurally, it is more akin to a German corporation, creates a clear ownership structure and is generally easier to integrate into a German group structure. Nevertheless, the specific treatment of profits, dividends and capital gains must be modelled in consultation with German and US tax advisers.

The LLC is more flexible and very common in the US, but it is the real stumbling block for German shareholders. In the US, an LLC is free to choose for tax purposes whether it wishes to be treated as a transparent partnership or as a corporation (check-the-box). This right of choice is not binding on the German tax authorities. For German shareholders, the choice of legal form is therefore not a mere formality. US classification, a comparison with German legal systems, treaty relief and subsequent distributions must all be considered together.

Why the choice of legal form in Germany differs from that in the USA

Germany does not recognise the LLC as a legal form. How a US company is treated in this country is determined by what is known as a ‘comparison of legal forms’. The tax authorities use a fixed set of criteria to assess whether the structure of a particular company is more similar to that of a German corporation or a partnership.

This is based on the Federal Ministry of Finance (BMF) circular of 19 March 2004, the criteria of which are set out in detail for LLCs in the Corporation Tax Handbook. Key factors include centralised management, limitation of liability, the free transferability of shares, profit distribution, capital raising and the formalities of incorporation. The US ‘check-the-box’ option is irrelevant in this context.

This gives rise to the key risk associated with an LLC: hybrid classification. If the same LLC is classified as a transparent partnership in the US but as a corporation in Germany, the two tax systems diverge. A differing classification can lead to complex issues regarding attribution, set-off and double taxation. In addition, the place of effective management must be taken into account. If key management decisions are made on a permanent basis in Germany, the US company may become subject to German tax obligations. The US company therefore requires, in addition to a registered agent, a system of effective governance that is appropriate to the chosen structure.

In practice, this means that the legal form is determined by how the company is classified in Germany and how it fits into the existing group and succession structure. What is straightforward to manage in the US takes a back seat. We carry out this classification together with your tax adviser before the incorporation mandate is sent to the US counsel. The specific tax calculation remains the responsibility of the tax adviser. The decision-making regarding company and structural law lies with the German side.

In which state should you set up a company? The Delaware myth

Many regard Delaware as the obvious choice of state in which to incorporate, and for companies listed on the stock exchange, investor holdings and complex capital structures, this is entirely justified. The state has a highly developed body of company law, a specialised judiciary and extensive case law, which provides legal certainty. Large German conglomerates regularly use Delaware for their US holding companies.

For the typical medium-sized company with an operational sales or production subsidiary, Delaware is not automatically the best choice. The reason is ‘foreign qualification’. A company incorporated in Delaware but actually conducting business in another state must also register there as a foreign corporation. This can lead to an additional registration, further annual fees and parallel compliance obligations. Anyone operating permanently in just one state should therefore check whether it is simpler to incorporate directly in that state.

The choice of state should therefore be based on the operational focus: where are the customers, staff, warehouse or production facilities located? Tax differences between states, for example regarding corporate income tax or franchise tax, are a factor, but rarely the decisive one. The choice should be based on the business model, the investor structure and the actual operational footprint – not an automatic ‘Delaware reflex’.

What is the incorporation process? Registered Agent, EIN and Foreign Qualification

The actual incorporation process is standardised and is carried out by US counsel or an incorporation service provider. The process essentially comprises the following steps. First, a Registered Agent is appointed in the state of incorporation – that is, a person or company with a valid address to which official and court documents can be served. Next, the incorporation documents are filed with the Secretary of State: the Articles of Organisation for an LLC, and the Articles of Incorporation for a corporation. Next, the internal governing documents are drawn up: the Operating Agreement for an LLC or the Bylaws for a corporation.

Next, an EIN is applied for from the Internal Revenue Service; this is the tax number for federal purposes, which is required for bank accounts, tax returns and the employment of staff. For foreign founders without a US Social Security number, this application follows a special procedure that takes slightly longer. If the company operates in several states, foreign qualification must be obtained in the other states. In parallel, depending on the business, industry-specific licences, sales tax registration and the opening of a US bank account must be organised; experience shows that this can be the most time-critical aspect for foreign companies.

Another compliance requirement is the reporting of beneficial ownership information under the Corporate Transparency Act. Under the FinCEN rule, which has been in force since March 2025, companies incorporated in the US are currently exempt from the BOI reporting obligation. However, certain companies incorporated under foreign law that register to conduct business in a US state may be subject to reporting requirements. For a typical newly incorporated US subsidiary of a German parent company, there is therefore currently no general obligation to file BOI. Banking, tax, KYC and state disclosure requirements remain unaffected by this and must be assessed separately.

State incorporation fees and the costs of the registered agent are usually only part of the budget and vary significantly by state and legal form. The ongoing costs for bookkeeping, tax returns, payroll, licences, insurance and corporate compliance are generally of greater financial significance. A robust cost plan should therefore cover at least the first two to three financial years.

German parent company, US subsidiary: How do you link the two together?

When an existing German company sets up a US subsidiary, the structure of the relationship determines liability, tax burden and future flexibility. Three points are key here.

Firstly, capitalisation. The subsidiary can be funded through equity, shareholder loans or a combination of both. These options have different tax implications, as interest on loans is generally tax-deductible, whereas dividends are not. On the German side, the interest deduction limit must be taken into account, whilst on the US side, the rules on the deductibility of intra-group interest apply. The deductibility of intra-group interest may be restricted by US and German limitations, arm’s length principles and the specific financing structure. Equity and loans should therefore be structured in consultation with tax advisers. Liquidity considerations alone are not sufficient for this purpose.

Secondly, intercompany agreements. All transactions between the parent company and its subsidiary – such as the supply of goods, licences, management services or loans – must be concluded and documented on an arm’s-length basis. German transfer pricing rules require robust documentation. If this is lacking, there is a risk of additional tax assessments and double taxation. These agreements are drafted by the German side and coordinated with US counsel to ensure they meet local requirements.

Thirdly, the separation of liability. In principle, the corporation shields the parent company from the subsidiary’s liabilities. However, this protection only holds if the subsidiary is managed as an independent company, with its own capital base, its own accounting system and documented decision-making. Piercing the corporate veil is not the norm under the applicable law, but may be facilitated by commingling of assets, insufficient autonomy or abusive structures. Particularly in the case of product-related businesses with an increased risk of US liability, separate accounts, contracts, decision-making processes and insurance policies should be documented from the outset.

What visas do seconded employees need? An overview of the E-2 and L-1 visas

Anyone wishing to work in the US or second staff there requires a suitable visa in addition to their shareholding. Two categories are relevant for German companies. Here is an overview. The application itself is handled by a specialist US immigration counsel.

The E-2 visa is available to German nationals as citizens of a treaty country. It requires a substantial, genuinely committed investment in an active US business, as well as the ability to develop and manage that business. In the case of a corporate structure, the required treaty nationality of the ownership structure must also be checked. There is no statutory minimum amount. The investment must be proportionate to the specific project. The E-2 visa is suitable for investors and founders who are establishing the business themselves on the ground.

The L-1 visa is intended for intra-corporate transfers. It enables executives, managers or specialists from a German company to be transferred to an affiliated US company. Among other requirements, the person must have been employed by the German company for at least one year within the last three years, and there must be a qualifying group affiliation between the German and US companies. The L-1 visa is suitable for established companies that are sending key personnel to their new subsidiary. The choice depends on the ownership structure, the group affiliation, previous employment, the role profile and the planned duration of stay.

What does a German lawyer do, and what does a US counsel do?

The best way to enter the US market is through a clear division of labour. The US counsel works in accordance with US law: they file the incorporation documents, draw up the operating agreement or bylaws, review state licences, advise on US contracts and, where necessary, represent the client in litigation there. They are responsible for all legal matters decided in the US.

Our role is that of coordinator on the German side. We structure the market entry from the perspective of the German parent company: choosing the legal form following a comparison of legal systems, group affiliation, capitalisation, intercompany agreements, separation of liability and integration into the existing corporate and succession structure.

We select the appropriate US counsel, brief them, review their drafts against German requirements and pull everything together to ensure that the US incorporation and the German structure are aligned. We coordinate the tax aspects with your tax adviser. This ensures you have a single point of contact who is responsible for the overall picture, whilst the implementation under US law takes place where it belongs.

Typical mistakes that this coordination helps to avoid include choosing an LLC without considering the German legal framework, automatically incorporating in Delaware without any operational connection, insufficient capitalisation of the subsidiary, missing or undocumented intercompany agreements, the blurring of lines between parent and subsidiary in day-to-day operations, and incorporation without having visa issues clarified. These errors usually arise at the interface between German group planning and US implementation. This is precisely why market entry requires coordinated overall planning.