Setting Up a US Subsidiary: The Legal Roadmap for German Companies

Can a German set up a company in the US?

Yes. Neither US citizenship nor US residence is required to form and own a US company. A German business, or a German private individual, can set up an LLC or a Corporation in almost any state and hold all the shares. At its core you need three things: a Registered Agent with an address for service in the state of formation, the formation document, and a federal tax number, the Employer Identification Number (EIN).

Formation should be kept apart from two questions that are often folded into it. Owning a US company does not by itself entitle anyone to work in the US or to live there. That takes a suitable visa. Nor does formation settle how profits are taxed: that turns on the legal form, the group connection and the double taxation treaty (Doppelbesteuerungsabkommen). Anyone who fails to clarify both in advance may form the company quickly but will run into trouble later, over staffing and over tax.

LLC or C-Corporation: which legal form fits from the German perspective?

The two forms that matter in practice are the Limited Liability Company (LLC) and the C-Corporation. Both limit liability to the company's assets, but they differ sharply in structure and tax treatment.

The C-Corporation is a corporation in the classic sense. At federal level it pays 21 per cent corporation tax. Individual states add their own income taxes on top. Distributions to shareholders are then taxed again. For a German parent establishing an operating US subsidiary, the C-Corporation is often the starting point for the analysis. It resembles a German corporation more closely, provides a clear equity layer and is generally easier to integrate into a German group structure. The treatment of profits, dividends and disposal proceeds must nevertheless be modelled with German and US tax advisers.

The LLC is more flexible and far more common in the US, but for German shareholders it is the real stumbling block. In the US, an LLC can elect for tax purposes to be treated either as a transparent partnership or as a corporation (Check-the-box). That election does not bind the German tax authorities. For German owners, the entity choice is therefore not a formality. US classification, the German entity-type comparison, treaty relief and future distributions need to be considered together.

Why the choice of legal form looks different in Germany than in the US

Germany does not recognise the LLC as a legal form. How a US company is treated here turns on the comparison of corporate types (Rechtstypenvergleich). Against a fixed catalogue of criteria, the tax authorities ask whether the particular company looks structurally more like a German corporation or a partnership. The basis is the BMF letter of 19 March 2004, with the criteria worked out for the LLC in the Corporation Tax Handbook (Körperschaftsteuer-Handbuch). What counts is centralised management, limited liability, free transferability of shares, profit allocation, the raising of capital and the formalities of formation. The US Check-the-box election plays no part.

Here lies the LLC's central risk: hybrid classification. Where the US treats an LLC as a transparent partnership and Germany treats the same entity as a corporation, the two tax systems pull apart. Different classifications may create complex attribution, credit and double-taxation issues. The place of effective management also matters. If the key management decisions are consistently taken in Germany, German tax liabilities of the US entity may arise. The US company therefore needs governance that fits the intended structure in addition to a Registered Agent.

In practice, then, the legal form follows the German classification and the fit with the existing group and succession structure. Ease of handling in the US takes second place. We run that classification with your tax adviser before the formation instruction goes to US counsel. The tax calculation itself stays with the tax adviser. The corporate and structural decisions belong on the German side.

Which state should you incorporate in? The Delaware myth

Many treat Delaware as the obvious state to incorporate in, and for companies close to the capital markets, for investor holdings and for complex capital structures, the choice is justified. Delaware has a highly developed corporate law, a specialised judiciary and a deep body of case law, and that combination gives legal certainty. Large German groups routinely use it for their US holdings.

For a typical mid-sized business establishing an operating sales or production subsidiary, Delaware is not automatically the best choice. The reason is Foreign Qualification. A company formed in Delaware but actually trading in another state must register there as well, as a foreign company. This may result in an additional registration, further annual fees and parallel compliance obligations. A business operating permanently in only one state should therefore assess whether direct formation in that state is simpler.

The state therefore follows the operational centre of gravity: where the customers, staff, warehouse or production sit. Tax differences between states, in corporate income tax or franchise tax, matter, but rarely decide the question. The decision should follow the business model, investor structure and actual operational footprint rather than an automatic Delaware reflex.

How does the formation work? Registered Agent, EIN and Foreign Qualification

The formation itself is standardised, handled by US counsel or a formation service provider. First, a Registered Agent is appointed in the state of formation, a person or company with an address for service that receives official and court documents. Then the formation document is filed with the Secretary of State: the Articles of Organization for the LLC, the Articles of Incorporation for the Corporation. Next come the internal rules, the Operating Agreement of the LLC or the Bylaws of the Corporation.

After that comes the EIN from the Internal Revenue Service, the federal tax number needed for a bank account, tax returns and hiring staff. Foreign founders without a US social security number apply through a special procedure that takes somewhat longer. If the company operates in several states, Foreign Qualification in each of the others follows. Alongside all this, and depending on the business, come sector-specific licences, sales-tax registrations and the opening of a US bank account, which can be one of the more time-sensitive workstreams for a foreign-owned subsidiary.

Beneficial Ownership Information reporting under the Corporate Transparency Act also needs to be checked. Under the FinCEN rule in force since March 2025, entities created in the United States are currently exempt from BOI reporting. Certain entities formed under foreign law and registered to do business in a US state may still be reporting companies. A newly incorporated US subsidiary of a German parent will therefore generally not have a FinCEN BOI filing obligation under the current rule. Bank KYC, tax, state and other disclosure obligations remain separate.

State filing fees and Registered Agent costs are only part of the budget and vary materially by state and entity type. Ongoing accounting, federal and state tax filings, payroll, licences, insurance and corporate compliance are often more significant. A realistic budget should cover at least the first two to three years of operations.

German parent, US subsidiary: how do you tie the two together?

When an existing German company forms a US subsidiary, the way the two are tied together decides liability, tax burden and later flexibility. Three points carry the weight.

First, capitalisation. You can fund the subsidiary with equity, with shareholder loans or with a mix of the two. The routes carry different tax consequences: interest on loans is in principle deductible, dividends are not. Germany applies the interest barrier (Zinsschranke). The US applies its own limits on deducting intra-group interest. 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 shareholder debt should therefore be designed with tax advisers rather than selected solely for liquidity reasons.

Second, the intercompany agreements. Every dealing between parent and subsidiary, deliveries of goods, licences, management services or loans, has to be agreed and documented on arm's length terms. German transfer pricing rules demand solid documentation. Without it, additional assessments and double taxation follow. We design these agreements from the German side and coordinate them with US counsel so they also meet the requirements there.

Third, the separation of liability. The corporation in principle shields the parent from the subsidiary's liabilities. That protection holds only if the subsidiary is run as a genuine company in its own right, with its own capital, its own accounting and documented decisions. Under applicable state law, piercing the corporate veil remains exceptional. Commingling, a lack of genuine separateness or abusive structures may increase the risk. Particularly in product-related businesses with elevated US liability exposure, separate accounts, contracts, decisions and insurance should be documented from the outset.

Which visa do seconded employees need? E-2 and L-1 in overview

Holding shares is one thing. Working in the US or posting staff there is another, and it needs a suitable visa. Two categories matter for German businesses. What follows is an overview. The application itself belongs with specialised US immigration counsel.

The E-2 classification is available to German nationals as nationals of a treaty country. It requires a substantial investment that is committed to an active US business and the ability to develop and direct that enterprise. For a company-owned structure, the treaty nationality of the ownership chain also needs to be confirmed. There is no statutory minimum. The investment has to be proportionate to the project. The E-2 suits investors and founders who build on the ground themselves.

The L-1 visa covers the intra-group secondment: it moves executives, managers or specialists from the German company into an affiliated US company. It requires, among other things, that the person has worked at the German company for at least one year within the last three, and that a qualifying group link runs between the German and the US company. The L-1 suits established companies posting key personnel into the new subsidiary. The appropriate route depends on ownership, the qualifying corporate relationship, previous employment, the individual's role and the intended stay.

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

US market entry works best on a clear division of labour. US counsel operates under US law: it files the formation documents, draws up the Operating Agreement or Bylaws, checks state licences, advises on US contracts and, where needed, runs litigation there. Everything decided under US law is its responsibility.

Our role is to coordinate on the German side. We structure the market entry from the standpoint of the German parent: choice of legal form in the comparison of corporate types (Rechtstypenvergleich), group connection, capitalisation, intercompany agreements, separation of liability, and the fit with the existing corporate and succession structure. We select the right US counsel, brief it, test its drafts against the German requirements and hold the threads together so that the US formation and the German structure match. We coordinate the tax side with your tax adviser. You are left with a single point of contact for the whole picture, while the US-law work happens where it belongs.

The typical mistakes this coordination heads off are familiar: picking the LLC without regard to the German comparison of corporate types, the reflex incorporation in Delaware with no operational link, too thin a capital base for the subsidiary, missing or undocumented intercompany agreements, blurring parent and subsidiary in day-to-day business, and forming the company before the visa question is settled. These issues usually arise at the interface between German group planning and US implementation. That is why the market entry requires coordinated overall planning.