Foreign companies continue to choose the United States as a base for long-term expansion. This is driven by a combination of market size, legal stability, and reliable economic performance. According to the Organisation for Economic Co-operation and Development (OECD) in its FDI in Figures report from October 2024, the U.S. attracted more foreign direct investment (FDI) than any other OECD member country. A large share of this investment came from existing foreign-owned businesses reinvesting their earnings into U.S. operations. Additional flows came through new equity investments and intercompany loans, indicating that both new market entrants and long-established firms view the U.S. as a place worth investing in.
The OECD’s April 2025 update confirmed that this trend remained strong into the following year. The U.S. accounted for nearly 25 percent of all FDI inflows across OECD countries, holding its position as the top recipient. Investment was spread across sectors and regions, reflecting the diverse appeal of the U.S. economy. Companies cited the size of the consumer market, enforcement of intellectual property rights, and contract reliability as key reasons for choosing the U.S. While several advanced economies experienced slower investment activity during the same period, the U.S. continued to draw consistent interest from companies looking for long-term growth and security.
Data from the U.S. Bureau of Economic Analysis (BEA) supports these findings. In 2024, foreign investors spent 151.0 billion U.S. dollars to either acquire American businesses or establish new operations. Most of that capital went toward acquisitions. However, many companies also chose to launch entirely new facilities. These greenfield investments, meaning projects built from the ground up, were particularly strong in manufacturing, technology, and professional services. The size and nature of these investments point to serious, long-term commitments rather than temporary or speculative activity.
The SelectUSA program, an initiative of the U.S. Department of Commerce, has also reported strong investor activity in strategic areas such as clean energy, semiconductors, and advanced manufacturing. According to global business analysis platform Santander Trade, the U.S. remains attractive to foreign investors because of its transparent regulatory environment, access to financing, and availability of skilled labor. Many U.S. states offer additional support in the form of tax credits, workforce training programs, and infrastructure grants. When combined with national advantages such as rule of law, business predictability, and consumer demand, these factors position the U.S. as one of the most practical destinations for international expansion.
For these reasons, foreign companies across sectors continue to establish subsidiaries in the U.S. A subsidiary allows them to operate under U.S. law, hire local employees, sign contracts with American clients, and manage risk through legal separation from the parent company.
What Is a Subsidiary?
A subsidiary is a company that is owned or controlled by another business, called the parent company. Control is established when the parent owns more than 50 percent of the subsidiary’s voting stock. If it owns 100 percent, the company is considered a wholly owned subsidiary. The two entities are legally separate, even if the parent has full ownership and decision-making power. This means the subsidiary is responsible for its own operations, finances, and legal obligations.
The parent company typically oversees major strategic and financial decisions by appointing the subsidiary’s board of directors or senior leadership. However, the subsidiary usually handles its day-to-day operations independently. This structure allows the parent company to maintain oversight while the subsidiary remains flexible and responsive to its local market or operational focus.
As a legal entity, a subsidiary can enter contracts, hire employees, open bank accounts, pay taxes, and hold assets in its own name. It must follow the laws of the jurisdiction in which it is incorporated. For international companies, forming a subsidiary in the U.S. allows them to operate locally under U.S. law while limiting liability and separating tax obligations. The subsidiary’s financial results are typically consolidated into the parent company’s accounts, but legal obligations remain distinct.
A common example of this structure is Google LLC, which is a subsidiary of Alphabet Inc. While Alphabet is the parent holding company, Google runs its own operations, including managing its workforce, products, and financial activity. Alphabet uses this structure to separate risks and financial performance across its various business units, such as Waymo and YouTube, which are also subsidiaries. This model is used by companies of all sizes to manage growth, risk, and specialization.
Pros of Forming a Subsidiary
- Legal separation limits the parent company’s liability
- Allows targeted operations in specific markets or industries
- Builds local credibility with customers, regulators, and partners
- Enables independent financial management
- Helps isolate financial or legal risk from the parent entity
Cons of Forming a Subsidiary
- Requires formal setup and ongoing legal compliance
- Adds complexity to corporate governance and reporting
- May require separate tax filings
- Parent company still carries reputational or indirect risk
- Regulatory oversight varies by jurisdiction
How to Create a U.S. Subsidiary
Setting up a subsidiary in the U.S. is a practical step for foreign companies aiming to expand their presence in the American market. A U.S. subsidiary allows the parent company to operate under U.S. law, limit liability, and conduct business directly with U.S.-based customers, partners, and regulators. This section outlines each step required to form a U.S. subsidiary from start to compliance.
1. Choose the legal structure
Foreign-owned subsidiaries in the U.S. are typically formed as either a C Corporation (C Corp) or a Limited Liability Company (LLC). Each structure has distinct legal and tax implications.
- A C Corporation is a separate legal entity that files its own corporate income tax return (Form 1120) and pays tax at the corporate level. If profits are distributed to shareholders as dividends, those dividends are taxed again at the individual level. This structure is widely used by foreign companies because it allows for centralized control, supports multiple classes of shares, and is compatible with U.S. tax treaties. It is also more familiar to banks, investors, and regulators.
- A Limited Liability Company (LLC) offers more flexibility in terms of taxation. A foreign-owned single-member LLC is typically treated as a disregarded entity for tax purposes, meaning the parent company reports its income directly. While this can simplify certain filings, it also adds layers of IRS disclosure requirements, including Form 5472. LLCs cannot issue stock and may not be suitable for raising capital or accommodating complex ownership structures.
Foreign companies seeking operational clarity and future scalability often choose the C Corp format, especially when the U.S. entity will generate significant revenue or interact with outside investors.
2. Select the state of incorporation
Choosing where to incorporate determines which state’s laws will govern the subsidiary’s corporate governance, tax obligations, and reporting requirements.
- Delaware is a leading choice because of its business-focused legal system and efficient incorporation process. The state’s Court of Chancery handles corporate cases without juries and its laws are regularly updated to reflect modern business practices. According to global law firm Kennedys Law, over 68 percent of Fortune 500 companies and nearly 79 percent of U.S.-based initial public offerings in 2024 were incorporated in Delaware.
- Businesses planning to operate primarily in a specific state may instead choose to incorporate there to avoid extra filings and fees. If a company incorporates in one state but does business in another, it must register as a foreign entity in the operating state.
3. Reserve a business name
Each state has its own rules regarding business names. The company must choose a name that is distinguishable from existing entities and includes the appropriate legal suffix, such as “Inc.” for a corporation or “LLC” for a limited liability company.
- Search the Secretary of State’s business registry to confirm name availability.
- Ensure the name does not infringe on existing trademarks or intellectual property rights.
4. Appoint a registered agent
All U.S. business entities are required to have a registered agent in the state of incorporation. This agent receives legal notices, tax documents, and other official communications on behalf of the company.
- The agent must have a physical address in the state and be available during business hours.
- You may appoint a commercial registered agent or a qualified individual.
5. File the formation documents
To legally establish the subsidiary, formation documents must be filed with the Secretary of State.
- A C Corp files Articles of Incorporation that outline basic corporate details.
- An LLC files Articles of Organization with similar information.
- Filing fees and processing times vary by state.
6. Apply for an employer identification number (EIN)
An Employer Identification Number (EIN) is required for tax filings, hiring employees, and opening a U.S. business bank account.
- Foreign companies can apply for an EIN from the Internal Revenue Service (IRS) by submitting Form SS-4.
- If the responsible party does not have a U.S. Social Security Number, the application must be submitted by fax or mail.
7. Open a U.S. business bank account
A U.S. bank account is necessary to manage finances, pay local vendors, and process payroll.
- Banks typically require the company’s formation documents, EIN, and valid identification for company officers.
- Some banks may require a U.S. address and an in-person visit to a branch. Others offer remote onboarding with additional documentation.
8. Register for state and local taxes
Depending on the subsidiary’s activities, it may need to register for multiple tax accounts:
- State payroll taxes
- Unemployment insurance
- Sales and use tax (for applicable goods and services)
Each state has its own rules and registration process. It is important to register before hiring employees or conducting taxable sales.
9. Apply for business licenses and permits
Certain industries and business activities require specific licenses or permits.
- Regulated sectors such as finance, health care, construction, and food services have additional requirements.
- Local jurisdictions may also impose zoning restrictions or health and safety rules.
10. Fund the subsidiary
The parent company can capitalize the subsidiary through an equity investment or a loan.
- Equity contributions offer ownership in exchange for capital and are often used during initial setup.
- Intercompany loans must follow U.S. transfer pricing rules to ensure that terms are consistent with market standards.
Documentation should be kept to support both types of funding in case of future audits or legal reviews.
11. Maintain compliance
After formation, the subsidiary must meet ongoing reporting and legal obligations.
- File annual or biennial reports with the Secretary of State.
- Pay franchise or business taxes, if applicable.
- Submit federal and state income tax returns.
- Renew business licenses, keep company records up to date, and maintain good standing with state authorities.
Failure to meet these obligations can result in penalties, loss of status, or administrative dissolution.
Can You Form a Subsidiary Without U.S. Citizenship or Residency?
The short answer is yes. Foreign individuals and companies can legally establish and own a U.S. subsidiary without being U.S. citizens or permanent residents. This applies to both corporations and limited liability companies. U.S. corporate law places no restrictions on foreign ownership based on nationality or immigration status. A physical address in the U.S. is typically required for administrative tasks such as designating a registered agent, but this does not create a residency obligation.
While no immigration status is required to own a U.S. entity, foreign owners must comply with certain regulatory and tax obligations. The IRS requires any foreign-owned single-member LLC to file Form 5472 and maintain records of reportable transactions. These requirements are outlined in the official IRS instructions for Form 5472. Outside of these disclosures, nonresident ownership is lawful and well established in U.S. corporate practice.
Visa Options for Managing the U.S. Subsidiary
Forming or owning a U.S. business does not automatically grant the right to live or work in the country. If a foreign national intends to manage operations or be physically present in the U.S., they must obtain a visa that permits employment or executive activity. Several options exist depending on the individual’s role and country of citizenship.
1. L‑1 Visa (intra‑company transfer)
The L‑1 visa allows a foreign company to transfer a qualified employee to a U.S. branch, affiliate, or subsidiary. The employee must have worked for the foreign entity for at least one continuous year within the past three years in a managerial, executive, or specialized knowledge capacity. The U.S. entity must be operational and maintain a qualifying relationship with the foreign parent.
2. E‑2 Visa (treaty investor)
Nationals of countries that hold a valid investment treaty with the U.S. may apply for an E‑2 visa. This visa requires a substantial investment in a real and operating U.S. business. The investor must own at least 50 percent or have operational control. There is no fixed minimum investment amount, but the funds must be sufficient for the nature and size of the business and must be at risk for the purpose of generating a return.
3. H‑1B Visa (specialty occupation)
The H‑1B visa allows U.S. companies to hire foreign professionals for roles that require at least a bachelor’s degree in a specialized field. The employer must demonstrate that the job qualifies as a specialty occupation and pay the prevailing wage. This visa is subject to an annual cap and lottery system, unless exempt.
4. O‑1 Visa (extraordinary ability)
The O‑1 visa is available to individuals with extraordinary ability in business, science, or other recognized fields. Applicants must provide evidence of sustained acclaim or notable contributions. The U.S. company must file the petition and act as the sponsor. This option is typically used by founders or professionals with strong international credentials.
5. B‑1 Visa (business visitor)
The B‑1 visa allows for short-term entry into the U.S. for limited business purposes. This includes attending meetings, signing contracts, or conducting preliminary site visits. It does not allow the individual to manage daily operations or engage in employment within the U.S.
How to Sequence Your Visa Approach
It is legal to form and own a subsidiary without a visa. However, if business needs require physical presence in the U.S., foreign companies often begin by sending an executive on a B‑1 visa for setup activities. Once the business is operational, an L‑1A may be used to transfer a senior manager. If the owner is from a treaty country and plays a direct role, the E‑2 visa may be more suitable. For specialized roles, the H‑1B or O‑1 visa may apply.
Each visa category carries specific requirements and limitations. Working with an immigration attorney early in the process can help avoid delays and ensure that visa strategy aligns with business goals.
Sources
- OECD – FDI in Figures: October 2024
https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/10/fdi-in-figures-october-2024_faad0bae/fcdc2fb2-en.pdf - OECD – FDI in Figures: April 2025
https://www.oecd.org/en/publications/fdi-in-figures-april-2025_d5a76fd0-en.html - U.S. Bureau of Economic Analysis (BEA) – New Foreign Direct Investment in the United States, 2024
https://www.bea.gov/data/intl-trade-investment/new-foreign-direct-investment-united-states - U.S. Department of Commerce – SelectUSA Reports and Publications
https://www.trade.gov/selectusa-reports-and-publications - Santander Trade – United States: Foreign Investment
https://santandertrade.com/en/portal/establish-overseas/united-states/foreign-investment - OECD – Foreign Direct Investment (FDI) Overview
https://www.oecd.org/en/topics/foreign-direct-investment-fdi.html - Investopedia – Subsidiary Company: Definition, Examples, Pros, and Cons
https://www.investopedia.com/terms/s/subsidiary.asp - Investopedia – Why Google Became Alphabet
https://www.investopedia.com/articles/investing/081115/why-google-became-alphabet.asp - Kennedys Law – Why Delaware Remains the First State for Business Incorporation – https://www.kennedyslaw.com/en/thought-leadership/article/2025/why-delaware-remains-the-first-state-for-business-incorporation/
- Investopedia – C Corporation (C Corp) – https://www.investopedia.com/terms/c/c-corporation.asp
- Investopedia – Limited Liability Company (LLC) – https://www.investopedia.com/terms/l/llc.asp
- Investopedia – Articles of Organization – https://www.investopedia.com/terms/a/articles-of-organization.asp
- Internal Revenue Service (IRS) – Instructions for Form SS-4 – https://www.irs.gov/instructions/iss4
- Altios – Set Up a Subsidiary in the U.S.: LLC and Foreign Company Guide – https://altios.com/publication/set-up-a-subsidiary-in-the-u-s-llc-and-foreign-company-guide/
- Mintz – Checklist for Foreign Companies Expanding to the U.S. – https://www.mintz.com/insights-center/viewpoints/2911/2024-08-22-checklist-foreign-companies-expanding-us
- WeConnect – EIN for Foreign-Owned U.S. Entity – https://weconnect.co/united-states/ein-foreign-owned-us-entity/
- Internal Revenue Service (IRS) – Instructions for Form 5472 – https://www.irs.gov/instructions/i5472
- U.S. Citizenship and Immigration Services (USCIS) – L-1A Intracompany Transferee Executive or Manager – https://www.uscis.gov/working-in-the-united-states/temporary-workers/l-1a-intracompany-transferee-executive-or-manager
- USCIS – E-2 Treaty Investors – https://www.uscis.gov/working-in-the-united-states/temporary-workers/e-2-treaty-investors
- USCIS – H-1B Specialty Occupations – https://www.uscis.gov/working-in-the-united-states/temporary-workers/h-1b-specialty-occupations-dod-cooperative-research-and-development-project-workers-and-fashion-models
- USCIS – O-1 Individuals with Extraordinary Ability or Achievement – https://www.uscis.gov/working-in-the-united-states/temporary-workers/o-1-individuals-with-extraordinary-ability-or-achievement
- USCIS – B-1 Temporary Business Visitor – https://www.uscis.gov/working-in-the-united-states/temporary-visitors-for-business