A US subsidiary is a company formed under the law of one American state, most often a Delaware corporation, that a foreign parent owns in full. It gives the parent a real domestic employer, a US bank account, and a clean container for contracts and liability, at the price of a permanent compliance footprint: state filings, federal and state payroll obligations, and information returns that exist purely because the owner is foreign. The formation itself is fast and cheap; it is the operating obligations that decide whether a subsidiary is worth it, which is why companies hiring only one or two Americans often use an employer of record instead and incorporate later.
Formation and the EIN
Incorporation happens at state level: pick a state, file the formation document, appoint a registered agent. The first federal step is the employer identification number, which everything else hangs off. The IRS issues EINs free of charge and warns explicitly against websites that charge for one. A domestic entity with a US principal place of business can use the online tool and get the number immediately, with a limit of one EIN per responsible party per day; applicants whose principal place of business is outside the United States must apply by phone, fax or mail instead. The responsible party named on the application provides a Social Security number or individual taxpayer identification number, which is a common early snag for foreign founders and worth planning around rather than discovering.
The payroll machine you are switching on
Hiring one employee activates the full US employer stack. Federal income tax, Social Security and Medicare amounts withheld from wages must be deposited electronically by EFT on a monthly or semiweekly schedule that the employer must determine before each calendar year begins, and reported quarterly on Form 941. Federal unemployment tax is the employer's alone, reported annually on Form 940, with deposits required once the quarterly liability exceeds $500. Each January the subsidiary issues Form W-2 to every employee and files it with the Social Security Administration by the 31st. On top of the federal layer, each state where employees work adds its own withholding registration, unemployment insurance account and filing calendar, so a remote team spread across five states means five parallel registrations.
The foreign-ownership paperwork
Foreign ownership adds a reporting layer that a domestic founder never sees. A US corporation that is at least a quarter foreign-owned must file Form 5472 to report transactions with related parties, foreign or domestic, under sections 6038A and 6038C; the same form applies to a foreign corporation engaged in a US trade or business, and reportable transactions include the ordinary flows a group generates without thinking, such as intercompany loans, service charges and cost recharges. Penalties for missing it are substantial, so the safe pattern is to put the subsidiary's intercompany dealings on written agreements from the start and give the filing to whoever prepares the corporate income tax return, due with it every year.
Subsidiary or employer of record
The subsidiary wins when the US operation is permanent: it can sponsor benefits in its own name, sign customer contracts, hold state registrations and build credit history. The employer of record wins on speed and reversibility: the EOR's existing US entity employs the staff, runs the multi-state payroll stack described above, and the foreign parent pays a monthly fee per employee with no formation, no EIN wait by fax, and no Form 5472. The crossover is usually a handful of employees or the first US customer contract that demands a domestic counterparty. A common sequence is EOR first, subsidiary when the headcount or the commercial need arrives, then migrating staff onto the subsidiary's own payroll at a year-end boundary.
Questions people ask about us subsidiary
How long does it take to set up a US subsidiary?
State incorporation can be same-week. The pacing items are the EIN, immediate online for a US-based applicant but phone, fax or mail for one whose principal place of business is abroad, then bank account opening and state payroll registrations, which together typically stretch the working timeline to weeks.
Does the subsidiary need an American director or shareholder?
Ownership can be entirely foreign, and most states do not require resident directors. The practical US-person requirement is the EIN responsible party's taxpayer identification and a signatory the bank will accept for account opening, which is where foreign-owned setups usually slow down.
What is Form 5472 and does it apply to us?
It is the information return a 25% foreign-owned US corporation, or a foreign corporation engaged in a US trade or business, files to report transactions with related parties under sections 6038A and 6038C. If a foreign parent owns the subsidiary, plan on filing it with each year's tax return.
Can we hire US employees without a subsidiary?
Yes, through an employer of record, whose US entity becomes the legal employer and runs payroll, benefits and state registrations while you direct the work. It is the standard route for testing the market before committing to a permanent corporate presence.