How do I set up a U.S. subsidiary for my Korean company?
U.S. Entity Setup for Korean Businesses — Structure, Filings, and What It Costs
Form a C-Corporation in the state where you will actually operate — not a Delaware LLC.
The structure that sounds simplest is usually the expensive one. A single-member LLC owned by a Korean parent still files a U.S. corporate return, still reports every transaction with headquarters on Form 5472, and carries a $25,000 penalty if that form is late or incomplete. Our partners are licensed CPAs in both the United States and Korea, so we set the structure up once, correctly, and keep it consistent with what your Seoul office has to report.
Should we open an LLC or a C-Corporation?
For a Korean parent company, a C-Corporation is almost always the right answer.
An LLC is a pass-through entity, which means its income flows up to the owner. When that owner is a Korean corporation, the parent can end up with a U.S. filing obligation of its own — the opposite of what most groups want. A C-Corporation contains the U.S. tax liability inside the U.S. entity: it pays the federal corporate rate of 21% on its own profits, files its own return, and reports to headquarters as a clean, self-contained subsidiary. It is also the structure U.S. banks, landlords, and enterprise customers expect to see.
Do we have to incorporate in Delaware?
No. For most Korean companies, Delaware adds cost without adding protection.
Delaware makes sense for startups raising venture capital from U.S. investors. If your U.S. entity will operate from an office in California, you still have to register that Delaware company in California as a foreign corporation, keep a registered agent in both states, and pay California’s $800 minimum franchise tax regardless. You end up with two states of compliance for one business. Incorporating where you actually operate is simpler and cheaper.
What does the setup involve, in order?
Six steps, and the order matters — each one is a prerequisite for the next.
1. Form the entity in your operating state. 2. Obtain the EIN (federal tax ID) from the IRS — this is the step that most often stalls, because a foreign officer without a Social Security Number cannot apply online. 3. Open the bank account, which requires the EIN, formation documents, and usually an in-person visit by an officer. 4. Register for payroll with the state before your first hire, not after. 5. Set up the accounting system so intercompany transactions are tracked from day one. 6. Calendar the first filings — including Form 5472, which is due with the first corporate return.
What will the U.S. entity owe in taxes?
Federal corporate tax of 21%, plus whatever the operating state charges.
In California, that means an additional 8.84% state corporate tax on net income, with a minimum franchise tax of $800 due whether or not the company is profitable — including its first year. Sales tax is separate and depends on what you sell and where your customers are. If you have employees, payroll taxes are a third layer with their own deposit schedules and deadlines. We model the total before you commit to a state, because the difference between operating states is often larger than the difference between entity types.
What happens when headquarters charges the U.S. entity?
Every intercompany charge has to be priced as if the two companies were unrelated parties.
Management fees, royalties, shared services, inventory purchased from the parent, a loan from Seoul to cover the first year of operations — all of it is a reportable transaction, and all of it has to meet the arm’s-length standard under IRC Section 482. This is where Form 5472 comes in: the U.S. entity discloses each of these transactions to the IRS annually. Groups that set the pricing thoughtfully at the start rarely have a problem. Groups that decide it retroactively, three years later during an examination, usually do.