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 every year: a pro forma Form 1120 with Form 5472 reporting its transactions with headquarters, and a missing or incomplete Form 5472 carries a $25,000 penalty. If that LLC runs a U.S. business, the Korean parent can also owe a U.S. return of its own. 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.
Where is your company in the process?
Most Korean companies come to us at one of two points: before the U.S. entity exists, or after it exists but the books, filings and reporting to Korea are not yet in order. The work starts from where you are.
- Before formation. We decide the structure and state with you, form the entity, obtain the EIN, register for payroll and set up the accounting system so intercompany transactions are tracked from day one. You receive the formation documents, the EIN letter and a calendar of the first filings, including Form 5472.
- Already formed. We review what has and has not been filed (Form 5472, federal and state returns, payroll registrations), clean up or rebuild the books where needed, and put the monthly close, payroll and filings on a schedule. You receive a written list of each gap and how it is fixed, then monthly financial statements.
- Selling through Amazon, TikTok Shop or Shopify? The entity choice, sales tax and payout reconciliation work a little differently; see e-commerce seller accounting.
Every engagement is led personally by CEO Sangwon Youn (US CPA, California; KICPA) from the first consultation through each reporting cycle, with a team of associate CPAs supporting the day-to-day work. We work in English and Korean.
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 franchise tax, which has an $800 annual minimum after the first taxable year. 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, a corporation generally pays the greater of 8.84% of its California net income or the $800 minimum franchise tax, so the $800 is due even in a loss year. A corporation newly incorporated or qualified in California is not subject to the $800 minimum in its first taxable year, but tax calculated on its income can still apply. LLCs follow separate rules. 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.
How does SW support Korean companies in the U.S.?
At any size, from a first U.S. entity to the U.S. subsidiary of a listed group. The work is organized by what you need, not by how big you are.
- U.S. entry and setup: entity structure, formation, and the first tax and accounting setup.
- Running the U.S. entity: bookkeeping, payroll, federal and state tax filings, and financial management.
- Reporting to the Korean parent: K-IFRS reporting packages, intercompany reconciliation, and support for the parent’s finance team and group auditor.
- Special projects: due diligence and quality of earnings, business valuation, and M&A advisory.
When one firm handles setup, the monthly books, and the parent’s reporting, the structure chosen at formation carries through to the U.S. filings and to headquarters’ consolidation.
What you receive: formation documents and the EIN, monthly financial statements, federal and state returns as filed, and, where there is a Korean parent, the reporting package in the parent’s own format.
Based in Los Angeles, we work with clients across the United States: remotely, at our Los Angeles office, or on site, including trips to your headquarters in Korea. SW Accounting & Consulting Corp is SW’s U.S. entity. In Korea, SW is registered as 에스더블유 공인회계사 사무소 (Seoul).
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