Christine Alexis Concepción
ABSTRACT
For European businesses, expansion into the U.S often presents legal and tax issues extending well beyond incorporation itself. This article examines several recurring issues European entrepreneurs frequently underestimate when establishing U.S. operations, including entity structuring, multijurisdictional taxation, and operational infrastructure.
1. Choosing the Appropriate Structure in the U.S. and Home Country
A common mistake investors make when structuring a U.S. business is treating the process as a single decision. It is not. The analysis has two parts: (1) selecting the entity under applicable state law and (2) determining the entity’s classification for U.S. federal tax purposes. In cross-border structures, that planning often must extend beyond the U.S. operating entity to include, where appropriate, any foreign holding company, so that legal-entity selection and tax classification are coordinated across both jurisdictions.
Choosing an LLC, corporation, or partnership is primarily a matter of state law. That choice determines the business’s legal form, governance, and liability protections. But it does not end the analysis. Federal tax classification is a separate question and may require additional elections and planning. Similarly, where a foreign holding company is used, its legal form under local law and its tax treatment in the relevant foreign jurisdiction should be evaluated alongside the U.S. structure.
State-law form generally determines an entity’s default federal tax classification, but that default is not always controlling because some eligible entities may elect a different classification. In many cases, the default tax treatment of a chosen legal form is not the most efficient from a federal tax perspective. Tax classification can affect how income is taxed, whether the entity is fiscally transparent, whether tax is imposed at the entity or owner level, the availability of treaty benefits, the application of estate tax rules, and how U.S. tax rules interact with the investor’s home-country tax regime.
Estate tax planning should also be addressed early. For non-U.S. persons, owning an interest in a U.S. business without further planning can create unintended U.S. estate tax exposure. In some cases, U.S.-situs assets exceeding $60,000 may be subject to estate tax at rates of up to 40 percent, so entity formation alone is not a complete solution.
2. Taxation Differences Between Europe and the U.S.
The U.S. tax system differs substantially from many European systems. Unlike many European jurisdictions, the U.S. operates through overlapping federal, state, and local taxing regimes, often creating multijurisdictional compliance exposure earlier than foreign investors anticipate. A business’s tax exposure may therefore depend not only on just federal law, but also on what state(s) in which it operates, where employees are located, and where services are performed.
Foreign investors must consider whether their U.S. activities create direct U.S. tax exposure for the foreign parent or owner. Depending on the structure and how the business is conducted, foreign persons and companies may become subject to U.S. taxation on income treated as effectively connected with a U.S. trade or business. In some cases, a foreign corporation operating in the U.S. outside a properly structured subsidiary may also face additional tax consequences and more extensive U.S. tax compliance and accounting requirements.
Unlike European VAT systems, the U.S. relies on state-level sales and use tax regimes that vary significantly by jurisdiction. Registration and collection obligations may arise on a state-by-state basis, particularly for e-commerce, software, digital services, and multistate businesses. Following South Dakota v. Wayfair, economic nexus alone may trigger state sales-tax obligations even without a physical presence in the relevant jurisdiction. The current multistate survey confirms that, as of 2026, nearly all sales-tax states impose some form of economic nexus threshold, usually based on a dollar amount of sales, and in some states also a transaction count.
Cross-border founders must also consider the risk of double taxation, as the same income may be taxed both in the U.S. and in the founder’s home jurisdiction absent treaty relief or foreign tax-credit coordination. Treaty protection can be highly valuable, but often depends on residence, entity classification, and the character of the income involved.
3. Banking and Financial Infrastructure
Opening U.S. business bank accounts, establishing payment-processing systems, and satisfying compliance requirements can be substantially more difficult for foreign-owned entities than many investors initially anticipate. Banks may impose additional diligence requirements on foreign owners, particularly where the business lacks an established U.S. operating history or the founders are not physically present in the U.S. open a U.S. bank account.
Opening a U.S. business account will require, at a minimum, a U.S.-formed entity, an Employer Identification Number (EIN), and supporting organizational documents. Some banks may also require evidence of a U.S. business address, a registered agent, proof of operations, or in-person verification for certain owners or signatories. Requirements vary by institution, so founders should not assume that entity formation alone will be sufficient.
Accordingly, operational infrastructure must be evaluated as part of the initial cross-border structuring analysis. Coordinated planning with the proper counsel at the outset of expansion therefore remains critical to reducing avoidable legal, tax, and operational exposure as U.S. operations develop.
