Establishing a U.S. Manufacturing Subsidiary (with a Foreign Parent)

✅ Checklist for Establishing a U.S. Manufacturing Subsidiary (with a Foreign Parent)

1. Entity Formation & Structure

Decision	Notes
Entity type	C‑Corp is typically preferred for liability protection, capital raising, and tax treaty benefits.
State selection	Choose based on proximity to suppliers/customers, tax incentives, and labor market. Consider Texas, Ohio, Georgia, Indiana, or South Carolina.
Subsidiary vs. branch	Form a subsidiary to insulate the foreign parent from product liability and U.S. lawsuits.
IP & ownership planning	Decide whether patents, trademarks, or know-how are held by the U.S. entity or retained offshore.

2. Location & Incentives

Item	Action
Site selection	Consider industrial parks, logistics access, energy cost, workforce availability.
State/local incentives	Negotiate grants, tax abatements, job creation credits with state economic development agencies.
Foreign Trade Zone (FTZ)	Explore FTZ designation to reduce customs duties on imported raw materials.

3. Tax & Transfer Pricing

Topic	Notes
Federal tax	U.S. corporations pay 21% federal income tax.
Withholding tax	Dividends, royalties, and interest paid to parent may face 30% withholding (reduced by treaty).
Transfer pricing	Must price raw material imports, intercompany services, IP licenses at arm’s length under IRC §482. Prepare a TP study early.
Depreciation & incentives	CapEx may qualify for bonus depreciation (e.g., for machinery). Explore R&D credit eligibility.

4. Permits, Licenses & Compliance

Area	Requirement
Zoning & building permits	Local zoning must allow for manufacturing use. Construction or retrofit requires city/county permits.
Environmental compliance	Air permits, wastewater discharge, hazardous waste, stormwater, OSHA standards. Coordinate with EPA and state agencies.
Import/export regulations	Customs compliance for inbound materials; ITAR/EAR if exporting regulated goods.
Product standards	Compliance with U.S. safety standards (e.g., UL, FDA, ASTM) if applicable.

5. Supply Chain, Equipment & Logistics

Action	Notes
Procure machinery	Check for tariffs or restrictions on importing equipment from parent’s country.
Establish supplier contracts	Secure U.S. suppliers for inputs if not importing everything. Consider long-term contracts.
Warehouse, inventory & ERP	Choose warehousing strategy and implement ERP systems for production, logistics, and financials.
3PL or in-house logistics	Decide how you'll handle inbound/outbound freight. Negotiate with carriers or third-party logistics providers.

6. Labor & HR

Task	Details
Recruitment	Hire plant manager, HR lead, and engineers. Partner with local staffing firms or tech schools.
Workforce compliance	Register for payroll tax, workers’ compensation, unemployment insurance. Set up OSHA training and I‑9 documentation.
Union environment	Check union presence in the region. Understand NLRA and collective bargaining obligations.
Visas	L-1 or E-2 visas for foreign managers or engineers. Include immigration timing in project planning.

7. Banking & Treasury

Task	Details
Open U.S. bank account	Provide EIN, formation documents, ownership chart. Banks require KYC and beneficial ownership info.
Set up treasury controls	Define internal limits for payments, purchasing, FX hedging, etc.
Cash management	Set policy for intercompany loans or dividend repatriation. Evaluate cash pooling or sweeping.

8. Insurance

Coverage	Purpose
Property insurance	Covers buildings, machinery, inventory.
General & product liability	Protects against bodily injury, property damage, and defective goods.
Workers’ compensation	Legally required in every state.
Business interruption	Covers losses from production halts due to fire, equipment failure, etc.

9. Compliance & Ongoing Filings

Filing	Notes
Form 5472	Mandatory for U.S. subsidiaries ≥25% foreign-owned with intercompany transactions.
State annual reports & franchise tax	Required in most states, even if no income.
Corporate Transparency Act	Check if beneficial ownership filing is required (depends on formation method).
Sales/use tax registration	Required in every state where you sell or warehouse products. Nexus thresholds apply.

🗓 12-Week Timeline for Setting Up a U.S. Manufacturing Company

WEEK 1–2: Legal & Strategic Setup

• ✅ Choose entity type, structure, state

• ✅ File formation documents & obtain EIN

• ✅ Hire U.S. legal & accounting advisers

• ✅ Begin site selection and initial outreach to local economic development authorities

WEEK 2–4: Incentives & Tax Planning

• 💼 Negotiate state/local incentives (e.g., tax breaks, grants, training subsidies)

• 📊 Develop transfer pricing plan and determine optimal IP ownership

• 🧾 Register for state tax IDs (payroll, sales/use, franchise)

• 📝 Identify applicable tax treaties and withholding needs

WEEK 4–6: Permitting & Banking

• 🏦 Open bank account and begin KYC process

• 🏗 Begin site permitting: zoning, environmental review, building retrofits

• 🧯 Apply for EPA/OSHA/state permits as needed

• 📋 Draft operating or shareholder agreement

WEEK 6–8: Supply Chain & Systems

• 🏭 Finalize machinery/equipment procurement plan

• 📦 Lock in supply agreements

• ⚙️ Implement ERP/accounting systems

• 🚚 Contract with logistics/3PL providers

WEEK 8–10: Hiring, HR & Insurance

• 👷 Recruit plant manager, HR lead, production team

• 🧑‍⚖️ Register for payroll systems, workers’ comp, HR compliance

• 🛡 Finalize business and property insurance coverage

• 🛂 Submit visa applications for key foreign personnel (L-1, E-2, etc.)

WEEK 10–12: Go Live

• 🔌 Equipment delivery and installation

• 🔧 Test production line

• ✅ Complete compliance filings (CTA/BOI, 5472, sales tax)

• 📦 First production run and shipment to customers

🧭 Summary: Manufacturing Company Setup Phases

Phase	Focus
Strategic (Weeks 1–2)	Entity, structure, tax architecture
Regulatory (Weeks 2–6)	Incentives, environmental, zoning
Operational (Weeks 6–10)	Suppliers, hiring, systems, insurance
Launch (Weeks 10–12)	Production start, first delivery, full compliance in place

If you are looking for a local company to help you manage registration and assist you from start to finish, reach out to MBIEC today and experience your extended team in place tomorrow.

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