Expanding to the USA
Key Legal, Tax and Compliance Requirements
The decision to expand your business into the United States brings enormous opportunities, but also specific legal and tax risks that differ from the European environment. Choosing the wrong legal form or underestimating registration requirements can lead to fines or a suspension of operations. This article will guide you through the key aspects of expansion into the USA so that it proceeds in line with compliance requirements and without unnecessary risks.
Key takeaways
Legal form of doing business in the USA
US legislation offers several options for foreign entrepreneurs. The choice is not merely an administrative act; it has a direct impact on the tax burden, liability for obligations, and future flexibility.
A Limited Liability Company (LLC) is in practice a common choice for small and mid-sized projects or subsidiaries. This form provides limited liability for owners and significant management flexibility, which is advantageous for early-stage expansion. From a tax perspective, an LLC is typically a so-called pass-through entity, where profits are taxed directly at the member level. This can complicate matters for Czech tax residents when crediting tax paid in the USA.
A C-Corporation (C-Corp) is the traditional form comparable to a Czech joint-stock company, suitable for larger projects and startups seeking capital. Although there is economic double taxation at both the company and shareholder levels, this form is preferred by investors. A C-Corporation is also significantly clearer from the perspective of international tax treaties and a potential stock exchange listing.
An S-Corporation (S-Corp) is a specific tax regime that allows avoidance of double taxation similarly to an LLC. However, it has fundamental limitations, as shareholders may only be US citizens or tax residents. For a Czech company or Czech residents who do not live in the USA, the S-Corp form is generally not available.
In practice, foreign entrepreneurs most often decide between a C-Corp and an LLC. The decision depends on the scope of activities, capital structure, and exit strategy.
Our EU-based attorneys at ARROWS can help assess your specific case and recommend the optimal structure that aligns with the US legal framework as well as your tax position in the Czech Republic.
Registration obligations in the USA
Choosing the form of business is only the first step. Establishing the entity itself requires coordination of several processes from the federal level down to local authorities.
Federal registration and obtaining an EIN (tax identification number) is essential for opening a bank account and hiring employees. Obtaining an EIN is free of charge, but for foreign persons without a US Social Security number (SSN) the process is more administratively demanding and requires sending the form by fax or mail.
Since 2024, the USA has imposed a strict obligation to report beneficial owners (Beneficial Owners) to FinCEN. This obligation applies to most LLCs and C-Corps, including those owned by foreigners. Newly formed companies must file the report within a very short period after incorporation.
Penalties for failing to report beneficial owners are severe. Sanctions of USD 500 for each day of delay may apply up to USD 10,000, and in extreme cases even criminal prosecution.
A company is formed by registration with the Secretary of State in its home state. However, if you do business in other states as well, you must register there as a so-called “Foreign Entity”.
Many cities and counties require a local “Business License” to operate. A missing license is not just a formality; it can lead to the immediate closure of the premises by the authorities.
If you are an individual without a US SSN and need to file a tax return, you will need an ITIN. The process of obtaining it takes several weeks to months and requires passport verification.
Our EU-based attorneys at ARROWS will guide you through the entire process and ensure you also meet the new BOI reporting obligations that many entrepreneurs overlook.
Tax obligations and the risk of double taxation
The US tax system is one of the most complex in the world. An error in the setup can lead to double taxation, which will significantly reduce the profitability of the expansion.
A C-Corp is subject to federal tax at a rate of 21%. With an LLC, the tax liability often passes through to the members, who then must file a personal tax return in the USA.
Individual states have their own tax rates, ranging from 0% (e.g., Texas, Florida) to high rates in California or New York. State tax is usually a tax-deductible expense for federal tax purposes, but there are limits.
There is no VAT in the USA, but rather Sales Tax, which is collected by individual states and counties. The obligation to register and collect this tax arises not only from physical presence, but also from reaching a certain level of economic turnover, which is critical for e-commerce businesses.
If a U.S. C-Corp pays dividends to a Czech parent company, withholding tax applies. The basic rate is 30%, but under the double taxation treaty it can be reduced to 5% or 15%.
The transfer of profit to the Czech Republic must be structured properly to avoid inefficient taxation. The right structure and timely coordination with a tax advisor—both U.S. and Czech—are key to the financial health of the expansion.
Employment law, visas and immigration
Doing business in the USA does not automatically grant the right to live or work in the country. Immigration rules are strict, and violations have serious consequences.
Entry under ESTA tourist authorization or a B-1 visa allows you to attend meetings, but prohibits productive work. Running a company on a day-to-day basis in the USA without the appropriate work visa is illegal and may lead to deportation.
For lawful work, there are specific visas such as the L-1 for managers transferred from the Czech branch or the E-2 for investors. Obtaining a green card through investment (EB-5) requires high capital contributions. Each category has its own specifics and limits.
The U.S. labor market follows the “at-will employment” principle. This means that employment can be terminated at any time without stating a reason and without severance pay, unless otherwise agreed in the contract.
Employee costs are high, even though health insurance is not always mandatory for small businesses. To the gross salary, it is necessary to add approximately 15–30% for payroll taxes and insurance.
Attorneys from ARROWS, a Prague-based law firm, can assist you with coordinating immigration aspects and preparing a visa strategy.
Our specialists will help you
Contract law and intellectual property protection
In the USA, freedom of contract applies to a much greater extent than in the Czech Republic. Contracts are therefore usually longer and more detailed, because what is not written does not apply.
U.S. law does not contain as many protective provisions for the weaker party in B2B relationships. Key clauses include limitations of liability and indemnification, because in the USA each party pays its own legal costs.
Intellectual property (IP) protection is essential for technology companies. While copyrights arise automatically, registration with the USPTO is necessary for effective enforcement of claims in court.
The area of transferring rights from employees and contractors is critical. In the USA, it is essential to have a signed “Work for Hire” agreement; otherwise, the rights to software or design may be owned by the creator, not the paying company.
Attorneys from ARROWS, a Prague-based law firm, can assist you with preparing contracts to U.S. standards and registering trademarks.
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Potential issues |
How ARROWS helps (consultation@arws.cz) |
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Incorrectly chosen legal form – choosing LLC vs. C-Corp has a major impact on taxes; the wrong choice means unnecessary tax burden. |
Assessment of your situation and recommendation of the optimal form. |
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Omission of BOI reporting (FinCEN) – a new obligation with draconian fines that many entrepreneurs are unaware of. |
Ensuring timely reporting of beneficial owners and setting up compliance processes. |
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Sales Tax – lack of knowledge of “economic nexus” rules can lead to huge additional tax assessments in individual states. |
Analysis of the obligation to register for Sales Tax and setting up tax collection. |
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Errors in employment relationships and visas – illegal work on ESTA or B-1 can lead to deportation and an entry ban. |
Visa advice (L-1, E-2), preparation of secondment letters and employment contracts. |
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Unprotected intellectual property – absence of IP Assignment agreements with programmers in the USA. |
Preparation of “Work for Hire” agreements and registration of trademarks with the USPTO. |
Regulatory and specific requirements
Different business sectors in the USA are subject to specific regulations. The finance and investment sector requires registration with the SEC or state regulators.
Products in the healthcare and food sectors are subject to strict approval or notification requirements of the FDA (Food and Drug Administration).
Data protection is addressed at the level of individual states. Although the USA does not have a unified GDPR, states such as California have very strict rules for the protection of consumer data (CCPA/CPRA).
Insurance and liability aspects
The USA has a strong “litigation culture”, so insurance is a necessity. The foundation is general liability insurance and professional liability insurance for service providers. Workers' Compensation (mandatory employee injury insurance) is also important.
Cross-border aspects and permanent establishment
Keep in mind the concept of a permanent establishment. If your Czech company sends people to the USA or has a dependent agent there, it may become obliged to pay corporate income tax in the USA, even if it has not established a subsidiary there.
Practical steps for expansion
The expansion process should follow a logical sequence. The first step is a preparatory phase with a business plan and tax analysis, followed by the incorporation itself and registration with authorities.
Only then comes the operational launch phase, which includes local licenses, insurance, and hiring. Attorneys from ARROWS, a Prague-based law firm, can guide you through the entire process—from strategy and legal documentation to long-term support.
Final summary
Expansion into the USA is a complex process where improvisation does not pay off. Legal and tax mistakes in the USA are expensive, involve fines or litigation, and may even jeopardize the parent company in the Czech Republic.
If you want to avoid problems and ensure compliance, we recommend turning to experts. ARROWS, a Prague-based law firm, provides comprehensive advice with an international law dimension. Contact us at consultation@arws.cz .
Read also:
- Entry to the EU through acquisition: A guide for non-EU buyers
- Avoiding Double VAT in EU Chain Transactions: Place of Supply and Exemptions
- Can I Be Personally Liable as a Director of a Czech Company?
- Who Is Really Liable in the Czech Republic When the Company Gets Fined: The Firm or the CEO?
- AML/CFT Compliance for Online Marketplace Operators Under Czech and EU Law
About the author
Disclaimer:
The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.